Carpathian Reports on Q2 Activities

Highlights for the Quarter:

--Ja3a continues production in line with forecasts
--KS7 production resumed
--Early results see KS4 producing
--Seismic interpretations completed
--Morava seismic shows promise


Janovice Gas Field (60% interest)

Production from the field was maintained throughout the quarter without incident at a rate of more than 34,000 cubic meters per day, which is sufficient to fulfill the 2006 sales contract.

Since an independent consultant determined from pressure test data that the field contains of 3.8 to 4.0 billion cubic feet in place (announced on 3 March 2006) the focus has been on defining locations for drilling development wells in 2007. The studies are running parallel with the interpretation of the seismic acquired in the Raskovice-Moravka permit immediately east of the Janovice production license (see below).

Krasna Oil Field (75% reducing to 50% after payout)

Production from the KS7 well recommenced on April 25th after the winter shutdown and continued to the end of the quarter apart from a minor interruption in late May to replace a piece of downhole equipment. During June KS7 produced at an average rate of 4.4 m3 per day of oil (28 barrels).

Unfortunately, but not unexpectedly, economic production from the KS8 well could not be re-established. The well was shut in and the equipment moved, as planned, to the KS4 well site and is being used in the long-term test of that well.

The KS4 production test commenced in June using temporary facilities and will run throughout the production season. If the test proves to be a success then permanent facilities will be installed at the site. Production in June averaged 3.8 m3 per day of oil (24 barrels). The test oil will be sold.


Czech Republic

Raskovice - Moravka (60%)

The permit lies immediately east of the Janovice gas field and the principal exploration target is the Karpat Sandstone as in Ja3a well.

A structural interpretation report incorporating the seismic data acquired in 2005 was received during the period and a second report from the geophysical contractor, incorporating detailed analysis of the seismic amplitudes was received at the close. The results of the two reports must be integrated before decision can be made on how best to further the exploration of the permit and to define new drilling targets, both on the permit and on the Janovice production license as soon as possible.

A review of the interpretations suggest that further geological input is required to be included in the geophysical interpretation and this will be pursued in the coming months. Although the seismic is of good quality the “picking” of controlling faults has been difficult. Nevertheless, some attractive features have been recognized and the work is ongoing.

Mosnov, 90% interest (contributing 100%)

Preparations to drill a well on the permit are moving ahead. A number of bids have been received from drilling contractors, and it is likely that one will be selected early in the next quarter. The intention is to drill the well in the early part of 4Q 2006, but this remains subject to confirmation.

The objectives of the Mo-1 Skotnice well will be Tertiary sandstones and sands within the top of the Carboniferous section at a depth of 400m below the surface. The target has been defined by the intersections of 28 coal exploration bore holes, 0.5 to 1 kilometer apart; it lies between the depleted Kremlin gas field to the north and the Priobor-Klokocov Field to the south, which reportedly produced 23 billion cubic feet of gas at rates of up to 5 million cubic feet per day.

The surface location is close to a coal exploration hole from which an open flow rate flow of 80,000m3 /day (approximately 2.8 million cubic feet per day) was recorded. Economic analysis presented by the operator indicates that sustainable rates of as little as 10% of this figure could be economically attractive, given the strong gas price and the proximity of the gas transmission network.

Morava, 90% interest (contributing 100%)

The Morava project is located near Hodonin in the northern part of the Vienna Basin, a prolific oil and gas producer. Hodonin is the regional center for oil and gas production. There is potential for oil and gas in the traps.

A geophysical interpretation report was received at the close of the period. Subject to a final review of the prospects and a risk assessment one or more targets will be selected for drilling perhaps as early as the last quarter of 2006. However, if it is decided to proceed with further specialized geophysical investigation of the current data set it is more likely any drilling will be in 2007 because of the time required to plan and build a drilling location.

The Morava data shows some particularly promising features, with evidence of “bright spots” being present. Because such indicators can be caused by a number of factors (including non-hydrocarbon sources), further work is required to fully detail these features.

Roznov, 90% interest (contributing 100%)

The permits cover an area of prospective sediments in variety of potential traps on a faulted margin. The most exciting are a series of features on the basin slope.

A seismic interpretation report was received late in the first quarter 2006 that will now be compared in detail with a second report received at the end of the reporting period from the geophysical contractor. Once this has been done, the next steps in the selection of a drilling location in 2007 can be taken.

Meanwhile, progress has been made with the authorities. The differences between the local and regional planning requirements, highlighted by the feasibility study, are being resolved. This should reduce the time taken to achieve permission to drill from the authorities.

Slovak Republic (100%)

A review of the exploration and production potential of the area was completed in the quarter. Although oil and gas have been encountered in two wells within the permit the structures are highly complex and it was concluded that the accumulations are small and that any undiscovered deposits are likely to be uneconomic. As a result is was decided to relinquish the permit before the renewal date in June thus avoiding further expenditure.


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