Kulczyk Oil to Initiate Frac Stimulation Program at Ukraine Well

Kulczyk Oil announced that KUB-Gas LLC ("KUB-Gas"), a partially-owned indirect subsidiary of KOV, will initiate a reservoir stimulation program using hydraulic fracturing technology ("fracking") in late October.

The initial program will focus on the O-6 and O-8 wells located in the Olgovskoye field and will consist of a cross-linked gel water frac using 30 tonnes of sand proppant for each well. Wireline logs acquired after the drilling of each of these wells identified potential gas-bearing zones which did not flow gas at commercial rates when tested conventionally. The target zone in each of the wells is a Middle Bashkirian silty sandstone interval at a depth of approximately 2,300 meters which has indicated permeability of less than 1 millidarcy. Computer modeling suggests a created frac length of up to 144 meters.

Due to a lack of locally available services necessary for this type of operation, KOV spent the last year putting together a combination of service providers to implement the fracking operation. All necessary equipment is now on location and the fracking program is scheduled to start during the last week of October with the first well to be stimulated being the O-6 well.

The Company believes that this will be the first fracking program in the region using modern frac techniques developed in Canada. A successful operation could have a material impact on the Company if the program demonstrates that gas can be produced from previously non-commercial horizons. The Company believes that fracking may enhance production rates from currently producing zones and enable KUB-Gas to obtain production from zones that will not produce conventionally.

Jock Graham, Executive Vice President stated that, "Fracking is used to both increase production from conventionally productive formations and to enable formations that are not productive, to flow hydrocarbons at commercial rates. It is a commonly used procedure in North America on both conventional and unconventional reservoirs and now more recently on shale. To our knowledge this is the first frac of its kind in this part of Ukraine and we are excited about using technology developed in Canada to attempt to unlock the potential of some of the tight gas reservoirs underlying the KUB-Gas licenses. The fracs starting later this week are part of our program of using the latest echnologies and production methods to enhance productivity, and while there is no assurance of success we will analyze all of the data to determine what lessons can be learned to insure future success."

The O-6 well was drilled in 2008 to a total depth ("TD") of 2,530 meters. The O-8 well reached a TD of 2,780 meters in early January 2010. Recently completed testing of the O-8 well indicated that that R30c zone did not have sufficient permeability for commercial production and it was then determined that the O-8 well would be one of the first candidates in the fracture stimulation program.

KUB-Gas owns a 100% interest in the Olgovskoye, Makeevskoye and North Makeevskoye, Krutogorovskoye and Vergunskoye licenses in the Lugansk area of Ukraine. KOV owns an effective 70% interest in KUB-Gas with Gastek LLC owning the remaining 30%.


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