Emerald Posts Loss for 2006

Emerald Energy Plc on Wednesday reported its final results for the year ended 31 December 2006.

Highlights for 2006

--Gross production in 2006 from Emerald's operations totaled 1.3 million barrels, 11% higher than in 2005;
--Average daily gross production for the period was 3,673 bopd compared with 3,301 for 2005;
--Emerald was awarded two new E&P Contracts by the ANH for the Maranta and Ombu blocks in Colombia;
--During 2006 Emerald participated in the drilling of five exploration and two development wells, resulting in one new discovery and two new wells on production;
--The Group generated an EBITDA of $25.1 million in 2006, an increase of 47% over 2005 results.
--After write-offs of unsuccessful exploration efforts of $9.5 million, an impairment charge of $5.9 million and tax charges of $4.5 million, the Group made a loss of $2.7 million, compared to a profit after tax of $5.8 million achieved in 2005.
--Since the beginning of 2007 Emerald has been awarded E&P contracts by the ANH for the Helen and Jacaranda blocks in Colombia, and Emerald currently has ten production wells on five fields producing 3,800 bopd from its Colombian operations.
--Drilling commenced on Khurbet East No. 1, the Company's third exploration well on Block 26, Syria on 15 February 2007 and has encountered two prospective horizons with oil samples having been recovered from the lower Massive formation. The well is currently drilling ahead below 2,450 m to a planned total depth of 3,700 m.

Chairman's statement

Colombia

During 2006 Emerald drilled two prospects which resulted in the discovery of the Centauro Sur field. The other prospect, Las Acacias, was determined to be non-commercial and it has been converted into a disposal well for the water produced by the Vigia wells.

Emerald also participated, with a 50% share, in the drilling of the Agueda No. 1 exploration well, drilled by Rancho Hermoso SA on the El Algarrobo block in March 2006. The well recovered no hydrocarbons during a flow test and was plugged and abandoned. The Company has returned the block to Ecopetrol and has no further obligations under the Association Contract.

The operation of Gigante No. 1A well under the sole risk provisions of the Matambo Association Contract started in February 2003 with Emerald entitled to receive 100% of production from the Gigante No. 1A well until all of Emerald's reimbursable costs were recovered. In March 2006, under different provisions of the Matambo Association Contract, Ecopetrol exercised its right to participate for a 50% share in the exploitation of the Gigante No. 1A well and Emerald agreed to deliver 25% of the well's production to Ecopetrol, whilst Emerald will receive Ecopetrol's other 25% share until full recovery of the reimbursable costs is achieved.

In early 2006 an electrical submersible pump was installed in Gigante No. 1A to replace the smaller capacity hydraulic jet pump. The well continues to be treated with chemicals periodically to restore its production capabilities. During the year its production averaged 649 bopd with the highest rate achieved being 1,080 bopd.

In the fourth quarter of 2006 Emerald acquired a 3D seismic survey of 66 sq km over the Gigante structure. This survey is now being integrated with other geological data to determine if further development of the Gigante field is technically and commercially viable. If the Company decides to drill further wells on the Gigante field it will seek to finance this work through debt, issuance of new equity, a farm-in partner or some combination of these alternatives. Drilling is unlikely to commence before the end of 2007.

In the first quarter of 2007, Emerald drilled the Aureliano prospect, on the Fortuna block. The Aureliano structure is separated by a fault from the Totumal field that was produced by Ecopetrol until 1993, when it was abandoned after producing over 800,000 barrels of oil. The Aureliano No. 1 well is currently being tested with results expected over the next few weeks.

In the reporting period, all of Emerald's production came from operations in Colombia. In 2006, Emerald achieved an average gross production rate of 3,673 bopd, an 11% increase on 3,301 bopd achieved in 2005. On the entitlement basis, in 2006, Emerald achieved 2,510 bopd compared to 2,296 bopd achieved in 2005. Emerald's production in Colombia continued to produce strong positive cash flow which has been used to further develop the Company's assets and to explore for new reserves.

Syria

Emerald holds a 50% non-operating interest in the contract to explore and produce hydrocarbons from Block 26, Syria. The consideration to acquire this interest included the issue of 3.5 million ordinary shares to the vendor no later than May 2007.

In January 2006, 1,155 km of 2D seismic data was acquired and subsequently processed and integrated with the existing seismic data over the block. In December 2006 a further 266 km of 2D seismic data was acquired to assist in the location of future exploration wells.

The Souedieh North No. 1 exploration well, targeting a Cretaceous prospect was drilled in the first quarter of 2006. Hydrocarbon bearing zones were identified from the wireline log data, however no hydrocarbons were recovered during a downhole flow test; the well was suspended and the drilling rig released. Subsequent analysis has determined that the hydrocarbon is most likely high density viscous oil that is unlikely to flow without some form of thermal stimulation.

The Tigris No. 1 exploration well was spud in September 2006 to test a deep structure mapped in the northeast part of the block. The Tigris No. 1 well reached its total depth in February 2007 and after analysis of the drilling and wireline log data Emerald determined, in its view, that the hydrocarbons present were unlikely to be sufficient for a commercial development. The operator elected to continue operations on the well as an exclusive operation at its sole cost. Emerald may elect at any time to re-join the well operation on payment of its share of costs and a back-in penalty.

In February 2007, the third of four commitment wells was spud on the Khurbet East prospect. The well is expected to take 100 days to drill to a planned total depth of 3,700 meters. Currently the well is drilling ahead below 2,450 m having already penetrated two prospective horizons, the Chilou and Massive formations as identified from drilling data and electric logging surveys. Live oil samples have been recovered from the lower Massive. The rig will continue to drill to the planned total depth to test the prospectivity of several deeper, as yet undrilled, horizons.

A drilling rig is contracted to drill the fourth commitment well and is expected to commence drilling in July 2007, the location for this well will be finalized when the results of the Khurbet East well are known.

Financial results

Production growth and a further strengthening of the oil prices in the reporting period helped Emerald generate an EBITDA of $25.1 million compared to $17.0 million achieved in 2005. The results for the year ended 31 December 2006 show an operating profit of $1.2 million achieved on the revenue of $45.9 million compared with an operating profit of $10.0 million achieved on the revenue of $ 32.1 million in the year ended 31 December 2005. This decline in the operating profit is primarily a result of the write-offs of unsuccessful exploration efforts and impairment charges. After tax, the Group made a loss of $2.7 million compared to a profit after tax of $5.8 million achieved in 2005. Cash at 31 December 2006 totaled $15.7 million compared with $20.7 million at 31 December 2005.

The Company does not propose to declare a dividend for 2006 as it intends to use its cash reserves and strong cash flow to finance the growth of the Group and its operations.

Board change

Mr Angus MacAskill was appointed a Director of the Company on 4 September 2006, and on 1 December 2006 was appointed as the Company's Chief Executive.

Outlook

In Colombia the addition of four new E&P contracts under the more favorable terms offered by the ANH demonstrates the management's commitment to deliver the best growth opportunities for the Company's shareholders. The work program in Colombia for 2007 will focus on exploring for reserves with a higher intrinsic value in the new ANH contract areas. Development drilling on the discovered fields within the Company's existing Association Contract areas will help to maintain production whilst the new ANH areas are explored. To optimize its exposure to exploration activities, Emerald will seek to farmout some prospects already identified within its exploration portfolio.

The drilling program in Syria is designed to test for potential hydrocarbons in material prospects where success will greatly enhance Emerald's value. Results to date from Khurbet East No. 1 are very encouraging and with further horizons to drill we remain optimistic of a successful outcome for this well and the prospect it is testing.

Emerald's objectives remain unchanged, to grow its reserve base and increase its net production through exploration and development of existing and new acreage. The Company's production sold at current oil prices will continue to generate strong cash flow which, with the Company's current cash resources, will be used to explore and create a more substantial reserve base.

Review of operations

Emerald is engaged in exploration and production of hydrocarbons in South America and the Middle East. In Colombia, Emerald is participating in Association Contracts with Ecopetrol, the Colombian state oil company, and holds interests in several exploration and production contracts issued by the National Hydrocarbon Agency of Colombia ("ANH"). Emerald continues to actively seek new exploration opportunities in Colombia and in other countries of South America. In the Middle East, Emerald is involved in exploration of Block 26 in Syria.

Colombia

Campo Rico Association Contract

  • Area of 503 sq km;
  • Emerald 100% operated working interest (50% Ecopetrol back-in right);
  • Contract awarded in May 2002 with an exploration period of up to six years and an exploitation period of up to 22 years;
  • Emerald conducts all exploration activities at its own risk;

Following a discovery, Ecopetrol has the right to participate in the development of the discovery with a 50% working interest and Emerald has the right to recover reimbursable costs from a share of production.

The Campo Rico block is located in the Llanos basin. Emerald currently operates three fields in the block: the Campo Rico, Vigia and Centauro Sur fields. In addition Emerald has identified opportunities for exploration drilling outside of the existing fields, based on interpretation of the 172 sq km 3D seismic survey acquired in the block.

Campo Rico field

The Campo Rico field was discovered in March 2004 and the cumulative oil production from the field at the end of 2006 was 1,801,000 barrels.

The field produces 16degrees API crude oil from Mirador sands. The average production rate achieved by the field in 2006 was 1,813 bopd.

The downhole pumps in the three production wells have been changed from hydraulic jet pumps to electrical submersible pumps (ESPs), which have better efficiency and fluid handling characteristics more suited to long term field production. In the first quarter of 2007, the Campo Rico field was produced at an average rate of 1,361 bopd.

The production facilities at the Campo Rico field used to process the crude oil production continue to be enlarged to handle the increasing volumes of water produced from the maturing field, thus maintaining oil production levels from the increasing fluid rates.

A fourth development well location has been identified based on integrated interpretation of the 3D seismic survey and the geological and production information acquired to date in the field. The Campo Rico No. 4 development well is being prepared for drilling in 2007.

On 28 December 2005, Ecopetrol granted the Campo Rico field commerciality status; Ecopetrol now participate with Emerald in commercial exploitation of the field. Under the terms of the Campo Rico Association Contract, Emerald has the right to recovery of reimbursable costs from 50% of Ecopetrol's share of production. Once the recovery of reimbursable costs is complete, production and costs associated with the operation of the field will be shared equally between Emerald and Ecopetrol.

As at 31 December 2006, the Campo Rico field was estimated by the Company to contain 3.8 million barrels of Proved plus Probable reserves of oil.

Vigia field

The Vigia field was discovered in April 2005 and the cumulative oil production from this field at the end of 2006 was 380,000 barrels.

The field has three production wells and produces 15degrees API crude oil from the Une and Lower Gacheta sands. The average production rate achieved by the field in 2006 was 732 bopd.

During 2006, the downhole pump in the Vigia No. 1 production well, the well with the highest production rate in the field, was changed from a hydraulic jet pump to an electrical submersible pump (ESP), which is expected to have better efficiency and fluid handling characteristics more suited for the long term field production. Conversion of the Vigia No. 2 and No. 3 production wells to ESPs remains under evaluation. In the first quarter of 2007, the Vigia field was produced at an average rate of 527 bopd.

The production facilities at the Vigia field continue to be enlarged to handle the increasing volumes of water produced from the maturing field, thus maintaining oil production levels from the increasing fluid rates.

The Vigia No. 4 well, drilled in August 2006 as a step out appraisal well to test a westward extension to the Vigia field, was evaluated as non-commercial and has been plugged and abandoned. Emerald is entitled to recover a proportion of the drilling costs from Ecopetrol's share of Vigia's oil production under the terms of the Campo Rico Association Contract.

The Las Acacias No. 1 exploration well, drilled in May 2006 to the south of the Vigia field has been configured as a permanent disposal well for the produced water from the Vigia field and a pipeline has been installed between the Vigia field and the well. Since October 2007 the produced water from the Vigia field has been injected into this well.

As at 31 December 2006, the Vigia field was estimated by the Company to contain 2.0 million barrels of Proved plus Probable reserves of oil.

Centauro Sur field

The Centauro Sur field was discovered in April 2006 and the cumulative oil production from this new field at the end of 2006 was 172,000 barrels.

The Centauro Sur No. 1 discovery well was drilled to a depth of 11,265 ft in April 2006 and brought on production at the end of April 2006. The Centauro Sur No. 2 appraisal well was drilled directionally from the site of the Centauro Sur No. 1 well to a measured depth of 10,865 ft. The field produces 16degrees API crude oil from the Mirador sands. In the period from 28th April to 31 December 2006, the field was produced at an average rate of 696 bopd.

Following the initial testing of field production, a flow line was installed to transport Centauro Sur field production to the Campo Rico field where it is processed using the existing field facilities. In the first quarter of 2007, the field was produced at an average rate of 670 bopd.

As at 31 December 2006, the Centauro Sur field was estimated by the Company to contain 0.5 million barrels of Proved plus Probable reserves of oil.

Applications for field commerciality status

Emerald has applied for commerciality status for the Vigia and Centauro Sur fields and agreed with Ecopetrol the remaining field work required for Ecopetrol to make its decisions. If a field is granted commerciality status, Ecopetrol would join Emerald in commercial exploitation of the field. Under the terms of the Association Contract, Emerald would have the right to recovery of reimbursable costs from 50% of Ecopetrol's share of field production. Once the recovery of reimbursable costs is complete, production and costs associated with the operation of the field would be shared equally between Emerald and Ecopetrol.

Exploration opportunities in the Campo Rico block

In 2006, Emerald completed additional processing and interpretation of the 3D seismic data acquired in 2005 over 172 sq km of the Campo Rico block. The survey was acquired to appraise the development potential of the existing fields and to identify new prospects in the block. Emerald has identified a number of additional prospects.

Matambo Association Contract

  • Area of 69 sq km;
  • Emerald 100% operated working interest (50% Ecopetrol back-in right);
  • Exploration and exploitation rights extend to November 2024;
  • Emerald conducts all exploration activities at its own risk;

A joint operations area, centered on the Gigante No. 1A well has been established, Ecopetrol and Emerald participate on a 50/50 basis, Emerald has the right to fully recover the reimbursable costs from a share of production.

The Matambo block, located in the Upper Magdalena valley, contains the Gigante field. The Gigante field is operated with a single well, Gigante No. 1A. The cumulative oil production from the Gigante field at the end of 2006 was 2,291,000 barrels.

The Gigante No. 1A well was brought on production in May 1999. The well produces 32degrees API gravity crude oil from the Tetuan sand at approximately 16,600 ft. The average production rate achieved by the field in 2006 was 650 bopd.

In 2006 the downhole hydraulic jet pump was changed to an electrical submersible pump (ESP) to increase the well production rate, resulting in an increase of peak production from 850 bopd before to 1,100 bopd afterwards. Production in the fourth quarter of 2006 was limited by a failure of the ESP and the period required locating and mobilizing a workover rig to replace the ESP. In the first quarter of 2007, the Gigante field was produced at an average rate of 947 bopd.

In the fourth quarter of 2006, Emerald acquired a 66 sq km 3D seismic survey across the Gigante field area to refine the structural interpretation and evaluate the potential for further development of the Gigante field. The Company is developing plans to drill Gigante No. 2 well to produce from the Tetuan sands and test the exploration potential of the underlying Caballos sands.

Emerald operated the Gigante No. 1A well on a sole risk basis from 1 February 2003. Under the sole risk provision of the Matambo Association Contract, Emerald is entitled to recover the reimbursable costs incurred during exploration and sole risk. When sole risk was granted, a sole risk area of 733 m radius was established around the Gigante No. 1A well and a reserved zone of up to 5 km around the sole risk area was established. Emerald retains exclusive exploration rights within the reserved zone without any additional work obligations. Since April 2006, Ecopetrol has participated in joint operations in the 733 m radius exploitation area, previously designated sole risk, around the Gigante No. 1A well. Ecopetrol and Emerald participate on a 50/50 basis, and Emerald continues to recover its reimbursable costs from a share of production.

As at 31 December 2006, the Gigante field was estimated by the Company to contain 7.4 million barrels of Proved plus Probable reserves of oil.

Fortuna Association Contract

  • Area of 106 sq km;
  • Emerald 90% operated working interest (20% Ecopetrol back-in right);
  • Contract awarded in December 2003 with an exploration period of up to six years and exploitation period of up to 22 years;
  • The Associate (Emerald 90%, Geoadinpro S.A. 10%, with Emerald carrying Geoadinpro's share of the costs) conducts all exploration activities at is own risk;
  • Following a discovery, Ecopetrol has the right to participate in the development of the discovery with a 20% working interest and Emerald has the right to recover reimbursable costs from a share of production.

The Fortuna block lies in the Middle Magdalena basin and the contract area includes the Totumal oil field, produced by Ecopetrol until it was abandoned in 1993 after producing over 800,000 barrels of oil. Emerald has identified exploration prospects in the La Luna limestone, similar to those produced in the Totumal field, and in the shallower Lisama sands that flank the Totumal field high. Three oil fields that have produced from the Lisama sands lie just to the south of the Fortuna block.

Silfide field

The Silfide field was discovered in October 2005 and the cumulative oil production from this field at the end of 2006 was 2,200 barrels.

The Silfide No. 1 exploration well, drilled in October 2005, produced 17degrees API crude oil from the Umir sands at an average production rate of 22 bopd during an extended well test. The well was shut in following the failure of a downhole mechanical pump.

A workover to conduct a fracture stimulation to increase the productivity of the Umir sand is planned for the first half of 2007.

The Silfide field is currently being operated under the production test provision of the Fortuna Contract. Emerald has applied for commerciality status for the Silfide field and has agreed with Ecopetrol the remaining work required for Ecopetrol to make its decision. If the Silfide field is granted commerciality status, Ecopetrol would join Emerald in commercial exploitation of the field. Under the terms of the Association Contract, Emerald would have the right to recovery of reimbursable costs from Ecopetrol's share of production. Once the recovery of reimbursable costs is complete, production and costs associated with the operation of the field would be shared between the Associate and Ecopetrol on an 80/20 basis.

Proved plus Probable reserves of oil have not been attributed to the Silfide field until commercial production rates have been established by the fracture stimulation operation in 2007.

Aureliano prospect

The Aureliano prospect is located to the north of the Totumal field, separated only by a fault. The Aureliano No. 1 well was drilled to a total measured depth of 8,745 feet in January 2007 and targeted the same La Luna limestone that produced in the Totumal field. The target formations were encountered as forecast and electric wireline logs indicated the presence of potential hydrocarbon-bearing zones. The well is currently being production tested. A detailed study of all the data acquired during the drilling and testing of the well is being undertaken to determine the potential for further development drilling of the Aureliano accumulation.

Emerald has evaluated the potential to re-start production of the Totumal field and is developing plans to re-enter a well that previously produced in the field. The purpose of the re-entry would be to determine the current status of the field reservoirs and to test stimulation techniques for improved productivity.

During 2006 the Company relinquished an area of 113 sq km in the block as part of an agreement with Ecopetrol on the remaining exploration period and exploration commitments. The only remaining commitment is a fracture stimulation of the Silfide No. 1 well.

Maranta Exploration and Production Contract

  • Area of 365 sq km;
  • Emerald 100% operated working interest (no 3rd party back-in rights);
  • Contract awarded by the ANH in September 2006 with an exploration period of up to 6 years and exploitation period of up to 24 years;
  • Initial exploration phase of up to 18 months with commitment to acquire 30 km of new 2D seismic and reprocess 40 km of existing 2D seismic.

The Maranta block lies in the Putumayo basin in the south of Colombia. A number of exploration prospects and leads have been identified, from existing seismic data, on trend with nearby producing oil fields. The exploration program in the initial phase is designed to determine whether a well drilling commitment will be undertaken in this block. If Emerald elects to enter the second phase, the minimum work program includes the drilling of one well to an estimated depth of 11,000 ft.

The Maranta block also contains the Umbria No. 1 well, drilled in 1967, which encountered oil in the Villeta formation. The Company is investigating the potential to re-enter this well to further test the formation productivity.

Ombu Exploration and Production Contract

  • Area of 300 sq km;
  • Emerald 100% operated working interest (no 3rd party back-in rights);
  • Contract awarded by the ANH in December 2006 with an exploration period of up to 6 years and exploitation period of up to 24 years;
  • Initial exploration phase of 11 months with commitment to acquire 61 km of new 2D seismic and reprocess 60 km of existing 2D seismic.

The Ombu block lies in the Caguan basin to the southwest of the Llanos Basin. An exploration prospect has been identified from existing seismic and well data. The Payara No. 1 well, drilled on the same structure in 1976, tested oil in the Mirador sands. The exploration program in the initial phase, which may include the re-entry of the Payara No. 1 well, is designed to determine whether a well drilling commitment will be undertaken in this block. If Emerald elects to enter the second phase, the minimum work program includes the drilling of one well to an estimated depth of 5,000 ft.

Helen Exploration & Production Contract

  • Area of 213 sq km;
  • Emerald 15% non-operated working interest (no 3rd party back-in rights), carried through the initial phase;
  • Contract awarded by the ANH in December 2006 with an exploration period of up to 6 years and exploitation period of up to 24 years;
  • Initial exploration phase of up to 16 months with commitment to acquire 30 km of new 2D seismic and reprocess 120 km of existing 2D seismic.

The Helen block lies in the Putumayo basin in the south of Colombia. The exploration program in the initial phase is designed to determine whether a well commitment will be undertaken in this block. If Emerald elects to enter the second phase, the minimum work program includes the drilling of one well to an estimated depth of 10,000 ft.

Emerald entered into an agreement with Vetra Energy Group LLC ("Vetra"), subject to approval by the ANH, under which Vetra will pay 100% of the cost of the initial phase of exploration and will be assigned an 85% interest in, and operatorship of the Contract. Emerald will retain a 15% interest in the Contract and will be fully carried through the initial phase of exploration.

Jacaranda Exploration & Production Contract

  • Area of 235 sq km;
  • Emerald 100% operated working interest (no 3rd party back-in rights);
  • Contract awarded by the ANH in March 2007 with an exploration period of up to 6 years and exploitation period of up to 24 years;
  • Initial exploration phase of 12 months with commitment to acquire 40 km of new 2D seismic, process seismic attribute for 25 km, and reprocess 25 km of existing 2D seismic.

The Jacaranda block lies in the Llanos basin in the south of Colombia. The exploration program in the initial phase is designed to determine whether a well commitment will be undertaken in this block. If Emerald elects to enter the second phase, the minimum work program includes the drilling of one well to an estimated depth of 6,000 ft.

Technical Evaluation Agreements (TEAs)

The Company has completed its evaluation of the Cachama and Las Brisas TEA areas and has been awarded the Jacaranda exploration and production contract over a part of the Cachama TEA area. Following the expiry of the agreements in July 2006, Emerald does not retain any rights to the remainder of the study areas. The Company has not entered into any further TEAs.

Contract terminations

During 2006, Emerald participated in the drilling of the Agueda No. 1 well (Emerald 50% non-operated working interest) in the El Algarrobo Association Contract, satisfying the minimum work obligation. The well was evaluated as non-commercial and plugged and abandoned. Emerald and its partner subsequently gave notice to withdraw from the interest in the El Algarrobo Association Contract which was terminated.

Production

In the reporting period, Emerald's production came from the Campo Rico block (the Campo Rico, Vigia and Centauro Sur fields), the Matambo block (the Gigante field) and the Fortuna block (Silfide field). In 2006, Emerald achieved an average gross production rate of 3,673 bopd, 11% increase on 3,301 bopd achieved in 2005. On the entitlement basis, in 2006, Emerald achieved 2,510 bopd compared to 2,296 bopd achieved in 2005.

In the first quarter of 2007, Emerald's gross production averaged 3,508 bopd, compared to 3,586 bopd achieved in the fourth quarter of 2006. This 2% decline in production represents a combination of natural decline, variable operating efficiency of production equipment, and the deferment of production during three well workovers, following which production increased to a current level of 3,800 bopd.

Syria

Block 26 Production Sharing Contract

  • Area of 11,000 sq km;
  • Production Sharing Contract (PSC), effective August 2003, with an initial exploration period of 4 years and options to extend for a further 3 years and then 2 years, exploitation period of up to 25 years;
  • Emerald has 50% non-operating working interest in the contract;
  • Royalty of 12.5%; cost recovery allowance with profit oil share reducing on a sliding scale basis.

Block 26 is situated in northeast Syria and its boundaries surround existing discovered fields, some of which have been developed and currently produce in excess of 100,000 bopd, including the Souedieh field, the largest oil field in Syria. Production from these fields is from mid-Cretaceous limestone reservoirs that produce medium gravity 20-26degrees API crude oil. These existing fields are excluded from the PSC but the deeper stratigraphic levels below them are not. The initial phase of exploration, due to expire in August 2007, requires four exploration well to be drilled with at least two reaching Paleozoic age formations. Two of these wells had been drilled and a third commenced drilling by the end of the first quarter 2007. A drilling rig is contracted to drill the remaining well prior to the expiry of the initial phase.

The first exploration well, North Souedieh No. 1, was drilled during the second quarter of 2006 on the North Souedieh prospect, a Cretaceous target situated within the northeast part of the block, located between the existing Souedieh and Karatchok fields. 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. Subsequent analysis has indicated the hydrocarbon to be viscous oil with a high density which is unlikely to flow without some form of thermal stimulation. The well has been suspended while the acquired data is reviewed and alternative testing operations are considered.

The second exploration well, Tigris No. 1, was drilled during the fourth quarter of 2006 and first quarter of 2007 on the Tigris prospect, a Paleozoic target, also located in the northeast part of the block and directly underlying the Souedieh oil field. The Tigris structure had previously been penetrated by the S1100 well in 1994. Operational difficulties in the S1100 well had resulted in equivocal electric wireline log information but records indicated that some gas had been produced to surface during testing. The Tigris No. 1 exploration well encountered hydrocarbon shows while drilling, two cores were cut, and an extensive suite of wireline logs was run across the Paleozoic section. Analysis of the wireline logs suggested that hydrocarbons may be present, but formation pressure sampling was unable to confirm the presence or mobility of any such hydrocarbons. Emerald concluded, based on the data acquired in the well, that it is unlikely that commercial hydrocarbons can be produced from this well. Emerald therefore elected not to participate in the running of a liner in the well, an operation that was conducted by the Operator as an exclusive operation under the Joint Operating Agreement between the Block 26 partners. Emerald may elect, at any time, to participate in the future operations on Tigris No. 1 well and would be required to reimburse the operator its costs with an additional back-in penalty.

In early 2006 1,155 km of 2D seismic was acquired, processed and interpreted. In December 2006, an additional 266 km of 2D seismic was acquired in order to refine the geological interpretation of the area and to optimize the remaining drilling program.

The third exploration well, Khurbet East No. 1, was spud in February 2007 on the Khurbet East prospect, a fault-bound structural culmination, with closure mapped at several potential reservoir levels including Cretaceous, Triassic and Paleozoic ages. The Khurbet East prospect is located in the northeast of the block, approximately 12 kilometers southwest of the Souedieh Oil Field and 12 kilometers south of the Roumelan Oil Field.

While drilling Khurbet East No. 1, hydrocarbon shows were encountered in the Tertiary Chilou and Cretaceous Massive formations. Wireline logs indicated a gross hydrocarbon interval of 31 meters and a net hydrocarbon interval of approximately 22.5 meters in the Massive formation with some additional potential in the Chilou formation. A wireline formation pressure sampler confirmed the presence of hydrocarbon in the Massive formation and retrieved a sample of 21 degree API gravity oil to surface. Drilling is continuing to the total drilling depth of 3,700 meters to evaluate the remaining prospective intervals.

The location of the fourth commitment well will be selected from the remaining identified prospects, refined by the geological understanding being obtained from the ongoing drilling program. This well is expected to spud around July 2007 when the MB3 drilling rig returns from drilling wells for the rig-share partner.

New ventures

Emerald has evaluated several new ventures in Colombia, in other countries of South America, and of a broader international nature. Within Colombia, four new exploration and production contracts have now been added to the portfolio, significantly adding to the future exploration potential. Emerald's objectives remain to grow its reserve base and to increase its net production through exploration and acquisition of assets.

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