Valkyries Petroleum Acquires Stake in Russian Joint Venture

Valkyries Petroleum has acquired a 50% interest in the ZAO Pechoraneftegas (PNG) project in the Komi Republic of Russia. Under the terms of the agreement, Valkyries will acquire 50% of the shares of a Cyprus company owned by Vitol Russia B.V. ("Vitol") for a total purchase price of US$39MM.

The primary assets of PNG include the Sotchemyu-Talyu producing fields and two exploration licenses on the Kadzherom and Mutnomateric blocks (see attached map). The Sotchemyu-Talyu field produces from Devonian shelf edge reefs at a current rate of 6800 BOPD. An independent third party SEC reserve report completed in April of 2004 indicates proven reserves of 24.2 million barrels or oil (12.1 million barrels net to Valkyries). The reserves report estimates 2004 cash flow net to Valkyries of US$10.8 million rising to over US$17 MM per year by 2006 and a net present value of Valkyries interest in the project of US$75 million discounted at 10 percent.

A 3D seismic program is currently underway to delineate further development locations for infill drilling. According to the reserves report, infill drilling is expected to increase field production to over 10,000 BOPD. The field has a direct tie into the main Transneft pipeline and has modern field facilities with over 150,000 barrels of in-field storage.

Final preparations are underway to drill the first exploration well on the Kadzherom license area. This well is expected to spud on May 9th and will be drilled on a reef prospect directly on trend with the proven Sotchemyu field area. If successful, the resulting production could be immediately tied onto the existing infrastructure. Volume estimates for this prospect range from 2 - 10 MMBO.

The Mutnomateric block is a large (6000 sq. km) area with oil fields and oil tests on three sides. It has not had any exploration work conducted in the post-Soviet era and several interesting leads have been developed on older vintage seismic. An evaluation of the block is underway to determine the future seismic and drilling program.

Vitol will retain a 50% interest and be responsible for all crude transportation and marketing aspects of the project. Vitol is currently the largest crude marketing company in the world and can thus add value in one of the most critical areas of the CIS. Several additional projects in the CIS in cooperation with Vitol are being discussed.

Valkyries President and CEO Keith Hill stated "The PNG project will give us immediate cash flow and production as well as providing an excellent first step into the CIS with Vitol, a proven partner who will add significant value on the marketing and political side. We are hopeful that in the near future we will add several additional assets that will allow us to grow into a medium sized upstream player in the CIS."
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