Verdisys to Build New Rig

Verdisys has agreed to sell its master license for the Landers lateral drilling technology to Maxim TEP, Inc., a private company (Maxim), and retain a sub-license. Under the terms of this agreement, Maxim has agreed to pay $1.3 million in cash and $270,000 in release of supplier obligations. Several payments will be made over the next six months. The sale is consistent with Verdisys' previously announced plan to apply abrasive fluid jetting technology to drilling, perforating and milling services for oil and gas wells worldwide.

"This sale is the final catalyst that allows us to turn the Company around," said David Adams and John O'Keefe, co-CEO's of Verdisys. "The sales proceeds will be immediately deployed to begin construction of our new generation abrasive fluid jetting drill rig."

Verdisys will now construct a new generation drilling rig based upon modifications using existing coiled tubing technology. The capabilities of this new rig will include: one to one and a half inch coiled tubing with a depth capability of 8,500 feet; a pressure pumping system rated up to 15,000 pounds per square inch and flow rates in excess of twenty gallons per minute; an abrasive slurry mixing system capable of delivering 150 pounds of abrasive material at thirty minute intervals; and a computer controlled system to guide and control the formation access tool for precise casing milling and jet drilling. Based upon the current schedule Verdisys expects this rig to be completed and commercially ready for service in July of 2005. After the initial rig establishes a reliable and commercial service, Verdisys intends to begin construction on additional rigs with similar capabilities as the market demands.

Abrasive cutting utilizes high-pressure fluid and up to 15% of abrasives, such as fine garnet sand, at 15,000 pounds per square inch. It can cut through surfaces as tough as four inches of steel as well as granite rock. Abrasive cutting represents an off-the-shelf technology requiring application to drilling rather than developing a new invention. The successful application of abrasive cutting should allow the Company to provide a range of services to well operators such as milling, specially designed completions, and well stimulation.

Abrasive jetting lateral drilling has the ability to access previously uneconomic reserves and bring production to market at cost effective prices. These services have appeal for both small independent operators as well as large integrated companies. At lower comparative costs, Verdisys expects to make it feasible to enhance production from a large potential market in North America and worldwide that would otherwise be cost prohibitive to recover. The existing oil and gas independent producers in North America are leading potential customers of this abrasive jet drilling service.

In October 2004, Verdisys signed an exclusive worldwide licensing agreement with Alberta Energy Holdings ("Alberta") for the application of their patent pending Abrasive Fluid Jet ("AFJ") cutting technique for well casing and formation rock in oil and natural gas wells. AFJ is being added to, and will enhance the existing principles of lateral drilling and completion techniques utilized by the oil and gas industry. Applications of such abrasive cutting techniques are a proven feature in industries as diverse as munitions disposal in the military, offshore platform dismantlement in the salvage industry and cutting specialty glass and steel in the machining industry. Verdisys would be among the first to commercially apply the proven abrasive fluid techniques to the energy producing business.

Verdisys will retain a domestic sub-license for the Landers technology, which will allow them to apply the underlying principles in their AFJ process and to benefit from any future enhancements or improvements made to the Landers technology. The sale also includes two of the Verdisys' existing mobile drilling units configured to use the Landers lateral drilling process.