Capco Energy Acquires Ukraine Producing Assets

Capco Energy has signed a non-binding Memorandum of Understanding for the acquisition of Carpatsky Petroleum Inc. of Canada. If completed, Capco will acquire the Rudovsko-Chernozavodsky Field (the "R-C Field") and the Bitkov Field in Ukraine owned by Carpatsky through its wholly-owned Delaware subsidiary, Carpatsky Petroleum Corporation. Current gross production from the R-C Field is approximately 18 million cubic feet of gas equivalent per day. The R-C Field (current working interest 20%) is located in the Dnieper-Donets basin of Ukraine, the country's largest and best-known hydrocarbon producing region and is the largest gas deposit ever discovered in Ukraine. Original gas reserves in the R-C Field are 2.0-2.3 trillion cubic feet of gas, 49.5 million barrels of condensate, and 2.2 million barrels of oil. The R-C Field has been moderately developed since its discovery in 1987 with cumulative production of 42 billion cubic feet of gas and 1.5 million barrels of condensate. Current oil production from the Bitkov Field (working interest 56%) is approximately 200 barrels of oil per day. To date, the Bitkov Field has produced 52 million barrels of oil.

The acquisition will be structured as a three-cornered amalgamation whereby Capco will acquire 100% of the shares of Carpatsky and Carpatsky's shareholders will receive 22.0 million shares of Capco common stock. At closing, Capco is expected to have 47 million common shares outstanding of which existing Capco shareholders will own 48.8% and former Carpatsky shareholders will own the other 51.2%. A definitive acquisition agreement is expected to be signed by June 30, 2003, with the closing to occur by August 30, 2003. Following the closing, Capco intends to arrange financing of at least $7.5 million to pay for the cost of wells previously drilled and wells to be drilled at the R-C Field, increasing the working interest from 20% to 45%, with an anticipated net reserve increase of approximately 100 billion cubic feet of gas equivalent of proved producing reserves.

The combined company will be led by Mr. Robert J. Bensh, current Chairman, President & CEO of Carpatsky. Mr. Ilyas Chaudhary, current President & CEO of Capco, will remain a Director of Capco. The proposed transaction has the unanimous support of the directors of both companies. The transaction is subject to shareholder and regulatory approval and is expected to close by August 30, 2003. As a condition of closing, Capco will have $1.5 million in current assets.


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