ShaMaran Petroleum Announces Results

ShaMaran Petroleum has announced its financial and operating results for the three and nine months ended September 30, 2017. (Unless otherwise stated all currency amounts indicated as “$” in this news release are expressed in thousands of United States dollars).

HIGHLIGHTS AND DEVELOPMENTS

Operations

  • Oil production on the Atrush Block commenced in July 2017. Atrush is currently producing at approximately 26 thousand barrels of oil per day (“bopd”). In order to address certain production constraints the facilities were shut down in the beginning of October. These constraints have now successfully been resolved.
  • One of the four production wells, Atrush 4, (“AT-4”) is currently shut in. The well was back-producing drilling fluid lost during drilling operations. In order to not upset the production system it was decided to clean up the well via temporary facilities upon the receipt of a flare permit from the Kurdistan Regional Government (“KRG”). This operation is now planned for Q4 2017.
  • In October and November 2017 the Company received payments totalling $2.5 million representing its entitlement share of the $9.7 million in total payments received by the Atrush Non-Government Contractors from the KRG for July and August oil sales from Atrush and reimbursement instalments of the Atrush Exploration Costs receivable. 703 thousand barrels of oil were exported from Atrush for the months of July and August with an average netback price1 of $35.3 per barrel of oil. Total oil produced and exported from Atrush over the third quarter was 1.3 million barrels resulting in an average of 14.6 thousand barrels per day. The average netback price over the quarter was $36.86 per barrel and the average lifting cost was $8.54 per barrel.
  • The Chiya Khere-7 (“CK-7”), which was spudded on September 17, 2017 reached a final depth of 1,861 metres in early November 2017. The reservoir section was encountered approximately 114 metres shallower than prognosis. The well was drilled on time and under budget. Testing and completion of the well will be performed in 2018 to coincide with installation of flow lines between the Production Facility and the Chamanke E location were the well is located. The main objectives of the well are to appraise the commercial potential of the Mus formation, to help reduce the uncertainty in the location of the medium to heavy oil transition zone and to serve as a further producing well.
  • In September 2017 an agreement was concluded between the Atrush Non-Government Contractors and the KRG for the sale of Atrush oil whereby the KRG will buy oil exported from the Atrush field by pipeline at the Atrush block boundary based upon the Dated Brent oil price minus approximately $16 for quality discount and all local and international transportation costs. This discount is based on the same principles as other oil sales agreements in the Kurdistan Region of Iraq.
  • The Final Completion Certificate for the Atrush Feeder Pipeline (“FCC”) was issued on October 31, 2017 which completes the obligation of the Non-Government Contractors to fund the KRG’s share of development costs and triggers the commencement of repayment of both the Atrush Feeder Pipeline Cost Loan and the Atrush Development Cost Loan. The first loan repayment instalments are due later in November 2017.
  • Following the independence referendum held in Kurdistan on September 25, 2017, operations in the Atrush field in Kurdistan are continuing in a normal, safe and secure manner. Exports from Atrush are continuing via the Kurdistan Export Pipeline system and drilling operations on the CK-7 well are progressing as planned. Nevertheless, events since the referendum suggest an increase in the potential for political instability within the region.

1 This includes a discount to Dated Brent for oil quality and all local and international transportation costs.

Corporate

  • On January 30, 2017 the Company completed the issue of 360 million common shares of ShaMaran on a private placement basis (the “Private Placement”) at a price per share of CAD 0.10 (equal to SEK 0.67) which resulted in gross proceeds to the Company of $27.3 million ($26.4 million net of transaction related costs). Zebra Holdings and Investments SARL, Lorito Holdings SARL and Lundin Petroleum BV, the Company’s major shareholders, subscribed for 43,463,618 shares, 16,984,621 shares and 17,800,000 shares, respectively, in the Private Placement.
  • In February 2017 the Company reported estimated reserves and contingent resources for the Atrush block as of December 31, 2016. Reserves and resource estimates have remained unchanged from those reported for the prior year. Total discovered oil in place in the Atrush Block is a low estimate of 1.5 billion barrels, a best estimate of 2.1 billion barrels and a high estimate of 2.8 billion barrels, with Total Field Proven plus Probable (“2P”) Reserves on a property gross basis estimated at 85.1 MMbbl and Total Field Unrisked Best Estimate Contingent Resources (“2C”) on a property gross basis estimated at 304 million barrels oil equivalent (MMboe). 2 3

2 “MMbbl” means million barrels and “MMboe” means million barrels of oil equivalents. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 million cubic feet (“Mcf”) per one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

3 This estimate of remaining recoverable resources (unrisked) includes contingent resources that have not been adjusted for risk based on the chance of development. It is not an estimate of volumes that may be recovered.

OUTLOOK

Operations

In the fourth quarter of 2017 it is planned to produce the AT-4 well until clean via temporary facilities and bring Atrush production up to the facilities’ design capacity of 30,000 bopd.
Plans for Atrush for 2018 include:
continue with program to identify bottlenecks in order to maximise output from the Production Facility;
testing and completion of the CK-7 well;
install the CK-7 flow line and bring CK-7 into production;
drilling, testing and completion of Chiya Khere (“CK-10”), a sixth development well;
drilling and completion of Chiya Khere (“CK-9”), a dedicated water disposal well; and
conducting extended testing of the CK-6 well which is located on the eastern side of the Atrush Block and which is outside the 2P reserve area of Atrush. This would involve the installation of temporary production facilities near the Chamanke–C well pad and the delivery by truck of oil to the main Phase 1 Production Facilities.
Following the results of the CK-7 and CK-10 wells, the extended well testing in CK-6 and sustained production from the Phase 1 Production Facilities the Company expects to be in a position to further assess the significant undeveloped Atrush resource base.
The political situation in the Kurdistan region will be monitored continuously and the market will be appraised of any material impact on operational activity.
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