HOUSTON, Aug. 10, 2005 (PRIMEZONE) -- Transmeridian Exploration Incorporated (AMEX:TMY) announced today that crude oil production from its South Alibek field ("the Field") in Kazakhstan for the second quarter of 2005 reached an all time high of 118,000 barrels ("Bbls"), or an average of 1,300 Bbls per day. Production for the second quarter increased more than 60% over the first quarter of 2005 and more than 54% when compared to the second quarter of 2004. The increase was primarily as a result of production from the recently completed well, SA-14, together with production from four previously drilled wells. Only two wells, the SA-1 and SA-2, produced throughout the quarter. As the workover program discussed below is completed, the Company expects significant improvement in production from all of the wells.
Results of Operations
During the quarter ended June 30, 2005, Transmeridian reported a net loss of $1.9 million, or $.02 per share, on revenues of $2.0 million, as compared to a net loss of $.6 million, or $.01 per share, on revenues of $1.6 million, during the second quarter of 2004. For the first six months of 2005, the Company had a net loss of $4.1 million, or $.05 per share, on revenues of $3.2 million, as compared to a net loss of $1.6 million, or $.02 per share, on revenues of $2.2 million during the first six months of 2004. The increase in revenues was primarily attributable to increased production levels as well as improvement in the price received for sales of crude oil to an average of $20.67 per Bbl for the second quarter of 2005, up from an average of $11.82 per Bbl for the second quarter of 2004. The increase in revenues was offset by increases in general and administrative costs, interest expense and preferred dividends.
All crude oil sales in the first six months of 2005 were to the local Kazakhstan market. Beginning in mid-June, sales to the local market were discontinued and all production was stored in anticipation of the commencement of export sales by rail under new sales arrangements pursuant to which the Company will realize substantially higher prices. Initial sales under the new arrangements were made in July at an average price of $39.00 per Bbl. The Company expects to further improve on the price it realizes from crude oil sales as it continues to identify new buyers.
Operations Update
Production from the existing wells, as initially completed, has not met expectations. To bring the wells more in line with their potential, a comprehensive workover program has been initiated. Each well has been systematically reviewed to determine its potential. In addition, dynamic flow testing was performed on each well to identify additional zones where increased production could be realized.
Well SA-5 is being recompleted after a mechanical failure of the completion string in July of 2005. Production test results indicate that a water zone was inadvertently opened during the initial completion in 2004 and that an additional 30 feet of net oil pay in the KTII formation can be opened to enhance production. This work has started and is expected to be completed by mid-August.
Well SA-17 was put back on production after performance of a hydraulic fracture treatment. The current rates do not meet management's expectations, due primarily to water flow from a suspected split casing collar, possibly damaged during the treatment. A workover to isolate the damaged portion of the well. and to possibly open additional intervals is planned, and this work is expected to be completed by the end of September. In addition, an acid stimulation may be performed to further enhance production. In the meantime, the well continues to produce and clean-up by natural flow pressure.
Well SA-2 has been selected as the first candidate for installation of an electrical submersible pump. The well continues to produce, but it is believed that the rate can be significantly increased with this pump, which is expected to be installed in September of 2005. Installation of these pumps in other wells will be considered pending the results on the SA-2.
The current plan for SA-1 is to stimulate up to a total of 164 feet of the KTII with an acid treatment of a type that was first applied to this well two years ago and has proved to be very successful in offset fields. The service contractor is currently assembling all the equipment and chemicals required for this treatment, which was engineered based on the results of the dynamic flow testing operations. The work is scheduled for late August 2005.
The development well SA-14 continues to exhibit strong potential. The well was stimulated with only a minor acid wash upon initial completion and is now being considered for a more thorough acid stimulation treatment of the same design that is to be applied to the SA-1. The dynamic flow analysis indicated that only 42% of the 134 feet of perforated KTII is flowing. The choke size has been reduced progressively since early July for determination of optimum production parameters for this and future wells
In continuation of the Company's South Alibek field development program, drilling commenced on the SA-3, the seventh of 21 identified proven well locations within the field, in April 2005. The rig is currently drilling the final 81/2 inch production wellbore at about 10,700 feet, with a programmed total depth of 12,600 feet. The SA-3 site is approximately 2,200 feet southwest of SA-17 and is in a similar flank location in the field as SA-14. The well has exhibited all the anticipated indications of the South Alibek geological structure and expected hydrocarbon intervals for the levels penetrated thus far. The current outlook is for completion of this well to begin in the third week of September with initial flow results by mid-October.
The Company has executed an agreement for up to three additional drilling rigs at a fixed turnkey price with the Great Wall Drilling Company. The first new rig is scheduled for delivery in late October and should be drilling in early November 2005. The next two rigs are scheduled to start work in the first quarter of 2006. Each rig is contracted to drill twelve wells over the term of the contract. With this agreement, the Company has locked in a competitive price for rigs in a market of rig shortages and has secured access to the essential equipment needed to accelerate development and extension well drilling in the Field for the next 31/2 years.
Work continues on the Central Production Facility, which is now expected to be completed by year-end. The storage units in the facility are operational and are being utilized as production levels increase. In the meantime, the temporary treating and truck loading facilities in the Field are being expanded to handle the increased level of deliveries scheduled for the next 90 days. The delivery facilities will have the capacity to load out six tanker trucks simultaneously to accommodate the increased level of production. In addition, the facilities will have 20,000 Bbls of storage capacity to accommodate any short-term interruptions due to winter storms and closed roads.
Work on the pipeline to connect the Central Production Facility to the KazTransoil pipeline station near the Field has begun. The route for this 1,500 meter ten-inch line has been surveyed and permits for construction have been submitted. The Company anticipates that work for installation of the treating and pumping equipment will commence after the spring thaw in 2006 and that the completed delivery system for pipeline sales will be available late that year.
Financing
Earlier this year, the Company advanced $10 million to its primary operating subsidiary in Kazakhstan, Caspi Neft, to fund 100% of anticipated capital requirements for the first six months of 2005. It was expected that the other 50% owner, Bramex Management Inc., would advance its matching $10 million by June 30, 2005 to fund bank debt obligations that had been deferred. In July, Caspi Neft made about $3.5 million in payments to meet bank debt repayment obligations along with current interest payments. An additional $5.3 million that has become due has not been paid. Another $5.4 million of interest and principal payments are due in August and September of 2005. The Company has received a proposal from another lender to refinance the existing bank debt in its entirety. The Company expects to complete the refinancing by September 30, 2005, but there can be no assurance that any refinancing for the bank debt will be successful.
"Although the timing and results of our development program did not meet our expectations in the first half of 2005, we are aggressively pursuing our workover program and have taken concrete steps to speed the pace of development by securing additional drilling rigs," commented Lorrie T. Olivier, President and Chief Executive Officer of Transmeridian. "We expect that after the conclusion of the planned workover program, and with the completion of well SA-3, production will increase to 4,000 to 5,000 Bbls per day. With the increased production and our new sales arrangements providing for much higher pricing than before, we look forward to substantially improved results in the second half of 2005."
About Transmeridian Exploration Incorporated
Transmeridian Exploration Incorporated ("TMEI") is an independent energy company established to acquire and develop oil reserves in the Caspian Sea region of the former Soviet Union. TMEI primarily targets medium-sized fields with proved or probable reserves and significant upside reserve potential. Its first major project is the South Alibek Field in Kazakhstan and it is currently pursuing additional projects in Kazakhstan and Azerbaijan.
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This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created therein. Such forward looking statements include statements regarding expected timing of drilling and workover operations, completion of facilities improvements and additions, and anticipated levels of production. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including but not limited to those discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and other filings with the Securities and Exchange Commission. Although Transmeridian Exploration Incorporated believes the assumptions underlying the forward-looking statements contained herein are reasonable, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion herein should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
TMEI discloses proved reserves that comply with the Securities and Exchange Commission's (SEC) definitions. Note that the Company's use of terms such as "probable oil resources", "probable reserves", "possible oil resources", "ultimate potential", "resources" and "recoverable reserves" include quantities of oil that are not yet classified as proved and which SEC guidelines do not allow us to include in filings with the SEC.