Low oil prices delay Incremental plans

Low oil prices have forced Incremental Petroleum to defer non-essential exploration at its Edirne gas joint venture in Turkey as it prepares for first gas sales for later this year.

In an update to shareholders today, the takeover target said two non-essential wells initially planned for the current drilling program have been deferred.

Incremental said the two wells were not required for phase one production.

It added that only the Ikihoyuk 2 well will be drilled in the current campaign, which is expected to take 12 days.

Additonally, a 100 square kilometre 3D seismic survey initially planned for mid this year will be deferred.

Incremental said it expects to save $3.5 million this year from the well and survey deferrals.

Meantime, negotiations are continuing with three "substantial" parties for gas sales from Edirne with the successful bidder will have the option to fund, build and operate the gas facility.

The project is a JV between Incremental (55 per cent), Otto Energy (35 per cent) and Petraco Petroleum (10 per cent).

Shares in Incremental were up 0.5 cents at 97.5c at 14:11 AEDT.

The announcement is pasted below:

OPERATIONS UPDATE

SELMO PRODUCTION 3% ABOVE FORECAST (IPM 100%)

Incremental's wholly owned Selmo oilfield produced 493,409 barrels of oil in 2008, some 3% above forecast. Production for the second half of 2008 was 263,443 barrels or 15% above the first half following an aggressive well workover campaign.

The average daily production of the last week of 2008 was 1,636 bopd. The 2008 results again attest to the very flat decline rate of Selmo, and the long term cash flow that can be assumed from this asset. Selmo has now operated for 802 days without a lost time accident, a tribute to Incremental's management and staff in Turkey, and testament to the efficiency of the detailed HSE training programme put in place in 2008.

As reported on 18 December 2008, negotiations are taking place with the Turkish national oil company (TPAO) and the Turkish refinery operator over possible changes to the delivery arrangements for Selmo crude. These discussions are not impacting on production or sales.

EDIRNE UPDATE (IPM 55%)

Ikihoyuk 2 is expected to be spudded today.

The well is an appraisal well of the Ikihoyuk structure and will add redundancy to the phase 1 production. The well will be drilled with Incremental's own rig, and is expected to take about 12 days to drill. In light of low oil prices, two non essential wells initially planned to be drilled in this Edirne drilling campaign have been deferred, and only Ikihoyuk 2 will now be drilled in this campaign.

The two deferred wells were not required for phase 1 production. The path towards commercialization is progressing rapidly, with first gas sales anticipated in the second half of 2009. Negotiations are ongoing with three substantial parties, with one of the options being for the successful bidder to fund, build and operate the gas facility.

Bids have been received for all long lead items. Additionally, a 100 sq km 3D seismic survey initially planned for mid 2009 has been deferred. The well and seismic deferrals will save Incremental about $3.5 million in 2009.

ATESLER UPDATE (IPM 40%)

As previously advised, the Atesler 1 well, being drilled by TransAtlantic under a farmout has been drilled to 537m and is awaiting the arrival of a new TransAtlantic rig. The rig has now been shipped from China, and is anticipated to be on the Atesler location within the next few months.

USA

Environmental approval has been received from the relevant authorities to drill three shallow wells, and rig and associated contracts are in place for a spud in the coming months. The approval is subject to a 30 day period for public comment which expires at the end of January. In the event that the oil price remains at very low levels, Incremental has the option to defer the third well at short notice. IPM is earning a 50% WI in these projects.