REG - Enwell Energy PLC - Quarterly Operations Update

Enwell EnergyAnnouncement

12/01/2023 07:00

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RNS Number : 4539M  Enwell Energy PLC  12 January 2023

12 January 2023

 

Enwell Energy plc
("Enwell" or the "Company")

 

Quarterly Operations Update

 

Enwell Energy plc (AIM: ENW), the AIM-quoted oil and gas exploration and
production group, provides an update on its operational activities in Ukraine,
where it operates the Mekhediviska-Golotvshinska (MEX-GOL), Svyrydivske (SV)
and Vasyschevskoye (VAS) gas and condensate fields, as well as the
Svystunivsko-Chervonolutskyi (SC) exploration licence.

 

Production - Q4 2022

 

The average daily production of gas, condensate and LPG from the MEX-GOL, SV
and VAS fields over the period from 1 October 2022 to 31 December 2022 was as
follows:-

 

 Field             Gas               Condensate        LPG               Aggregate

                   (MMcf/d)          (bbl/d)           (bbl/d)           boepd
                   Q4 2022  Q4 2021  Q4 2022  Q4 2021  Q4 2022  Q4 2021  Q4 2022  Q4 2021

 MEX-GOL & SV      10.8     15.3     426      588      441      295      2,641    3,501
 VAS               1.6      2.4      14       24       -        -        303      463
 Total             12.4     17.7     440      612      441      295      2,944    3,964

 

The ongoing war in Ukraine has caused disruption to production operations at
the MEX-GOL and SV fields, where certain remedial and maintenance work was
delayed and/or suspended, which meant that production volumes were materially
lower when compared with Q4 2021, with the exception of LPG recoveries, which
improved significantly following the completion of upgrade works to the gas
processing facilities at the MEX-GOL and SV fields in mid-2022. In addition,
the resumption of production from the VAS field in early October 2022 improved
overall production rates during the quarter.

 

 

Production - Full Year 2022

 

The average daily production of gas, condensate and LPG for the 351 days that
the MEX-GOL and SV fields were producing and the 147 days that the VAS field
was producing, over the year ended 31 December 2022 was as follows:-

 

 Field             Gas           Condensate      LPG           Aggregate

                   (MMcf/d)      (bbl/d)         (bbl/d)       boepd
                   2022   2021   2022    2021    2022   2021   2022   2021

 MEX-GOL & SV      11.0   18.9   445     681     318    308    2,604  4,237
 VAS               1.8    2.6    18      26      -      -      352    493
 Total             12.8   21.5   463     707     318    308    2,956  4,730

 

Overall production volumes for the 2022 year decreased by approximately 37.5%
compared with the 2021 year. This was partially due to the Russian invasion of
Ukraine in February 2022, which resulted in the shut-in of the MEX-GOL and SV
fields for the period from 24 February 2022 - 11 March 2022, and the VAS field
for the period from 24 February 2022 - 1 October 2022. In addition, issues
with the MEX-109 and SV-2 wells at the MEX-GOL and SV fields caused by water
ingress into those wells, which commenced in Q4 2021, required those wells to
be shut-in for remedial work.

 

Operations

 

Production operations are continuing at the MEX-GOL and SV fields, and,
currently, the production rate is approximately 2,550 boepd. Some other field
operations have resumed, including workover operations on the SV-2 well and
maintenance of field infrastructure, but other works have been deferred or
suspended until there is an improvement in the operating environment in
Ukraine.

 

In December 2022, the GOL-107 well was spudded. This well has a target depth
of 5,190 metres and is a development well, aiming to achieve production from
the V-20 and V-23 horizons in the Visean formation. Drilling operations are
scheduled to be completed by the end of Q3 2023, and, subject to successful
testing, production hook-up is scheduled during Q4 2023.

 

At the VAS field, after being suspended since February 2022, production
operations resumed at the beginning of October 2022, and, after the clean up
of the production wells, the production rate stabilised at approximately 360
boepd, which is around 90% of the pre-suspension rate.

 

On the SC licence area, the SC-4 well was successfully completed and tested.
This well is the Company's first well on the SC licence area and is primarily
an appraisal well, targeting production from the V-22 horizon in the Visean
formation. The well was spudded in August 2021, and, after a period of
suspension due to the conflict in Ukraine, was drilled to its final depth of
5,585 metres. Three intervals, at drilled depths of 5,530 - 5,533 metres,
5,483 - 5,486 metres and 5,416 - 5,419 metres, within the V-22 Visean
formation, were perforated and underwent initial testing. The latter interval,
which was the primary target for the well, demonstrated strong productivity
and stabilised flows. Accordingly, this interval underwent more extensive
testing, using a variety of choke sizes, and produced at a stabilised flow
rate of approximately 3 MMscf/d of gas and 3 bbl/d of condensate (535 boepd in
aggregate). The two former intervals flowed gas, but not at a sustained
commercial rate. The well has now been suspended for future production. The
well was intended to also explore the shallower V-16 and V-21 Visean horizons,
but, as the primary target of the well in the V-22 formation produced a
stabilised flow, testing of these shallower horizons was not considered
necessary at the present stage of development, and, subject to the successful
resolution of the legal proceedings relating to the SC licence referred to
below, it is intended that the V-22 horizon will be put on production once
surface facilities are completed.

 

The Company continues to be cautious and vigilant in continuing its operations
and is taking all measures available to protect and safeguard its personnel
and business. The safety and wellbeing of its personnel and contractors is
paramount and the Company will continue to take all possible steps to ensure
their safety.

 

Cash Holdings

 

At 31 December 2022, the Company's cash resources were approximately $88.7
million, comprised of $6.9 million equivalent in Ukrainian Hryvnia and the
balance of $81.8 million equivalent in a combination of US Dollars, Pounds
Sterling and Euros.

 

New Natural Resources Legislation in Ukraine

 

As announced on 4 January 2023, new legislation, Law No. 2805-IX, relating to
the natural resources sector has been enacted in Ukraine, which will come into
force on 28 March 2023. This legislation is a substantial package of new
procedures and reforms designed to improve the regulatory process relating to
the exploration and development of natural resources in Ukraine. However, the
legislation includes provisions that if the ultimate beneficial owner of a
mineral or hydrocarbon licence becomes the subject of sanctions in Ukraine,
then the Ukrainian State Authorities may suspend or revoke that licence. In
light of the imposition of the restrictive measures (sanctions) by the
Ukrainian Authorities against Vadym Novynskyi, who holds a major indirect
shareholding interest in the Company, as announced on 9 December 2022, the
Company is investigating whether the Company's hydrocarbon extraction licences
may be adversely affected by these provisions in the new law.

 

SC Licence Order for Suspension

 

As announced on 4 November 2022, there has been a further legal challenge
relating to the SC exploration licence, which is held by LLC Arkona Gas-Energy
("Arkona"). Since the Company completed the acquisition of Arkona in March
2020, there have been a number of legal challenges relating to the SC licence.
As announced on 3 July 2020, PJSC Ukrnafta ("Ukrnafta"), as claimant, brought
legal proceedings against Arkona, as defendant, in which Ukrnafta made claims
asserting that irregular procedures were followed in the grant of the SC
licence to Arkona in May 2017. Ukrnafta also brought these proceedings against
the State Service of Geology and Subsoil of Ukraine ("SGS"). Both Arkona and
SGS disputed these claims. In these proceedings, the First Instance Court in
Ukraine made a ruling in favour of Ukrnafta, determining that the grant of the
SC licence was irregular, and accordingly, the SC licence would be invalid.
Arkona filed an appeal of this decision in the Appellate Administrative Court
in Kyiv, and on 29 September 2020, the Appellate Administrative Court ruled in
favour of Arkona, overturning the earlier decision of the First Instance
Court. Ukrnafta filed a further appeal in the Supreme Court in Kyiv, and in
February 2021, the Supreme Court ruled that the arguments raised by Ukrnafta
in the appeal were not substantiated, and that the proceedings against Arkona
should be dismissed. The decision of the Supreme Court represented the final
appeal procedure in respect of these legal proceedings, and accordingly, these
proceedings against Arkona were exhausted.

 

Prior to the Company's acquisition of Arkona, Ukrnafta had previously issued
legal proceedings in 2018, raising substantially the same claims, which
proceeded through the First Instance Court and Appellate Administrative Court,
before a final appeal was determined by the Supreme Court in October 2019, in
which Ukrnafta's claims were denied. In April 2021, an entity named JV
Boryslav Oil Company ("Boryslav"), which is 25.0999% owned by Ukrnafta, issued
a further legal claim, also claiming that irregular procedures were followed
in the grant of the SC licence, which claim was denied by the First Instance
Court in July 2021 and by the Appellate Administrative Court in October 2021.
There was no further appeal in this case and so the decision of the Appellate
Administrative Court in these legal proceedings is final. In September 2021,
Boryslav issued a further legal claim, again claiming that irregular
procedures were followed in the grant of the SC licence, against the SGS, the
State Commission of Ukraine for Mineral Resources ("SCP") and Arkona, as
defendants, with Ukrnafta named as a third party. In this claim, the First
Instance Court made a ruling in January 2022 in favour of Boryslav. This
ruling was appealed to the Appellate Administrative Court, and on 2 November
2022, the Appellate Administrative Court made a ruling in favour of Boryslav,
to uphold the decision of the First Instance Court, with the effect that the
SC licence is now ruled invalid. The effect of this latest ruling is that the
Company cannot conduct any field activities on the SC licence area. The
Company has now filed an appeal of the decision of the Appellate
Administrative Court to the Supreme Court.

 

VAS Licence Order for Suspension

 

The Company does not have any further information to report in relation to the
Order for suspension relating to the production licence for the VAS field
since the announcements made on 12 March 2019 and 19 March 2019 respectively,
other than to report that the legal proceedings issued in the Ukrainian Courts
to challenge the validity of the Order are ongoing, and the Company remains
confident that it will ultimately be successful in such legal proceedings.

 

Sergii Glazunov, Chief Executive Officer, said: "Although the situation in
Ukraine continues to be extremely challenging, we are pleased that, with the
resumption of production operations at the VAS field, we now have operational
activity at both of our production assets. The adverse Court ruling regarding
the SC licence is very disappointing but we are progressing appeal proceedings
to challenge that ruling."

 

This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014, which forms part of United Kingdom domestic law by
virtue of the European Union (Withdrawal) Act 2018, as amended.

 

For further information, please contact:

 

 Enwell Energy plc                         Tel: 020 3427 3550
 Chris Hopkinson, Chairman
 Sergii Glazunov, Chief Executive Officer
 Bruce Burrows, Finance Director

 Strand Hanson Limited                     Tel: 020 7409 3494
 Rory Murphy / Matthew Chandler

 Arden Partners plc                        Tel: 020 7614 5900
 Ruari McGirr (Corporate Finance)
 Simon Johnson (Corporate Broking)

 Citigate Dewe Rogerson                    Tel: 020 7638 9571
 Ellen Wilton

 

Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics, Member of the
European Association of Geophysical Engineers, Member of the Executive
Coordinating Committee of the Continental European Energy Council, and a
Non-Executive Director of the Company, has reviewed and approved the technical
information contained within this announcement in his capacity as a qualified
person, as required under the AIM Rules for Companies.

 

 Definitions

 bbl/d   barrels per day
 boepd   barrels of oil equivalent per day
 cf      cubic feet measured at 20 degrees Celsius and one atmosphere
 LPG     liquefied petroleum gas
 MMcf/d  million cubic feet per day
 %       per cent.
 $       US Dollars

 

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