OAO NOVATEK has announced that independent petroleum engineers, DeGolyer and MacNaughton (D&M), have completed their comprehensive reserve appraisals of the Company’s oil and gas reserves as of 31 December 2008. The Company added approximately 504 million barrels of oil equivalent (boe) of proved reserves under SEC(1) standards, inclusive of 2008 production, and produced approximately 219 million boe(2) during the year.
Estimated total proved reserves (according to SEC standards) as of 31 December 2008 increased to 4,963 million boe from 4,678 million boe as of year-end 2007. Total proved reserves of natural gas increased from 653 billion cubic meters (bcm) in 2007 to 690 bcm in 2008, an increase of 67 bcm, inclusive of 2008 production. The growth in proved reserves was mainly attributable to the drilling of new horizontal wells at the Yurkharovskoye and Sterkhovoye fields combined with discoveries of the new deposits at the Yurkharovskoye and Khancheyskoye fields.
In 2008, on a barrel of oil equivalent basis, NOVATEK replaced 230 percent of its production volumes from the appraised fields under the SEC standards, and at year-end 2008, the Company’s reserve to production ratio (or R/P ratio) remained at 23 years. The Company’s reserve replacement rate for natural gas was 220 percent while maintaining an R/P ratio of approximately 23 years.
Under the Petroleum Resources Management System (PRMS(3)) reserve reporting methodology, the Company’s proved reserves increased by 474 million boe, inclusive of 2008 production, and totaled 5,354 million boe while proved plus probable reserves totaled 7,498 million boe as of 31 December 2008. The Company’s 2008 total net proved plus probable reserves declined slightly, as compared to 2007, due to a decrease in probable natural gas reserves.
(1) The Company’s 2008 proved reserves are based on reserve appraisal reports for the East- Tarkosalinskoye, Khancheyskoye, North Khancheyskoye, Yurkharovskoye, and Termokarstovoye fields and the Olimpiysky license area. The reserve appraisals were conducted on a U.S. Securities and Exchange (“SEC”) basis provided that due to a lack of clear SEC guidance, D&M has relied on our representations that we intend to (i) extend the term of our licenses to the end of the economic lives of the fields and (ii) proceed accordingly with the development and operation of the fields, in order to include certain volumes of reserves estimated to be producible beyond the primary terms of the licenses. Reserve information in this press release includes reserves recoverable up to as well as beyond the current license expiration date for the Khancheyskoye field. The reserve appraisals under the SEC reserve standards do not include estimates for probable and possible reserves.
The SEC issued Release No. 33-8995 on the 31 December 2008 detailing sweeping changes to the disclosure requirements for company and reserve information. The new rules represent the first significant revisions in oil and gas disclosures requirements in more than 25 years, and are scheduled to be applied for fiscal years ended 31 December 2009. The new oil and gas reserve disclosure rules are not permitted for early adoption.
(2) Marketableproduction only for appraised fields, total marketable production including fields not appraised by D&M totaled approximately 220 million boe.
(3) The reserve appraisals were conducted under the PRMS reserve reporting standard which was approved in March 2007 by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologist, and the Society of Petroleum Evaluation Engineers. The Company’s 2008 proved reserves are based on reserve appraisal reports for the East Tarkosalinskoye, Khancheyskoye, North Khancheyskoye, Yurkharovskoye, West Yurkharovskoye , Termokarstovoye fields and the Olimpiysky and West Urengoisky license areas.