Kulczyk Oil Ventures Inc.
WARSAW : KOV

Kulczyk Oil Ventures Inc.

November 18, 2010 13:27 ET

KOV Doubles Reserves

CALGARY, ALBERTA--(Marketwire - Nov. 18, 2010) - The Ukraine Reserves of Kulczyk Oil Ventures Inc. ("Kulczyk Oil", "KOV" or the "Company") (WARSAW:KOV) have increased substantially based upon a Reserves update prepared by independent engineering firm RPS Energy. The update evaluated the Reserves associated with the 70% interest of KOV in KUB-Gas Limited ("KUB-Gas").

HIGHLIGHTS

  • Proven Reserves (1P) increased by 221% from 1.8 million barrels of oil equivalent ("MMBOE") to 5.6 MMBOE;
  • Proven + Probable Reserves (2P) increased by 141% from 3.0 MMBOE to 7.3 MMBOE;
  • Proven + Probable + Possible Reserves (3P) increased by 100% from 4.4 MMBOE to 8.9 MMBOE; and
  • Future growth in Reserves will come from the application of production procedures such as dual completions and compression of gas, from accessing additional gas Reserves by stimulating gas-bearing horizons and from newly drilled wells.

Reserve Report

RPS Energy, a division of RPS Group Plc., an independent engineering consulting company specializing in the assessment of oil and gas assets was asked by the Company to review and update the Reserves evaluations for the Olgovskoye, Makevskoye, Vurgunskoye and Krutogorovskoye fields in Ukraine (the "Fields") which were the subject of an earlier report prepared for the Company by RPS Energy in September 2009 based on information as of April 2009. The update, driven primarily by another 18 months of production data and a revised drilling and work-over program has also considered new subsurface modeling of the gas reservoirs resulting from a comprehensive review of all geological and geophysical data by the KOV technical team.

The RPS Energy update of the Company's Reserves, effective as at the 1st of October 2010 and before royalty and tax calculations, is summarized in the table below:

Reserves Category September 2009 October 2010 % increase
BCFE MMBOE BCFE MMBOE
Total Proved (1P) 10.6 1.8 33.9 5.6 221
Total Proved + Probable (2P) 18.2 3.0 43.9 7.3 141
Total Proved+ Probable + Possible (3P) 26.6 4.4 53.4 8.9 100

Natural gas, quantified in billions of cubic feet ("BCF") represents between 95% and 96% of Reserves in each category with the balance of Reserves composed of condensate.

Remaining Upside

The RPS update of Reserves does not take in to account the application of any new field operating practices commonly used elsewhere in the world to improve overall well productivity, such as dual completions and compression of gas, which the Company intends to apply to the Fields. In addition the RPS update specifically acknowledges that there are additional gas resources located in conventional but relatively tight reservoirs which should produce commercially after fracturing, but which will not be categorized as Reserves until the Company demonstrates that this will work on the Fields. Lastly, no additional Reserves have been attributed to the area surrounding the M-19 well, drilled and cased in October, which the Company intends to test in December.

Since the acquisition by Kulczyk Oil of an effective 70% interest in KUB-Gas in June, production has been increased, the O-7 well has been successfully completed, the M-19 well has been drilled and awaits testing and the installation of small wellhead compressors has been shown to increase productivity.

Jakub Korczak, Vice President Investor Relations and Managing Director CEE, indicated that "The Company is very pleased with the results of work done on the KUB-Gas assets over the past few months. The technical experts of KOV and KUB-Gas have done a good job of modeling the subsurface based on available geological and geophysical information which puts us in a favourable position for additional growth in our Reserves in the future."

The work program for 2011, which will be finalizing by KUB-Gas with the assistance of KOV personnel over the next few months, will principally target the comprehensive and efficient exploitation of the Olgovskoye and Makeyevskoye Fields. This will involve the drilling of new wells, the completion of new zones in existing wells, dual completions, stimulation treatments using modern and technically advanced methods commonly used elsewhere in the world and the effective implementation of a compression strategy.

Defined Terms

"Reserves" are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial and remaining (as of the evaluation date) based on the development project(s) applied. Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by development and production status.

"Proved Reserves" are those quantities of petroleum, which by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods and government regulations.

"Probable Reserves" are those additional Reserves which analysis of geosciences and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves.

"Possible Reserves" are those additional Reserves which analysis of geosciences and engineering date indicate are less likely to be recoverable than Probable Reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible Reserves."

"BCFE" means billions of cubic feet equivalent which converts condensate into BCFE based on 1 barrels of condensate being equivalent to 6 million cubic feet ("Mcf") of natural gas.

Assets of Kulczyk Oil

Kulczyk Oil is an international upstream oil and gas exploration company with a diversified portfolio of projects in Brunei, Syria and Ukraine and with a risk profile ranging from exploration in Brunei and Syria to production and development in Ukraine.

In Brunei, KOV owns working interests in two production sharing agreements which gives the Company the right to explore for and produce oil and natural gas from Block L and Block M. KOV owns a 40% working interest in Block L, a 2,220 square kilometre (550,000 acre) area covering onshore and offshore areas in northern Brunei and a 36% working interest in Block M, a 3,011 square kilometre (744,000 acre) area onshore in southern Brunei.

In Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The gas producing assets of KUB-Gas consist of 100% interests in four licenses near to the City of Lugansk in the northeast part of Ukraine.

In Syria, KOV holds a participating interest of 100% in the Syria Block 9 production sharing contract which provides the right to explore for and, upon fulfillment of certain conditions, to produce oil and gas from Block 9, a 10,032 square kilometre (2.48 million acre) area in northwest Syria. The Company has agreements to assign an aggregate of 55% in ownership interests to third parties which are subject to the approval of Syrian authorities, and which, if approved, would leave the Company with a remaining effective interest of 45% in Syria Block 9.

The main shareholder of the Company, Kulczyk Investments S.A., increased its holdings in the Company through participation in the initial public offering of the Company on the Warsaw Stock Exchange in May 2010 and the conversion of a debenture and owns almost 50% of the issued common shares. Kulczyk Investments S.A. is an international investment house founded by Polish businessman Dr. Jan Kulczyk.

For further information, please refer to the Kulczyk Oil website (www.kulczykoilventures.com).

Translation: This news release has been translated into Polish from the English original.

Forward-looking Statements This release contains forward-looking statements made as of the date of this announcement with respect to future activities of KUB-Gas and related to its four license areas (Vergunskoye, Krutogoroskoye, Makeyevskoye and Olgovskoye) in Ukraine that are not historical facts. Although the Company believes that its expectations reflected in the forward-looking statements are reasonable as of the date hereof, any potential results suggested by such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors that could impair or prevent the Company from completing the expected activities on its projects include that the Company's projects experience technical and mechanical problems, there are changes in product prices, failure to obtain regulatory approvals, the state of the national or international monetary, oil and gas, financial , political and economic markets in the jurisdictions where the Company operates and other risks not anticipated by the Company or disclosed in the Company's published material. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties and actual results may vary materially from those expressed in the forward-looking statement. The Company undertakes no obligation to revise or update any forward-looking statements in this announcement to reflect events or circumstances after the date of this announcement, unless required by law.

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