Galleon Sees 87% Success from 2008 Drilling

Galleon has announced another quarter of successful drilling results.

Galleon confirmed that recent drilling has delineated a significant Montney gas pool in the Central Montney fairway. This has resulted in significant production growth and reserve additions based on internal evaluations.

Production from this pool has grown from approximately 1.7 Mmcf/d (72% interest) in Q2 2008 to the current restricted rate of over 8 Mmcf/d gross with an additional 6 Mmcf/d gross of production waiting on facility upgrade. The 100% Galleon owned facility will be upgraded to 15 Mmcf/d and is scheduled for completion in Q1 2009.

Based on the five wells drilled to date and 3D seismic interpretation, Galleon has delineated a pool that it estimates is approximately 10 sections in size. This project yields high deliverability rates at a low cost. Galleon plans to drill up to 4 additional wells on single section spacing to further prove any expansion to this pool in 2009. Over the life of the project, full development will require in excess of two wells per section.

Second Central Montney project with multi year drilling upside

Galleon has a second Central Montney project which has been delineated in 2008. The current Montney production from this project is over 4 Mmcf/d net from three wells. The project is unique in that it has 7 gas charged Montney sands. To date, 4 sands have been tested of which 2 of these are contributing to current production. The remaining two sands are not on production as the sulphur content exceeds the plant specifications. A recent well has been drilled with the intent of testing 2 Montney gas sands which are anticipated to be sweet. Galleon plans to drill one horizontal well into a mid Montney sand in first quarter 2009. An application for down spacing for all of the Montney horizons has been submitted.

Eastern Montney project delivers record production

In Q4 2008, Galleon has drilled 13 Eastern Montney horizontal wells with multistage fractures. One horizontal well is currently drilling. By year end 2008, 24 horizontal wells will have been drilled. Currently 20 (19.6 net) horizontal wells are producing approximately 3,600 BOE/d net (20 Mmcf/d and 267 Bbl/d of oil and liquids).
The 2009 plan is to drill up to 27 horizontal wells of which 14 wells are planned in the first half of the year. Processing capacity for this project will be expanded to 40 Mmcf/d in 2009.

Although Galleon is in the early stages of applying horizontal completion techniques, the results to date have exceeded expectations. The horizontal wells have consistently shown an improvement of 2 to 3 times the deliverability of the offset vertical wells. The incremental cost of a horizontal well is approximately 50% more than a vertical well.

In addition to the higher initial rates seen in the horizontal wells, another advantage is that the decline rates stabilize much sooner than the offset vertical wells. In the horizontal wells with over 5 months of production history, the production declines have stabilized in 3 to 4 months compared to the offset vertical wells that take approximately 12 months to stabilize.

Montney production has increased from 2,450 BOE/d net in Q2 2008 to over 4,600 BOE/d net today. The high deliverability and producing pressure of the horizontal wells has backed out from the gathering system about 1,000 BOE/d of production from the vertical wells. Much of this backed out production is expected to be restored once field optimization activities are completed in 2009.

In the Eastern Montney project, as at December 31, 2007, proved plus probable reserves of approximately 60 Bcf were assigned by Galleon's independent engineering evaluator on approximately 40 sections of land. In 2008, an additional 30 sections have been delineated through drilling and added into the developed area.

Reserves have not yet been evaluated and assigned to these sections. Within the mapped boundaries of the pool, Galleon has access to over 150 sections of land. Galleon has identified approximately 300 horizontal locations.



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