Pearl Sells 30% Stake in Tungkal PSC

PEARLOIL (Tungkal) Limited (“PEARL Tungkal”), has entered into a farm-in arrangement with Fuel-X Tungkal Limited (“Fuel-X”) to transfer 30% of PEARL Tungkal’s participating interest in the Tungkal Production Sharing Contract (“Tungkal PSC”) to Fuel-X.

Under the terms of the transaction, Fuel-X will:

(a) pay an aggregate purchase consideration of US$13,500,000; and
(b) be responsible for 100% of the well costs for an exploration well to be drilled in
the Tungkal PSC contract area, up to a maximum amount of US$1,500,000.

The consideration was agreed upon based on arms’ length negotiations between PEARL Tungkal and Fuel-X on a willing buyer and willing seller basis.

In addition, the Transfer is conditional upon the written consents of the government of Indonesia and the Indonesian oil and gas regulator, Badan Pelaksana Kegiatan Usaha Hulu Minyak Dan Gas Bumi.

Under the terms of the transaction, PEARL’s effective interest in the Tungkal PSC will reduce to 70% from 100% and PEARL Tungkal will remain as operator of the Tungkal PSC.

“In a high oil price environment as we see today, this transaction reflects our approach to sensible portfolio management and is consistent with our farm-out strategy to mitigate risk and, at the same time, retain a meaningful ownership position. Although the Mengoepeh field is producing, there remains significant exploration potential in the overall Tungkal PSC,” said Richard Lorentz, PEARL’s Chief Business Development Officer.

“This transaction also paves the way for PEARL’s expansion in Southeast Asia and our partnership with FUEL-X brings us access to capital from Canada for future exploration and development projects. We look forward to the mutual benefits this partnership will bring to both companies,” said Mr Lorentz.

PEARL intends to use the proceeds of this transaction towards the delineation and commercialisation of PEARL’s contingent gas resources.

Barring unforeseen circumstances, this transaction is expected to have a positive effect on the financial position of the PEARL group of companies as it will be able to immediately realise US$13,500,000 of future revenues attributable to the production transferred to Fuel-X and the cost of one exploration well will be borne by Fuel-X. None of the directors or controlling shareholders of the Company has any interest, direct or indirect, in this transaction.

The Tungkal PSC contract area is located onshore Sumatra, Indonesia, and covers approximately 2,288 sq km. The primary asset in the Tungkal PSC is the Mengoepeh oil field, which began production in December 2004 and reached a production level of 2,100 barrels of oil per day at the end of the second quarter 2005. Construction of the permanent production facilities is underway and is slated for completion by the end of 2005.

As of December 31, 2004, the estimated proved plus probable oil reserves in the Mengoepeh field were 6.02 million barrels as certified by third-party expert, Netherland, Sewell & Associates Inc.

Subject to rig availability, PEARL plans to drill two exploration wells at the Cerah and Berkas oil prospects during the year.