ExxonMobil to Discontinue Testing of Foldeak-1 in Hungary

Mako Trough Area - Hungary
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Falcon Oil & Gas announced that ExxonMobil Corporation affiliate ExxonMobil Hungary (Mako) Limited ("ExxonMobil"), the Company's partner in the joint production and development project located in the Mako Trough in Hungary, has notified the Company of its recommendation to cease operations at the Foldeak-1 well site after testing a portion of the Szolnok Formation. ExxonMobil, MOL and Falcon are discussing next steps regarding such operations.

ExxonMobil has completed two fracture stimulation tests at 4,358 and 4,200 meters. The Szolnok Formation is approximately 1,200 meters thick in the Foldeak-1 well, and has a base depth of 4,394 meters.

The lower fracture stimulation at 4,358 meters was completed successfully yielding average gas flow rates of approximately 200,000 standard cubic feet (6,000 cubic meters) per day and average water flow rates of approximately 15 to 370 barrels (2.5 to 60 cubic meters) per day over a 10 day period.

The upper fracture stimulation at 4,200 meters was completed successfully yielding average gas flow rates of approximately 50,000 standard cubic feet (1,415 cubic meters) per day and average water flow rates of approximately 1,200 to 3,100 barrels (200 to 500 cubic meters) per day over a 46 hour period (the well is flowing as of the date of this press release).

For both fracture stimulation tests, the water flowed back was very fresh, less than 5,000 parts per million (ppm) of total dissolved solids. ExxonMobil also reported the presence of CO2 and H2S at levels of up to 16% and up to 400 ppm, respectively, for both fracture stimulation tests.

The very high water flow rates and calculated test permeability experienced in the Foldeak-1 well leads Falcon to be believe that the fracture stimulation connected to a fresh water filled natural fracture system. It is possible that the matrix Szolnok Formation remains largely untested due to preferential flow from the natural fractures.

Falcon interprets the intervals above the tested section to be a separate reservoir and a potential sweet spot within the Szolnok Formation. Core data indicates that the permeability of these prospective intervals is considerably higher than permeability measured below.

Additionally, net to gross reservoir quality sand is also much higher and logs indicate that the gas saturation may increase upwards through the Szolnok Formation. Pressure in these prospective intervals of the Szolnok Formation is interpreted to be considerably lower than the pressures encountered deeper.

Falcon is currently evaluating the remainder of the Szolnok Formation to determine if it is possible to move away from this potential natural fracture system. Pursuant to the $50 million Initial Work Program requirement as defined by the parties' agreement to test the Szolnok Formation, Falcon has recommended additional fracture stimulations at 3,942 and 3,906 meters. The Company believes that the remaining capital within the Initial Work Program budget is sufficient to complete this testing.

"The bottom line is that we are disappointed in test results to date," stated Marc A. Bruner, CEO and President of Falcon. "However, the Mako Trough is an enormous geography with numerous potential zones and formations which remain untested. It's our opinion that the tests to date do not represent a complete evaluation of the hydrocarbon potential of the Szolnok Formation or the Mako Trough overall. We believe that it may be prudent to complete additional testing in the Foldeak-1 well to fully understand the true potential of this resource."


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