Fountain Oil Inc., Houston, continues to line up acreage with significant redevelopment potential in eastern Europe.
The campaign is part of a strategy to develop a worldwide portfolio of oil and gas properties.
In the latest action, Fountain agreed to:
- Form a joint venture (JV) with the government of Ukraine to expand operations in selected oil fields in the Pryluki petroleum administration region. Pryluki is in the north central part of Ukraine.
- Acquire Gastron International Ltd. and with it a 31% interest in redevelopment of Maykop field in the Republic of Adygea. Adygea is in southern Russia on the northeast shore of the Black Sea.
Fountain as a first step in the acquisition loaned Gastron $2.45 million to finish outfitting two drilling rigs. The rigs, to be equipped workovers, are being assembled and commissioned in the U.S.
Fountain has prepared two infill drillsites at Maykop, where drilling is to begin in the fourth quarter.
Fountain earlier said it was negotiating formation of a JV with Albanian state oil company Albpetrol that could touch off a multiyear redevelopment program using horizontal drilling (OGJ, May 8, p. 82). The project would be in Gorisht-Kocul field, in western Albania near the Adriatic port of Vlora.
Also in May, Fountain said it had concluded an exclusive agreement with the Lviv regional council covering plans to form a JV with Ukraine's national oil company to develop four oil fields in the western part of the republic.
Pryluki JV
Fountain for its part in the Pryluki region redevelopment activity, subject to the JV achieving certain milestones, is to pay a total of $5.7 million. The sum is to be accounted for with a $450,000 cash payment and issuance of as many as 750,000 shares of Fountain common stock valued at $7/share.
Fountain estimates its share of the Pryluki JV will allow it 36% interest in the Lelyaki project.
Lelyaki field at last report had 40 of 180 wells producing about 1,000 b/d of oil. An independent estimate shows Lelyaki has produced about 380 million bbl of 880 million bbl of oil originally in place.
Fountain in the first phase of the project expects to recover another 22 million bbl of oil by using western equipment to apply western technology. Of that volume, Fountain would receive about 7.9 million bbl, expected to generate undiscounted net income amounting to $65 million.
Oistein Nyberg, Fountain president and chief executive officer, said the company expects to increase cumulative recovery at Lelyaki to more than half the original oil in place.
"Fountain's initial outlay is low in relation to the project's potential proven reserves," Nyberg said. "Not only is there substantial upside potential in Lelyaki field, but Fountain also will have the opportunity to participate in developing other major fields in the region."
After completing the workover of the first Lelyaki well, Fountain plans to reassess field redevelopment plans to increase daily production and ultimate recovery.
Pryluki partners may apply for licenses to exploit other fields in the region. The other seven Pryluki fields are in various stages of development, with limited technical and production data available.
Maykop project
Fountain's cost of acquiring Gastron also depends on the Maykop project reaching certain milestones. The company's maximum payment would consist of $1 million cash and 1 million shares of Fountain common stock.
In addition, Fountain through Gastron would contribute to financing needed to fund redevelopment.
Maykop production amounts to about 2 MMcfd of gas equivalent. Fountain expects early production as a result of the infill drilling program.
An independent engineering report estimated Maykop's recoverable reserves at a minimum of 495 bcf of gas and 4.3 million bbl of condensate. With a $2/Mcf gas price, less expected operating costs, the future undiscounted net income attributable to Fountain's 31% interest in the project is estimated at $141 million.
The field is expected to produce for another 20 years.
Maykop project partners include the local Adygean government and Gazprom's gas distribution company, Mostransgas (MTG).
Fountain expects gas from the field to be sold internationally by MTG. Partners are negotiating a contract to that effect.
Nyberg said partners might be able to add to Maykop's estimated 495 bcf of recoverable reserves by tracking productive strata into a neighboring 5,000 acre area on trend with the field.
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