Under the terms of the exploration license the Makeevskoye License was not allowed to produce more than 10% of hydrocarbon volumes in place. Under the terms of the new license, the aggregate production from the Makeevskoye field is no longer limited. The Makeevskoye License is operated by KUB-Gas LLC ("KUB-Gas"), a partially-owned subsidiary in which KOV has a 70% effective ownership interest.
Tim Elliott, President and Chief Executive Officer, stated that:
"The conversion of the Makeevskoye license into a 20-year production license is a significant milestone. With production no longer capped we expect to continue production from the M-19 well at the recent high rates which have seen KOV net production surpass 15 MMcf/d for the first time. The conversion of the Makeevskoye license and the recent conversion of the Olgovskoye license will allow for the full development of the fields within these license areas."
The Makeevskoye-19 ("M-19") exploration well, the first KUB-Gas well to use modern logging tools, was drilled in the second half of 2010 to a total depth ("TD") of 2,060 metres and commenced production in July 2011 at an initial rate in excess of 5.5 million cubic feet per day ("MMcf/d"). The M-19 has averaged approximately 7.5 MMcf/d (5.2 MMcf/d net to KOV) with minimal pressure drawdown. A 3D seismic program covering approximately 180 km2 over the Olgovskoye and Makeevskoye license areas finished field operations in June 2011 and processing and interpretation of the acquired data have defined a number of potential locations for further development on both licenses. Most notably, the new seismic data illustrated a potential areal extent of approximately 6 km2 for the new gas zone discovered by the M-19 well and defined two new locations. The first location, at Makeevskoye-21 ("M-21"), an 830 metre step out from M-19, has been drilled and cased to a total depth of 2,210 metres. Wireline logging of the open hole prior to casing indicated two target zones with up to 16 metres of potential gas pay. The primary target in the Muscovian, which correlates to the producing zone in the M-19 well, appears to have 6 metres of gas pay while a second potential gas zone in the Bashkirian, which appears to have up to 10 metres of potential gas pay, has not previously been tested in the area. Production testing of the M-21 well is expected to commence in the second quarter of 2012. A second location, at Makeevskoye-16 ("M-16"), to further develop gas production from a separate prospect on the Makeevskoye License, is expect to commence drilling in late June.
Current gross production from the four KUB-Gas producing licenses is approximately 21.5 MMcf/d (15 MMcf/d net to KOV). Of the gross amount approximately 7.5 MMcf/d or 35% is produced from Makeevskoye and 11.6 MMcf/d or 62% is produced from Olgovskoye.
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