Emerald Energy Updates South American Operations

Colombia Exploration and Development

The Vigia No. 4 well, drilled in August 2006 as a step out appraisal well to test a westward extension to the discovered Vigia field, has been logged and evaluated as non-commercial. The well has been plugged and abandoned. A proportion of the drilling costs will be recovered from Ecopetrol's share of Vigia's oil production in line with the fiscal terms of the contract

Since February 2006 Emerald has participated in the drilling of 5 wells comprising 3 exploration wells and 2 development wells, including Vigia No 4.

The Agueda No. 1 exploration well (Emerald 50% working interest) was drilled in March 2006 to a depth of 9,980 feet on a prospect located to the north of the producing Rancho Hermosoa field in the Llanos basin. The well was evaluated as non-commercial and plugged and abandoned. The drilling of this well satisfied the work obligations under the El Algarrobo Association Contract which has now been relinquished.

The Centauro Sur No.1 well, drilled in April 2006 on a prospect located to the south of the Campo Rico field, discovered oil in the Mirador formation. A second well on the Centauro Sur field was drilled in June and July 2006; both wells have been completed and transferred to production operations.

The Las Acacias No.1 well, drilled in May 2006 on a prospect located to the south of the Vigia field, encountered the three formations found at the Campo Rico and Vigia fields. During flow testing of these formations, no commercial hydrocarbons were recovered to surface. The well is now being re-completed as a disposal well for water produced from the Vigia field thus reducing the ongoing cost of transporting and disposal of the water. Utilized as a water disposal well, a proportion of the drilling costs will be recovered from Ecopetrol's share of Vigia's oil production.

The drilling contract for Saxon's Rig 223, recently demobilized from Vigia No. 4 in the Campo Rico block, has been extended to January 2008 to ensure Emerald has drilling capacity available for its next drilling campaign. Rig 223 is currently on loan to another operator to drill in the Middle Magdalena valley basin where Emerald's Fortuna Block is located. Rig 223 will return to commence Emerald's next drilling campaign which is anticipated to start in November 2006.

The current schedule includes both exploration and development wells and is expected to commence with the drilling of Aureliano No.1 exploration well on the Fortuna block. The Aureliano prospect lies adjacent to the Totumal oil field, also situated within the Fortuna block. The Totumal field has produced more than 0.8 mmbbl of oil from La Luna, a Cretaceous limestone formation, until late 1980s, when it was shut-in by Ecopetrol. In addition to drilling Aureliano No.1, two of the existing Totumal wells are being evaluated as re-entry candidates to re-commence production from the Totumal field.

A detailed feasibility study for further drilling of the Gigante field has started. A program to acquire 40 sq km of 3D seismic to cover the Gigante structure is being prepared. A formal notice has been sent to Ecopetrol enquiring if they will participate for their 50% working interest in the drilling of Gigante No. 2 as a development well inside the joint operations or exploitation area, an area previously known as the sole risk area. If Ecopetrol participates they will pay 50% of the drilling and operating costs and receiving 50% of the production after royalties have been deducted; if Ecopetrol declines then Emerald may drill the well 100% sole risk and receive 200% cost recovery from any future production from the proposed well; no formal response has been received to date. Due to the proposed depth of the Gigante No. 2 well, the need to source tubulars and a drilling rig with sufficient capacity the drilling of the Gigante No. 2 well is unlikely to commence before the end of 2007.

Colombia - Production

Daily gross production for the first six months of 2006 averaged 3,677 bopd, compared to 2,542 bopd and 4,053 bopd achieved in the first and the second halves of 2005, respectively. In the six months to the end of June 2006, production was impaired by the failures of surface and downhole hydraulic pumping systems. Production to date being sold at the current high oil price has produced a cashflow in line with expectations.

Since the problems were identified, several hydraulic pumping systems have been replaced by electrical submersible pumps (ESP), which offer greater variability of pump output and better overall reliability. Most of the remaining rented hydraulic pumps are either being replaced with new hydraulic pumps, purchased by Emerald to improve the overall system reliability, or are scheduled for ESP replacement by the year end.

The Silfide No.1 well in the Fortuna block was produced for several weeks at an average rate of 25 bopd. Geological, reservoir and production data is being evaluated to determine if the well would respond to a hydraulic fracture treatment to enhance the production rate.

Emerald currently has ten production wells with eight on production currently lifting about 4,100 barrels of oil per day. Silfide No.1 is shut-in and Centauro Sur No.1 is being worked over. In addition, the Las Acacias No.1 well is being re-completed as a water disposal well for use with the Vigia field. The Campo Rico field has three wells on production at an aggregate rate of about 1,600 bopd. Vigia field has three wells on production at a combined rate of about 650 bopd; the Centauro Sur field is currently being produced with the Centauro Sur No.2 well at about 850 bopd, while the Centauro Sur No. 1 well is being worked over to reduce the water production. The Gigante No.1A well has recently undergone a scheduled chemical treatment and is on production at approximately 1,000 bopd, its highest level since 2001.

The Gigante 1A well and the Campo Rico field are now operated as joint operations with Ecopetrol with both production and costs shared between the parties in accordance with the relevant association contracts. Emerald has applied for the commerciality status of the Vigia, Silfide and Centauro Sur fields and is awaiting Ecopetrol's decision.

Syria, Block 26 - Exploration

Exploration well North Souedieh No.1 was drilled during the second quarter of 2006. Gas shows were recorded while drilling and interpretation of the electric wireline logs identified potential hydrocarbon zones. However no hydrocarbons were recovered when tested using a wireline conveyed testing tool. The well has been suspended while the acquired data is reviewed and alternative testing operations considered.

Tigris No. 1, the next exploration well expected to spud in late September 2006, will test the Tigris prospect located beneath the large Souedieh field. The Souedieh field, owned and operated by Syrian Petroleum Company (SPC), currently produces approximately 85,000 bopd. The S1100 well drilled more than a decade ago by SPC penetrated the Tigris prospect and encountered gas in several zones, some of which when flow tested, produced gas to surface. The potential hydrocarbon layers within the Tigris prospect have been mapped using the 3D seismic previously acquired by SPC over the Souedieh field. Using the existing dataset, Ryder Scott LLP, independent reserve engineers, completed a study of the Tigris structure to determine its potential to contain either gas or oil.

The Ryder Scott study has concluded that, if the Tigris structure contains gas, then the potential gross Probable and Possible reserves are 884 bcf of gas (equivalent to 145 mmboe) and, if the Tigris structure is an oil accumulation, then the potential gross Possible reserves are 104 mmbbl of oil and 64 bcf of gas (equivalent to 114 mmboe). Ryder Scott has valued Emerald's share at US$494 million in the case of gas accumulation and at US$452 million in the case of oil accumulation. Emerald holds a 50% working interest in the contract to explore, develop and produce hydrocarbons from Block 26.

Interim Financial Results

Interim financial results for the six-month period to 30 June 2006 are expected to be announced by the end of September 2006.

Alastair Beardsall, Emerald's Chairman, said:

"As an exploration company, we have pursued an active drilling program for several months; unfortunately some unsuccessful wells were to be expected.

In this period of high oil prices, acquiring proven reserves and production is expensive. Currently, we remain focused on an exploration strategy for delivering cost-effective growth and may include participation in new exploration ventures, the award of new exploration contracts, farm-ins and acquisitions.

The coming twelve months looks very exciting for Emerald with the planned spudding of Tigris in September and Aureliano in November 2006; and our plans to drill Gigante No. 2 advancing, hopefully, to a spud date before the end of 2007."


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