Kulczyk Oil Ventures Inc.: Ukraine-Dual Completions Successful

Kulczyk Oil Ventures Inc. has been successful in the dual completion of two wells in Ukraine during the fourth quarter of 2012.  The wells,  Olgovskoye-18 (“O-18”) and Makeevskoye-21 (“M-21”), are both operated by KUB-Gas LLC (“KUB-Gas”), a partially-owned subsidiary in which KOV has a 70% effective ownership interest.  To the knowledge of KOV these wells are the first to be successfully dual completed in the Ukraine.

HIGHLIGHTS

• The KUB-Gas owned snubbing unit was used to prepare the O-18 well for dual completion and perforate the B3 zone;
• The B3 zone initially tested gas at 0.700 MMcf/d before declining to a relatively low stabilized rate of 0.136 MMcf/d at a flowing pressure of 550 psi ;
• The Company will evaluate the pressure information to determine which additional operations (stimulation or compression) can be undertaken in the first quarter 2013 to improve flow;
• The R22 zone in the O-18 well (the original producing zone) is currently producing gas at an average rate of 1.4 MMcf/d;
• The snubbing unit was also used to dually complete the M-21 well in the R21tb zone.The R21tb was perforated and is expected to flow gas at commercial rates after a fracture stimulation currently schedule for the first quarter of 2013;
• Production from two zones in both the O-18 and M-21 wells is expected to commence in the first quarter of 2013.

Olgovskoye-18

The O-18 well reached its original total depth (“TD”) of 2,300 metres in early November 2011 and, following analysis of data gathered during drilling, was deepened to 2,650 metres and cased to the new TD as a potential gas producer. Interpretation of wireline logs indicated up to 38.5 metres of gas pay in 7 zones and of these one, the R22 zone, a 4 metre thick Bashkirian sandstone reservoir at a depth of 2,035 metres, was perforated and tested gas at a rate of approximately 1.2 million cubic feet per day (“MMcf/d”) through a 5 mm choke in mid-December 2011. The R22 zone was tied-in for commercial production in March 2012.

By utilizing the KUB-Gas owned snubbing unit, the B3 zone, a 13 metre thick Bashkirian sandstone reservoir at a depth of 2,108 metres was perforated without the need to suppress the gas flow from the R22 zone.  The B3 zone flowed gas at 0.700 MMcf/d but declined to a stabilized rate of 0.136 MMcf/d through a 3 mm choke after a two hour flow test and was then shut-in for pressure buildup.  Analysis of the pressure data will assist in a determination of whether there is damage to the formation or whether a frac is required.  In the meantime, wellsite compression is also being considered.

Makeevskoye-21

The M-21 well reached its TD of 2,210 metres in March 2012.  It encountered 6 metres of gas pay in a Moscovian sandstone formation called the R8 at a depth of 1,450 metres and a second potential gas zone (the R21tb zone) in rocks of Bashkirian age at a depth of 2,115 metres.  This deeper zone, which had not previously been tested in the area, appeared to have approximately 10 metres of potential gas pay based upon interpretation of wireline logs.  The R8 zone was tied in for commercial production in August 2012 at an initial rate of 1.7 MMcf/d.

The snubbing unit was used to perforate the well in the R21tb zone so that the well is dually completed in both the R8 and R21tb zone.  The R21tb zone, as expected after interpretation of wireline logs and information gathered during the drilling operation, is relatively tight and a frac, expected to occur in the first quarter of 2013, is needed before commercial gas production will be possible from this lower zone.  

It is expected that production from two horizons in each of the O-18 and M-21 wells will commence in the first quarter of 2013. The Company is confident that dual completions will be a cost-effective way to improve overall production from the Ukraine assets.  The dual completion allows for natural gas production from the two zones at the same time.   A dual completion occurs when a wellbore is equipped with tubulars and equipment to enable production from two segregated zones.  A snubbing unit is specialized service rig that allows for the work over of wells under pressure without any need to kill an existing producing zone.  Stopping the flow from an existing producing zone, especially one that is partially depleted through production, can lead to damage to the producing zone leading to a permanent impairment of its gas producing capability.  The snubbing unit was built for KUB-Gas in Canada and imported in to the Ukraine in January 2012.  It can be moved in a few truck loads and can be rigged up and ready for operations more quickly than a conventional service rig.

Successful implementation of a program of dual completions will enable KUB-Gas to increase production from existing producing wells.  More than 10 additional  legacy wells have been identified as potential dual completion candidates and it is anticipated that most of the new wells drilled will be dual completed.

Tim Elliott, President and Chief Executive Officer of KOV stated that:

“The successful use of our snubbing unit to conduct our first dual completions is a significant milestone in our operations and to our knowledge it is a first in Ukraine. While it took some time to train our staff and get the appropriate regulatory approvals, it is great to be able to introduce new technology into the country and get such positive results, and I take this opportunity to thank the KOV/KUB-Gas team for the dedication and hard work and congratulate them on this success. The snubbing unit is a great tool that will allow us to continue to increase production from both existing and future wells.”