Hydro-Quebec Signs Exploration Agreement with Gastem

Hydro-Quebec has completed a farm-in and earning agreement with Gastem Inc.

This agreement will permit Gastem Inc. to participate in the Miguasha No. 1 well currently being drilled by Hydro-Quebec Petrole et gaz on the Gaspe peninsula in Canada.

The estimated total cost of this well is approximately $1.6 million. Gastem's contribution is $500,000 and could reach $800,000, that is 50% of the estimated drilling costs for this well. By paying 50% of these costs, Gastem will earn a 33.3% interest in the prospect, or a cost/earning ratio of 3 to 2.

This participation also grants Gastem an option that allows it to participate on the same basis in the Miguasha West well, also being drilled by Hydro-Quebec, as soon as drilling operations resume. The total cost of the latter well is estimated at approximately $2.5 million, and Gastem's participation would allow the company to acquire an interest in the remainder of the exploration license under the same cost/earning ratio. This is one of the largest exploration programs in the Gaspe peninsula in recent years.

Significant Future Prospects

The objectives of Hydro-Quebec's Miguasha No. 1 well are to evaluate three (3) oil and/or gas targets, with each target having the potential to be a significant discovery of gas and oil. Two (2) of the targets are Devonian in age and are situated at shallow depths. The shallower objective is characterized by a sizeable seismic anomaly. This type of seismic anomaly is often associated with the presence of gas in a sandstone reservoir. The second objective is a structural-stratigraphic trap situated beneath a major unconformity, representing the principal objective of the well. The third objective is near the projected total depth of the well.

At that depth, a seismic anomaly indicates the possible presence of a Silurian reef complex situated upon a platform margin.

In addition to immediate participation in the drilling of the Miguasha No. 1 well and the possibility of participating in the second Miguasha West well, the agreement also grants Gastem options to conduct exploration work on the five (5) other petroleum and natural gas exploration licenses in the Restigouche Block held by Hydro-Quebec.

Mr. Savoie added that "This participation by Gastem in Hydro-Quebec's work will allow his company, in addition to participating in any eventual discovery, to acquire valuable information in a part of the Gaspe peninsula where there exists a good potential for hydrocarbon discoveries, and where Gastem also holds nine (9) oil and natural gas exploration licenses. These latter licenses are contiguous with those held by Hydro-Quebec."

Hydro-Quebec has been active in oil and gas exploration since 2002. It owns ten (10) exploration licenses on the Gaspe peninsula and a participation in twenty-four (24) licenses on Anticosti Island. Together these licenses cover a total area of more than 650,000 hectares. Since its involvement in this sector, it has participated in the drilling of three (3) wells (two (2) on the Gaspe peninsula and one (1) on Anticosti Island) performed by publicly-traded companies, and as operator of the two (2) wells currently underway on the licenses it holds on the Gaspe peninsula. Hydro-Quebec has also conducted significant geophysical work on Anticosti Island and on the Gaspe peninsula. The mandate of its Oil and Gas Division consists of promoting exploration in Quebec in association with companies from the private sector.