Valkyries Petroleum Closes Deal For Russian Joint Venture

Valkyries Petroleum reports that the agreement announced on May 5, 2004 to acquire a 50% interest in the ZAO Pechoraneftegas (PNG) project in the Komi Republic of Russia has closed. Valkyries has acquired 50% of the shares of a Cyprus company owned by Vitol Russia B.V. ("Vitol"), which holds a 100% interest in the project, for a total purchase price of US$39million. The funding for the project included a US$30 million credit facility from BNP Paribas as well as US$9 million from a recent private equity placement.

The primary assets of PNG include the Sotchemyu-Talyu producing fields and two exploration licenses on the Kadzherom and Mutnomateric blocks (please see attached map). The Sotchemyu-Talyu field produces from Devonian shelf edge reefs at a current rate of 6000 BOPD. An independent third party SEC reserve report completed Ryder Scott Company in April of 2004 indicates proven reserves of 24.2 million barrels or oil (12.1 million barrels net to Valkyries). The reserves report estimates 2004 cash flow net to Valkyries of US$10.8 million rising to over US$17 MM per year by 2006 and a net present value of Valkyries interest in the project of US$75 million discounted at 10 percent. According to the reserves report, infill drilling is expected to increase field production to over 10,000 BOPD. The field has a direct tie into the main Transneft pipeline and has modern field facilities with over 150,000 barrels of in-field storage.

The first exploration well on the Kadzherom license area has reached total depth and is currently being completed as a producer. This well was drilled on a reef prospect directly on trend with the proven Sotchemyu field area. Details of this discovery will be released once testing has been completed. Valkyries President and CEO Keith Hill stated "We are glad to see the completion of our first major deal in the former Soviet Union and hope this is the first of many to come. Having a partner with the experience and high reputation of Vitol will greatly enhance our ability to make this project successful and to grow in the region."

Valkyries Petroleum Corp. is an upstream oil and gas company with exploration and producing interests in Texas and which is currently in advanced stages of evaluation and negotiation on several projects in the CIS.