Urals Energy Public Company Limited has spudded its first well, a planned exploration well, at the South Dagi field on Sakhalin Island. The well's target pay horizons are the Okobycay horizon and the Daginsky neogenic horizon, with the target depth being 2,200 meters. It is anticipated that this depth will be reached in the second quarter of 2018. The Board intends for this well to be the first well in a programme of three exploration wells at South Dagi over 2018 and 2019, which are to be drilled by Urals Energy's own team using the rig that was recently acquired from Jereh Group. Any oil production from South Dagi can be transported by road tanker to the Company's refinery at Petrosakh, a distance of 400 kms, which would increase the utilisation rate of the Company's refinery. The refinery will not need additional investment to process both the heavy and light oils expected from South Dagi. Further announcements in respect of progress with the Company's first well at South Dagi will be made in the New Year as appropriate. Urals Energy was awarded a 25-year exploration and development licence for the South Dagi oil field in June 2016, following an auction by the Russian State Authorities. The South Dagi licence covers an area of 28.8 sq. kms and was the subject of an earlier exploration and appraisal programme in the 1970s, followed by additional seismic work done in the middle of 1990s and 2007. During these periods two exploratory and six appraisal wells were drilled. The South Dagi field produced oil in the Soviet Union era and detailed data was acquired. More recently, a micro-seismic survey has been conducted in order to grade hydrocarbon potential and optimise well locations. As announced on 15 June 2016, the Russian State Registered reserves of C1 plus C2, equivalent to 2P (proven and probable), on the South Dagi license area are 17.7 million barrels, with C3 or possible reserves of 9.0 million barrels. At shallow levels, the oil is relatively heavy (23.5 - 25.5°API), with light oil (36.5 - 37.5°API), similar to the oil at the Company's Petrosakh operation, at lower horizons. The available data on South Dagi has been reviewed by Blackwatch Petroleum Services as part of the Competent Person's Report commissioned by the Company. The Board announced that Blackwatch Petroleum Services has estimated the mean total 2P reserves at South Dagi to be approximately 23.5 million barrels of oil across six reservoirs, when assessed under the international Society of Petroleum Engineers classification.