During 2014, the Company has initiated the exploration program in the Tomsk region, license 71-1 Elley-Igayskoye. The license is held in the local project company OOO Bakcharneftegaz in which the Company has the right to attain a 74 percent ownership against investing in total USD 12.4 million. The exploration program covers the re-entry of one old well, Phase 1, and the drilling of a new exploration well, Phase 2. The purpose of the exploration program is to prove as much reserves as possible and then exit the project to a larger company, more suited for the development phase. The initial phase in proving the contents of the asset was to attain a registration of resources under Russian C3 standard. An application was handed in during the period for attaining registration of resources in total corresponding to 134 mmboe in the Devonian layers. The application was approved as per 1.1.2015 according to the following:

– Gas 16 470 million m3

– Condensate 2 831 000/1 775 000 metric tonnes geological/extractable resources

This corresponds to 131.9 mmboe geological resources or 123.2 mmboe extractable resources (conversion rate used: 1 thousand m3 gas = 6.60; 1 metric tonne condensate = 8.18).

During 2014, Phase 1 was initiated and largely completed as regards perforation and testing. The well was re-entered in April, and drilling down to target depth was commenced. The drilling became delayed, due to the presence of obstacles in the well in the form of metal objects besides the expected concrete. This made the drilling down to target depth more time consuming and costly than expected.

After the cessation of drilling at a depth of 4 006 meters, certain well analyses were completed by the Company’s own team as well as third-party consultants, including the company “Innovative Oil and Gas Technologies”, IOGT. These analyses indicated a much higher than expected potential in the number of potentially hydrocarbon-baring intervals and potential thickness of the column. As a result of this, the exploration plan was expanded and covered more than 20 intervals, as compared to the originally expected 8.

The first perforations were made in the beginning of August 2014, and during the period, the Company perforated and tested 18 intervals, all of which showed the presence of hydrocarbon as well as not encountering any formation water.

In October a spontaneous gas flow of a commercial character was encountered, and test indicated that it emanated from the weathered crust on the top of the Palaeozoic layer. After the end of the period, significant flows of natural gas and gas condensates were proven from this interval.

On 13 February 2015, the Company encountered commercial flow rates of natural gas and gas condensates from the weathered zone, between 3 010 – 2 990 meters. Short term tests showed flows of 114 000 m3/day mix of natural gas and gas condensate as well as 5 metric tons/Day of pure condensate. The well flows strongly and the team works with controlling the significant flows in combination with rests of old concrete and other materials brought up from the well. During the nearest time, controlled tests of the well’s capacity to build pressure will be performed.

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