Caithness Signs UK North Sea Farm-in with Reach

Caithness Petroleum Limited has signed a farm-in agreement with its partner in the UK North Sea.

Reach Exploration (North Sea) Limited. Caithness will fund an exploration and development program for its offshore blocks 11/24, 11/25b, 11/23, 11/27, 11/28, and 12/16a, which are located in the Inner Moray Firth. In return, it will raise its interest in these blocks from 30% to 65%. Caithness has also secured a 65% interest in seven onshore blocks, which are adjacent to its offshore licenses.

The Lybster and Knockinnon fields have already been discovered on the Company's offshore blocks. Caithness plans to develop Lybster by drilling horizontal wells from its onshore blocks and has recently been awarded the required onshore planning permission to proceed. The Lybster field was discovered with well 11/24-1 and flowed at 2,000 bbl / day when tested. The development program is scheduled to begin in 2007 and oil produced from the field can be transported by road tanker to a nearby export terminal. The Knockinnon field, which was discovered with well 11/24-2, is likely to be developed in a similar manner, commencing in 2008.

There are further high potential structures on the offshore blocks and Caithness plans to conduct a 3D seismic survey in spring 2007. These surveys will determine the best locations for exploration wells planned for 2008 and 2009.

Caithness Petroleum Chief Executive Officer, Robert Kennedy, commented, "We are very pleased to have concluded the farm-in agreement and to have received planning permission for the development of Lybster from the Highland Council. These are important milestones in the development of our business, which move us one step closer to producing oil in the North Sea and further developing the other promising structures across Caithness' acreage."

Caithness Petroleum Limited is a privately owned, independent petroleum exploration and production company. Caithness was established in 2005 and has high quality assets with proven reserves and exploration potential in Morocco and the UK North Sea.

Caithness has proven and probable reserves in the UK North Sea, through licences which were awarded in the 23rd Offshore Licensing Round with its partner Reach Exploration (North Sea) Limited. These licences cover six offshore blocks (11/24, 11/25b, 11/23, 11/27, 11/28, and 12/16a) in the Inner Moray Firth and seven adjacent onshore blocks.

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