Bula starts oil well

BULA RESOURCES, the Irish oil explorer, starts its first development well today in Siberia's large Salymskoye oilfield in the run-up to large- scale production for the first time since it moved into Russia two years ago.

The news, to be announced on the Stock Exchange tomorrow, will provide a much needed boost to Bula's shares which currently languish at just 1.75 Irish pence.

"Now we've delivered on what we promised. We're the only oil company with a full London listing to get this far in Russia," said Tim Howell, Bula's technical manager. "It just shows how a small company can work with the Russians."

The 1,400-square kilometre Salym field contains 500 million barrels of proven and probable reserves and, if all goes to plan, production proper should start by August and build up to 240,000 barrels a day.

Bula's 50 per cent share of the field is worth an estimated pounds 425m in net present value terms, or 33p for each of its 1.3 billion shares in issue.

The market, however, has not yet taken this on board as it remains disappointed by another Bula deal in Russia that came badly unstuck last year.

"In the normal course of events the market would give them the benefit of the doubt, but after the first deal there's an element of wait and see," said one analyst.

Big investors, however, are already taking note: a pounds 3m placing last year brought in Morgan Grenfell Asset Management and Capital International. Each now holds a 7.6 per cent stake.

Bula has already spent pounds 7m on Salym in the oil region of Khanty Mansiysk in western Siberia, and a new 23km pipeline will be in place by the end of April to link the field to Russia's existing network. Oil giants Shell and Amoco are also active nearby.

Vladimir Tokarev, head of Bula's local partner - Khantymansiyskneftegasgeologica - is one of four Russians on Bula's board.

Jim Stanley, Bula's chairman, a former chief financial officer in Central Africa for South African mining giant Anglo American, first targeted Russia in 1992 after forays from Colombia to the Celtic Sea came to nothing.

The firm lost Irpounds 3.4m on turnover of just Irpounds 512,000 from its US gas interests in 1994, the latest in a series of losses stretching back to 1988. In the meantime, the shares have slipped from a 16p high after a number of new issues.

Last year, wrangling over legal title stopped Bula going ahead with the development of 535 million barrels in the Shapshinskoye and Ryamnoye fields near Salym.

Bula is not the only Western firm to have to learn the hard way in Russia, however, and it is confident the direct joint venture on Salym will prevent a repeat of last year's complications.