Exploration & Production | Quarterly / Earnings Reports | Second Quarter (2Q) Update
Despite Ukrainian Unrest, Cub Ups Production in 2Q
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Cub Energy Inc. has reported an update for the second quarter ending June 30, 2014.
2Q Increased Production, Realized Prices
Average production for the second quarter was 1,868 barrels of oil equivalent per day (including Cub's WI in KUB-Gas), up from 1,857 boe/d in the first quarter. This is a 25% increase over the second quarter of 2013 average production of 1,490 boe/d. The second quarter exit rate was 2,154 boe/d, representing a 10% increase from 1,952 boe/d exit rate in the first quarter. The exit rate increased from the contribution of the M-17 and RK-21 wells, both of which started production late in the second quarter 2014.
Noteworthy is the fact that KUB-Gas has reached record production with average rates for July to date reaching 35 million cubic feet per day (10.5 MMcf/d Cub WI). This is a 15% increase above 2013 production exit rates.
The estimated average prices received in Ukraine during the quarter increased to $10.23/thousand cubic feet and $79.86/barrel. The second quarter gas price was significantly higher than the $8.67/Mcf price realized in the first quarter of 2014, as the discounts on imported Russian gas during the prior quarter expired on April 1, 2014, and Ukrainian Hryvnia reached a more stable level vs. the U.S. dollar. Gas sold in Ukraine by KUB-Gas and Tysagaz is based on the import price of Russian gas, which in turn is linked to the price of oil. Those discounts on Russian gas ended effective April 1, 2014. KUB-Gas and Tysagaz are paid in UAH, making their realized price in USD also subject to exchange rate risk. That exchange rate was substantially less volatile during the second quarter than in the first quarter, which contributed to the higher realized gas prices.
Drilling & Workover Update
In western Ukraine, operations continue uninterrupted. The RK-1 re-entry has reached TD of 3,995 metres, and it is currently undergoing preliminary operations prior to perforating.
In eastern Ukraine, during the second quarter, the M-17 well in Ukraine was completed and tested. Logs had indicated pay in the S5 and S6 zones, and resource potential in the R30c and S7 sections. The S7 tested 900 Mcf/d without stimulation. The S6 was tested at multiple rates, the highest of which was 6.6 MMcf/d at a flowing wellhead pressure of 2,970 psi. The S6 zone was placed on production on June 26, and has averaged 6.4 MMcf/d (1.9 MMcf/d Cub WI) to date. The S7 will be stimulated when development operations resume, and M-17 will be completed as a dual producer at that time.
The O-11 well was spud on April 4, 2014, after the drilling rig moved on from M-17. It reached its planned TD of 3,230 metres in late May, was cased and the rig released. In late June, the well was perforated, and experienced a strong air blow, followed by gas to surface. The well was shut in for a pressure build up. No further testing will be undertaken at this time.
The NM-4 well was spud on June 16, and drilled to a depth of 102 metres. Surface casing was run to 100.2 metres and cemented in place prior to suspending drilling operations.
Facilities
Gas began flowing through the new treatment facility at Makeevskoye on March 6, 2014, and the M-16 well was re-routed to that new facility at the end of April. The overall configuration is now that higher pressure wells are tied into the new plant, while lower pressure wells and the production from Olgovskoye field flow through the old plant. The system has easily accommodated the new gas volumes from the M-17 well.
Ukraine Outlook
In western Ukraine, Cub is continuing with its RK-1 operations and plans to then move to the RK-23 well, targeting the L and D sands.
In eastern Ukraine, once the security situation improves enough to resume development activities, drilling will resume on NM-4, after which the rig will move to M-22. NM-4 is testing a Moscovian stratigraphic trap, and if successful, will establish a new play type within Cub's Ukrainian licences. The M-22 well is targeting a new Serpukhovian accumulation to the southwest of the pool containing the M-16 and M-17 wells. A fracture stimulation campaign has also been planned in October for O-11 and O-15 (both R30c and S6 zones), NM-3 (Visean oil potential) and M-17 (S7).