Calvalley Petroleum Moves Forward with Yemen Exploration

Calvalley Petroleum Inc., a Calgary based oil and gas exploration and development company, announced that it has taken a number of significant steps in order to commence drilling on Block 9 in the Republic of Yemen within the next two months.

Effective February 20, 2002 Calvalley received approval from the Yemen Ministry of Oil and Mineral Resources for the transfer of 40% of its interest in Block 9 to Hoodoil Limited and Reliance Industries Limited, in exchange for US$ 10,000,000 and a four well drilling commitment. Under the terms of the Agreement, Calvalley will remain the operator of Block 9 and will retain a 60% majority interest.

Reliance Industries has posted an irrevocable Letter of Guarantee with HSBC Bank in the amount of US$ 5,000,000. Reliance Industries is India's largest company, on all financial parameters, including assets, net worth, sales and profits. Reliance's production of petroleum products and petrochemicals accounts for 3% of India's Gross Domestic Product. Hoodoil has posted an irrevocable letter of credit in the amount of US$ 5,000,000. Hoodoil is part of the Hayel Saeed Anam Group of companies, Yemen's largest industrial group. It is one of the oldest business establishments in Yemen employing 17,000 individuals, with offices in the Middle and Far East, as well as, Europe.

The $US 10 million funding commitment will cover 100% of the cost of operations in the Block related to the completion of a four well drilling program. These funds will allow Calvalley to fulfill all of its financial requirements to the Republic of Yemen in order to satisfy the drilling commitments of both the first and second exploration phases. On March 2, 2002 the Minister of Oil and Minerals unilaterally granted the company a one year extension in the First Exploration Period to April 2003, with the result that the company's exploration rights on Block 9 do not expire until April of 2006.

On February 8th Calvalley requested tenders be submitted for a four well drilling program. Tenders were received from five bidders on March 9th. It is expected that contracts will be awarded before the end of March and mobilization of a drilling rig will commence shortly thereafter. The supply of materials and mobilization of the drilling rig is anticipated to occur within six to eight weeks of awarding the contracts, with the result that the first well should spud before the end of May.

In 1997 Calvalley entered into a Production Sharing Agreement with the Ministry of Oil and Mineral Resources of the Republic of Yemen. A third party evaluation of Block 9 has identified numerous drilling targets with potential oil in place of approximately three billion barrels (Trobec Geology Group, August 2000). Both the exploitation of the existing discoveries on the Block and exploration of new pools will be covered under the four well drilling program. Calvalley's concession is 75 miles from the currently producing blocks of Nexen and TotalFinaElf, which on a combined basis produce approximately 250,000 barrels of oil per day.