Valkyries Petroleum Acquires Offshore Caspian Block

Valkyries Petroleum has acquired a 70% interest in the Lagansky exploration block located offshore in the Russian sector of the Caspian Sea. The Lagansky Block is directly adjacent to the Caspian Field project operated by the Company onshore Kalmykia.

The Lagansky Block is 2,000 square kilometers (494,000 acres) in size and is located in the Central Caspian Basin which contains some of the largest oil and gas accumulations in the world. The block is located on a structural trend which includes the Rakushechnoye and Yuri Korchigan Fields currently being appraised and developed by the Russian major Lukoil. In a recent press release, Lukoil stated they expect Rakushechnoye to have reserves of up to 6 billion barrels of oil equivalent and that they believe the Russian sector of the Caspian Sea could contain reserves of over 33 billion barrels of oil equivalent.

Valkyries has obtained a third party report on the Lagansky Block from Exploration Consultants Ltd. in the United Kingdom dated 15 July 2005. The report was prepared in accordance with National Instrument 51-101. The estimate of potential resources focuses on two existing seismic leads and estimates a range of potential recoverable most likely oil resources of between 65 and 474 million barrels of oil or potential recoverable most likely gas resources of between 200 billion and 1.6 trillion cubic feet of gas. Russian State C3 reserves potential on this block are 110 million tons (800 MMBO). Reservoirs are expected to be primarily Aptian sandstones and Upper Jurassic carbonates which are productive on trend.

Valkyries President and CEO, Keith Hill, stated, "The Lagansky Block is one of the few remaining undrilled blocks in the prolific offshore North and Central Caspian basin which has yielded many of the world's largest oil and gas discoveries of the past 25 years. We consider this a world class exploration play that has the potential to propel Valkyries to a new level amongst the junior oil and gas companies operating in Russia. The ability to quickly access the potential of the block through seismic and drilling was a major factor in our decision to undertake this venture."

The Company has mobilized a 2D offshore seismic program of 424 kilometers which commenced last week. Results of this program will be integrated into the existing seismic interpretation and it is expected that exploration drilling will commence by the second quarter of 2006. Due to the shallow water depths and proximity to shore, it is expected that these fields could be brought on stream in a timely and cost effective manner.

The Lagansky Block exploration license was granted in August of 2004 and has a five year primary exploration term. The minimum work program for this 5-year period calls for the acquisition of 1400 kilometers of 2D seismic data, 500 square kilometers of 3D seismic data and the drilling of 4 exploration wells. Fiscal terms are standard Russian terms which include a 24% corporate income tax, a petroleum revenue tax and a duty on exports which is related to domestic and export crude prices.

Under the terms of an agreement signed with Mintley Kalmykia Limited, Valkyries paid a front end price of US$28.5 million to acquire 70% of Mintley (Caspian) Limited and will fund 100% of the costs associated with the upcoming exploration program. Mintley Caspian has recently concluded a deal to acquire a 100% interest in the Russian company which holds the exploration license for the Lagansky Block. A bonus of US$12.5 million will be due to Mintley Kalmykia in the event of a commercial discovery and a further US$10 million bonus will be due to Mintley Kalmykia upon the award of a development license for any resulting discovery.

Funding for the project will be provided by a 9 month US$50 million bridge loan from Ferrier Lullin private bank, a subsidiary of UBS, which will be guaranteed by Lorito Holdings Ltd, an investment company wholly owned by a trust whose settler is Mr. Adolf H. Lundin. Lorito will, subject to regulatory approval, be entitled to a 15% bonus in Valkyries shares in connection with this guarantee. Valkyries plans to replace this bridge loan with a combination of debt and equity prior to year-end 2005. All necessary approvals from the TSX Venture Exchange have been received for the Lagansky Block acquisition.

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