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Ortynytska Project

Advance's subsidiary, Epic Energy Ukraine Ltd, has entered a Joint Activity Agreement (JAA) with Ukrainian state-owned enterprise, ZakhidUkrGeologiya (ZUG) to develop the 19 km² subsoil Ortynytska License in Western Ukraine. Under the terms of the JAA,  Advance will fund the re-entry of the Ortynytska -3 well that was drilled in 1993-4 and encountered gas shows in order to earn receive 70% the project profits until payback and 50% thereafter.

The acquisition was approved by shareholders at a General Meeting on 22 July 2012.

Location

The Ortynytska Project is located approximately 50km southwest of the city of L’viv in Western Ukraine. It is close to the major European gas markets of Poland, Slovakia and Hungary and to major pipeline infrastructure. The Ortynytska Prospect is located in the relatively un-deformed Foreland sediments beneath frontal thrust of the Flysch Belt. The US Geological Survey (USGS) 1999 Assessment of the Foreland Basin Undiscovered Potential stated that:

• 10-175 fields remain (mean 75.9 fields)
• Field sizes will range from 6- 400 BCF (recoverable), with a median size of 20 BCF
• Approximately 37% of fields will be in Ukraine

The Ortynytska Prospect is immediately south of the Zaluzhany gas field which was discovered in 1969 and, at peak, had over 27 wells producing from 13 horizons. The Zaluzhany field produced over 134BCF of its total recoverable reserves of 1TCF between 1975 and 1993 with an average daily production of 1 MMCFD per well.

Prospectivity

The Ortynytska Prospect is a Miocene gas play comprising thermogenic and microbial gas. The primary target is the Lower Dashava 15 (LD-15) sand which is located at approximately 3,500m and there are two deeper secondary (GA) sands at approximately 4,500m and 4,700m.

 The LD-15 is crossed by the east-west Stebnyk Thrust which dips strongly to the south eliminating some of the shallower sands that have produced in the Zaluzhany field. However, the Stebnyk Thrust does appear to provide an excellent closure for the LD15 sand.

The Ortynytska-3 well was drilled to 3,577m in 1993-4 and discovered gas in the LD-15 sand. The operator experienced a number of mechanical problems and, consequently, did not bring the well into production or drill to the lower GA horizons.

The Company proposes to undertake a re-entry of the Ortynytska-3 well, undertaking a sidetrack to intersect the optimum point of entry to the LD-15 sand. It is anticipated that the re-entry would commence in the final quarter of calendar year 2012.

Oil and Gas in Ukraine

Despite its enormous gas reserves (estimated at over 38TCF in January 2011), Ukraine imports approximately 65% of its natural gas requirements from Russia. Natural gas pricing in Ukraine is benchmarked against a January 2009 'take or pay' agreement with Russian gas monopoly Gazprom which expires in 2019. The Ukrainian Government is currently paying US$425 per 1,000m3 (approximately US$12 per MCF). With royalties, comprising a production rent charge and a subsoil charge, less than US$1.00 per MCF many companies are able to achieve operating netbacks of over $8/MCF.

Ukraine has more than 36,000 km of natural gas and 4,500km of oil pipelines and has long served as an important transportation hub between producing natural gas fields in Russia and end users in Western Europe. 

Other Assets – Mother Lode III project

Advance retains a 50% working interest in the Mother Lode Phase III project, in Martin County, Texas, which is operated by Endeavour Energy Partners Inc. Endeavour drilled an initial well on the project in September 2010 which has been producing since.  Advance did not to participate in the drilling of this well but has the right to participate in all future wells on an undiluted basis.