BrazAlta Updates Brazilian Operations

Earlier this year BrazAlta announced that is had acquired a drilling rig ("JR1 Rig") with a 2,000 meter plus depth capability for use in Brazil. The JR1 Rig was acquired by BrazAlta as there is a shortage of drilling rigs in Brazil. Management of BrazAlta have determined to keep the focus of BrazAlta as a conventional international exploration and development company and have determined it is in the best interest of the shareholders of BrazAlta to focus the resources of BrazAlta on the exploration and development of hydrocarbons. As a result, BrazAlta is pleased to announce that it intends to: (1) lease the JR1 Rig to CHEQ-It Ltd. ("Cheq-It"); (2) sell its recently incorporated oil and gas services subsidiary, BCH Energy do Brasil Equipamentos e Servicos de Perfuracao Ltda, ("BCH Brazil"), to Cheq-It for nominal consideration ("BCH Brazil Sale"); and (3) enter into agreements to hire the JR1 Rig and a service rig ("Service Rig") and associated drilling services from Cheq-It.

The lease of the JR1 Rig to Cheq-It will allow BrazAlta to focus its resources on exploration and development activities yet will maintain the flexibility for BrazAlta to acquire the use of the JR1 Rig when it requires such services. Title to the JR1 Rig will remain with BrazAlta.

BCH Brazil has been funded to date with working capital loans of approximately $750,000 indirectly from BrazAlta, which it has used to satisfy various start up expenses and acquire various assets to setup business as a oil and gas services provider. All employees, cash, tangible and intangible assets, including deferred setup costs, and liabilities will be transferred over to Cheq-It upon acquisition of the outstanding quotas. Cheq-It intends to repay the principal and interest within the prescribed terms of the agreement, which are on or before December 31, 2006.

It is expected that the agreements will contain following terms of provisions but BrazAlta and Cheq-It reserve the right to alter these agreements if needed.

The first agreement will be an operating lease from a subsidiary of BrazAlta for the JR1 Rig. The Lease will have a two year term with the fee based on a percentage of a daywork drilling contract.

The second agreement will be a daywork drilling contract for the hiring of the JR1 Rig and drilling services by BrazAlta's Joint Venture (the "JR1 Rig Daywork Drilling Contract") for a minimum fee of $15,000 USD per day. The JR1 Rig Daywork Drilling Contract will be for a 2 year term.

The third agreement will be a service contract for the hiring of a service rig and drilling services by BrazAlta from Cheq-it. The terms of the Service Rig Daywork Contract will provide that BrazAlta will hire the Asset and drilling services for a minimum fee of $6,000 USD per day for a 2 year term. The Service Rig Daywork Contract will be assignable by BrazAlta.

The transactions are subject to TSX Venture Exchange acceptance and Cheq-It shareholder approval.

The transactions with Cheq-It are Non Arm's Length transactions. David R.P. Mears, John R. MacMillan and Robert E. Wilson are all directors of BrazAlta and Cheq-It. Mr. Wilson is also the Chairman of Cheq-It and Mr. MacMillan is also the CEO of Cheq-It. Mr. Mears is also the CEO and President of BrazAlta. Mr. MacMillan is also the Chairman of BrazAlta.

Upon shareholder approval by Cheq-it it is expected that Mr. MacMillan will resign as Chairman of BrazAlta but remain as a Director.

Drilling Status of the JR1 Rig

BrazAlta reports that the JR1 Rig has cleared Brazilian customs and has been in country for the last 30 days undergoing preparatory maintenance for BrazAlta's deeper drilling program. The JR1 rig will initially focus on the deeper horizons in the Santana, Fazenda Estaevo and Fazenda Rio Branco fields. Furthermore, BrazAlta is pleased to report that the company has spud its first location in Santana with the JR1 Rig. The company expects to release drilling results regularly as wells are completed and flow tested or deemed not commercial.

With the purchase and import of BrazAlta's own drilling rig the 2006 program has been delayed by 3 1/2 months, however the company expects to drill between 4 to 6 locations by year end with the remainder program in the second first and second quarters of 2007.

Starfish Farm-in

BrazAlta has committed to a farm-in with another Junior Brazilian Oil & Gas Company called Starfish Oil & Gas Inc. BrazAlta will be paying a Before Payout 20% interest for seismic and drilling commitments in 3 additional blocks in the Reconcavo Basin. BrazAlta's after Payout interest will be 10%.

Finally it remains the interest of BrazAlta and WWashington, (BrazAlta's in country JV partner) to work with Schlumberger on the Fazenda Estaevo and Fazenda Rio Branco fields in 2006 and early 2007.


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