San Telmo Begins Development Program at Gordondale Prospect

San Telmo Energy has conducted a 50-hour production test was conducted on the Gordondale well. The well flowed at a maximum rate of 4.2 million cubic feet of gas per day (mmcfd) with 603 barrels of oil per day (bbls/d). This translates to 1,303 barrels of oil equivalent per day (boe/d) at a 6:1 conversion.

To comply with flare permit limitations during testing, Gordondale was restricted on a 5/16 (7.94mm) choke to a flow rate of 1.6mmcfd and 232 bbls/d. This equates to 493 boe/d at a 6:1 conversion. Total gas production during the flow period was 2.6 million cubic feet and 596 barrels of oil at a stabilized tubing pressure of 9,799 kpa (1,421 psi). The well test analysis, conducted by leading international engineering consulting firm Fekete and Associates, indicated that no reservoir boundaries were detected during the test.

"We are very pleased that the test results from our Gordondale well support a strong, commercially viable operation," said Chris Dyakowski, Chief Financial Officer for San Telmo. "We plan to commence a development program and drill additional wells at this location as a result of the encouraging flow rates and well test analysis. We believe this initiative will add substantial value for the company and its shareholders."

Tie-in operations are continuing as scheduled at Gordondale and the well is on track to provide significant cash flow for San Telmo beginning in February 2004. The cash flow generated from this well and other San Telmo wells being readied for production will enable the company to fund the development drilling at Gordondale and additional opportunities. San Telmo owns a 73.6% working interest in the Gordondale well.

Peace River Arch (Teepee Creek)
In other production and exploration news, San Telmo's Peace River Arch (Teepee Creek) well has been drilled to target depth, successfully cased and production testing and analysis is underway. Peace River Arch is situated along a Charlie Lake erosional edge that historically has been a prolific producer. Offsetting pools have produced up to seven million barrels of oil equivalent to date. San Telmo's Peace River project is based on a well that appears to be by-passed pay and is offsetting a downdip well that produced 50,000 barrels of oil.