Aurelian Oil and Gas progressing towards commercial production in Poland following transformational

In its full-year results statement, Aurelian Oil & Gas (AIM: AUL) said that the company has ‘very material’ opportunities in a stable and energy hungry part of the world. Aurelian noted that the year-ended 31 December 2009 was year of fundamental transformation with a €13.5 million fund raising, a significant board re-shuffle and a newly focused strategy, all devised during tough economic conditions.

“Our financial results are encouraging given the difficult economic environment of 2009 and reflect the real progress that has been made in changing the whole operational ethos of the company”, Aurelian chief executive Rowen Bainbridge commented. “We have a clear and focused strategy and a first mover advantage in two emerging resource plays. We have a nine well drilling programme in 2010 and 2011, with two significant wells to drill in 2010 on our world class Siekierki gas field”.

At Aurelian’s flagship project in Poland, Siekierki, two significant wells are planned. The company intends to drill the two multi-fracced horizontal wells (MFHW) and subsequently construct a gas processing facility, with a long term test scheduled for the second half of 2011.

Aurelian said that this will allow it to establish commercial production, begin the conversion of resources to reserves and move on to full field development. The company also noted that it is seeking a strategic partner, and accordingly, discussions continue with a number of major oil and gas companies.

Poland is becoming increasingly prominent as one of Europe’s most prospective gas plays, with activity among the majors heating up. ConocoPhillips (NYSE: COP) has already made its move and it is expected to begin drilling next month, near Gdansk on the Baltic coast through its partnership with Lane Energy. The list of prospective majors believed to have their sights set-on Polish gas, also include Exxon-Mobil (NYSE: XOM), Marathon Oil Corp (NYSE: MRO) and Talisman Energy (NYSE, TSX: TLM).

Indeed in a recent report in The Times online, CEO Bainbridge emphasised the country’s appeal, particularly in terms of government support - as the country tries to wean itself off Russian gas. “These are some of the best fiscal terms in the world. The government is creating a very large commercial incentive to develop these deposits”, Bainbridge stated.

The Times cited a report by Wood Mackenzie, an oil and gas research group, which estimates that Poland’s unconventional gas could total 48 trillion cubic feet, across northern and central regions. Furthermore, the resource could make the country self-sufficient, and boost EU reserves by 47%. Poland currently consumes about 14 billion cubic metres of gas per year and has been heavily dependent on Russian imports, the Times stated.

In October, Aurelian executed the ‘Siekierki Gas Sales Agreement’ with its Polish partner Kulczyk Investments, for an initial term of 10 years. The company said that the agreement secures attractive pricing, and also provides for sales during the project start-up phase, allowing Aurelian to focus on the sub-surface and facilities development.

Elsewhere, as part of the company’s exploration strategy for the Carpathian region, which spans southern Poland, Slovakia and central Romania, the company successfully acquired 281km of 2D seismic in 2009. Aurelian said the data has provided some very interesting prospects and leads on the Bieszczady blocks. In the coming year, the company plans to drill its first Carpathian high impact exploration well, Bieszczady-1.

In Romania the company turned around the previous year's operating performance. In 2009 a series of operational improvements and equipment upgrades and the tying-in of two extra wells resulted in a company record level of production at 957mmscf (million standard cubic feet). Also in November the Voitinel-1 well made a new discovery, which may prove to be its largest find to date - potentially up to 400bcf (billion cubic feet) gas-in-place.

In terms of its financials, Aurelian said that 2009 saw a significant improvement in its performance, with a €4m reduction in the year’s net loss, which stood at €0.4m. Net cash flows from operating activities also improved, with a resulting in a €1m cash inflow compared to a €5m outflow in the previous year.

The company said the improvement was driven largely by an 85% increase in revenues from its Romanian operations, as two additional wells came on stream and a new compressor was installed.

“We have a very encouraging outlook for 2010 and beyond. We have a clear and focussed strategy and a first mover advantage in two emerging resource plays both with huge potential”, Bainbridge concluded.

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