Caspian Energy earns $634,396 in Q3 2008

2008-11-06 11:44 ET - News Release

Mr. William Ramsay reports

CASPIAN ENERGY INC. ANNOUNCES THIRD QUARTER 2008 FINANCIAL RESULTS

Caspian Energy Inc. has released its financial results for the three and nine months ending Sept. 30, 2008.

Financial highlights:

• Oil revenues before transportation costs for the three months ending Sept. 30, 2008, were $2,231,533 (third quarter 2007 -- $2,074,923).

• For the three months ending Sept. 30, 2008, Caspian's net income (loss) and comprehensive income (loss) was $634,396 (third quarter 2007 -- $(2,295,252)).

• The company's operations used cash of $194,528 for the three-month period (third quarter 2007 -- provided cash of $65,943).

• Working capital position of $5.7-million at the close of the quarter.

The company's interim unaudited financial statements for the period and related management's discussion and analysis have been filed with Canadian securities regulatory authorities and are available for viewing at SEDAR.

Operational highlights:

• The increase in average price per barrel from $36.53 in the same period last year to $85.02 was due to the impact of international oil markets. The company sold an average 285 barrels of oil per day during the three-month period (third quarter 2007 -- 617 bopd).

• The East Zhagabulak field was shut-in on Aug. 31, 2008, upon expiration of the term of the gas flaring permit. The field was subsequently brought back into production on Oct. 24, 2008, following the approval by the gas working committee at the Ministry of Energy of the permit to enable continuation of flaring by the company until Dec. 31, 2009.

• Following resumption of production on East Zhagabulak, 24-hour tests were completed on both EZ 302 and EZ 213 with flow rates of 560 bopd and 779 thousand cubic feet per day and 196 bopd and 274 thousand cubic feet per day respectively.

Outlook

The Company has completed the official state reserves report for East Zhagabulak, a key element in the plan of development approval process, and this was approved by the government on Oct. 16, 2008.

The preparation of the technology scheme, which outlines the detailed plan of development of the field, is now under way with completion expected by the end of this month. Consequently, the company anticipates a development contract for the field to be issued by the end of 2008.

Commenting on the results, William Ramsay, chairman and chief executive officer of Caspian Energy, said:

"Strong oil prices for most of the quarter continue to buoy sales revenue and consequently our working capital position is sufficient to meet our current obligations. Having returned the East Zhagabulak field to production, we hope to secure the development contract for the field before the year-end."

Business prospects and outlook

The company has been successful in establishing itself as an operating entity in the ROK and expects to continue with future growth through continued work there.

Prior to the end of the fourth quarter 2005, EZ 301 was drilled to a total depth of 4,846 metres and logged. The well was completed with the drilling rig before the rig was moved to the EZ 302 location. EZ 301 was matrix acidized and the two potentially productive hydrocarbon-bearing zones were flow-tested. The lower zone (KT-2) was tested at 2,532 bopd. The upper zone (KT-1) had difficulty maintaining an independent flow, so it was commingled with the lower zone and the well was tied in to the Zhagabulak production facility. Subsequently, productions logs were ran and it was determined that the KT-1 was producing 100 bopd. Well 301 was undergoing a government mandated pressure survey in November, 2006, when a production logging tool and cable were lost in the hole. During the second quarter, the tool and wire were recovered and the well has resumed production. On Nov. 3, 2008, a 24-hour test was conducted on EZ 301, with the following results: 560 bo (barrels of oil), 17 bw (barrels of water), 779 thousand cubic feet of gas per day, FTP (flowing tubing pressure) 338, SICP (shut-in casing pressure) 1,911, flow line pressure 121 psig at a 12.0-millimetre choke.

The second exploration effort, EZ 302, was spud on Dec. 25, 2005. Acidizing and testing of the well were performed following removal of the drilling rig. The well showed indications of hydrocarbons while drilling and logging; however, the stimulation efforts failed to cause the well to flow naturally. In well 302 a workover has been prepared to isolate the KT-II and the lower portions of the KT-I that exhibit higher water saturations on the logs. The third location, EZ 303, is about 5.2 kilometres southwest of EZ 302. EZ 303 spud on May 28, 2006. The well was permitted to a depth of 5,700 metres. EZ 303 reached a total depth of 4,630 metres in a sidetrack wellbore after the initial wellbore reached a depth of 5,430 metres, but was lost due to a drill string parting, while pulling out of the hole for logging. A total of 70 metres was perforated and acidized in both the KT-1 and KT-2 intervals. A combined test of both intervals yielded water with small amounts of oil, while the separate test on the KT-1 yielded water. In well 303 a workover was written to isolate intervals and test separately to identify which perforations are producing water.

The original producing well, EZ 213, drilled and completed during the Soviet period, was re-entered in November, 2006, and perforations were added in the KT-1 reservoir. Due to different casing weights, problems were encountered with packer setting for the acid operation and consequently, only one-half of the productive zones were acidized. Despite the limits on the acidization, a significant improvement of daily production over the preworkover rates was achieved. On Nov. 3, 2008, a 24-hour test was conducted on EZ 213, with the following results: 196 bo, 101 bw, 274 thousand cubic feet of gas per day, FTP 250, SICP 1,720, flow line pressure 110 psig at an 8.7 mm choke. The company has initiated the development process for East Zhagabulak. The preparation of the official state reserves report for the development of the East Zhagabulak field is complete and was approved by the government on Oct. 16, 2008. The preparation of the technology scheme, which outlines the detailed plan of development of the field, is also under way and is expected to be completed by the end of November, 2008. Supported by the completed and approved reserve report and technology scheme, the issue of a development contract for the field is expected before the end of the calendar year.

Continuing petrophysical analyses of all wells penetrating the below salt reservoirs are being completed and correlations of these wells will aid in the identification of future drilling locations in the North block.

Identification and acquisition of well data within the extended territory are also be evaluated for inclusion into this process.

The Baktygaryn 3-D seismic program was completed in early November, 2005. PGS-GIS, in Almaty, ROK, was awarded the processing contract. Due to the presence of large salt bodies in the Baktygaryn area, the 3-D data set was processed through PSDM (prestack depth migration) and interpretation of these data has been completed. PSTM analysis, for the above salt section, has also been conducted. The acquisition of the 367-kilometre, regional 2-D seismic survey covering the west and north areas of the North block and tying into the Zhagabulak and Baktygaryn 3-D seismic surveys that were completed in March, 2007, has also been processed and interpreted. The Baktygaryn 3-D program and the regional 2-D program were fully interpreted at the end of October, 2006. The interpreted data from all new seismic data acquired and from the earlier reprocessed Soviet-era 2-D seismic are being combined to create a geological model and identify additional leads and prospects across the North block territory.

The Baktygaryn area presents drilling targets in both the below salt Lower Permian and Carboniferous sections and the above salt Upper Permian and Mesozoic sections with depths ranging from approximately 400 to 2,500 metres, and provides a second tier of exploration to the company's drilling portfolio. These targets are recognized in the forms of channel sands, traps against the Kungurian salt ridges and underneath salt overhangs.

In addition to the continuing interpretation work on the Baktygaryn 3-D and North block regional 2-D seismic data, and the identification of several postsalt drilling targets in the Triassic and Permian formations, further progress on the interpretation has revealed the presence of additional targets which are being added to the company's prospect and lead portfolio.

The first postsalt well identified from the Baktygaryn 3-D survey, Baktygaryn 703, was spud in March, 2008. It then reached total depth of 2,521 metres in June following which it was rig-released. Numerous drilling delays were experienced due to deviation problems in the salt and anhydrite section, and mechanical failures of the drill string. The object of the vertical well was to secondarily, test Triassic sandstones downdip on a faulted structure and primarily, Upper Permian sandstones in a trap below a Permian salt diaper overhang. The well encountered excellent reservoir quality sandstones in the Triassic, but due to the downdip location of the well, no hydrocarbons were found. Seismic anomalies that supported the presence of a hydrocarbon trap in the Upper Permian, below a salt overhang, were proven by drilling to be interbedded claystones and anhydrite. No reservoirs in the Upper Permian were encountered and the well was plugged and abandoned.

The rig then moved to the Aransay 711 location, approximately 20 kilometres east, where it spud on July 11, 2008, and was rig-released on July 26, 2008. On reaching its total depth of 924 metres in the Upper Permian, the well encountered approximately 298 metres of reservoir quality rocks in the Triassic section. The Triassic was interpreted to be sandstone reservoirs trapped against a fault and was supported by a series of flat-based seismic reflectors believed to indicate a hydrocarbon/water interface. However, no shows were encountered while drilling and electric logging have confirmed the absence of hydrocarbons. Nevertheless, the presence of reservoir-quality sands of such thickness in the Triassic supports the interpretation that the Triassic is a viable primary target in the area in the presence of a proper trap and seal.

Aral has decided to release the drilling rig following plugging operations to further evaluate the portfolio of existing prospects identified in the block.

Soviet-era seismic data interpretation, mapping and the associated shallow well drilling in the Itisay, Kozdesay and West Kozdesay areas, located in the southwestern portion of the North block, yielded minor positive tests and shows of oil associated with the postsalt sediments of Jurassic, Triassic and Upper Permian ages. A review of these data has resulted in the identification of several prospects and leads ranging from 600 to 1,800 metres in trapping positions against Permian salt ridges and under-salt overhangs. Several lines from the company's 2006 2-D seismic program were shot across certain of these leads and prospects to verify this premise. Interpretation of most of the regional 2006 2-D seismic survey covering the west and north areas of the North block has been completed. The interpreted data from all new seismic data acquired and from the earlier reprocessed Soviet-era 2-D seismic were combined to create a geological model and identify additional leads and prospects across the North block territory. As a result of this work, some of the earlier leads and prospects in the postsalt sediments identified on vintage maps and seismic in three areas in the southwestern portion of the North block, known as Itisay, Kozdesay and West Kozdesay, have been confirmed and in addition several new leads and drillable prospects have been identified in trapping positions against Permian salt ridges and under salt overhangs.

Future seismic activity includes a third 3-D seismic acquisition, pending the results of the upcoming drilling campaign and further continuing 2-D seismic interpretation.

The relatively shallow postsalt targets at Baktygaryn offer a completely new series of opportunities for the company. The 3-D and 2-D seismic data have enabled several new prospects to be identified and the company is now in the process of selecting additional drilling locations.

The company's work program extension, with the ROK, to December, 2007, has now been extended for an additional two-year period, subject to the terms of the original exploration contract. The work program extension to Dec. 31, 2009, includes drilling seven wells to a combined total of 8,500 metres with a monetary obligation of $19.1-million (U.S.). Management of Aral believes the company is in compliance with its commitments under the minimum working program and has received authorization from the Ministry of Energy and Natural Resources and other competent bodies to carry over fulfilment of the above shortfalls to the year ending Dec. 31, 2008. At Sept. 30, 2008, Aral had expended approximately $11.3-million (U.S.) toward discharging these obligations.

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