Kodiak Energy Signs LOI for Utah Heavy Oil Project

Kodiak Energy, Inc. has signed a letter of intent with Reibanc USA, Inc., for 22% of a heavy oil project in the Unita Basin in Utah.

Kodiak will spend $2,000,000.00 to cover the costs of preliminary engineering , geological work, reports and studies on the Utah assets. This work should take 18 to 24 months to complete. Upon completion of these studies and work, Kodiak will issue $2,000,000 payable in common shares of the company to Reibanc USA, Inc. When detailed design, construction and operations commences Kodiak will pay its proportionate share of the costs of the project.

The leases are estimated to contain a drill proven heavy oil sand reserve of 100 million barrels and a probable heavy oil sand reserve of 700 million barrels.

The gravity of Utah heavy oil ranges from 8 degrees to 14 degrees API, which is comparable to that of the Athabasca oil sands of Alberta. Recent improvements in handling and refining heavy oil are expanding its marketability. Specifically, the Utah heavy oil has an important quality advantage, a sulphur content of only 0.4% to 0.7%, compared to a typical sulphur content of 4.8% for Athabasca heavy oil, that will make it easier to upgrade and to market.

Uinta Basin Reserves

The oil sands deposits in the Uinta Basin of central and eastern Utah have been known for over 100 years. Modern day exploration of these deposits began in 1956 and continued until 1982 when the declining oil price terminated activity. During the 1956 to 1982 period, industry exploration of a large oil sand deposit defined a reservoir with drill-proven heavy oil reserves of 100 million barrels and probable additional reserves of 700 million barrels. The deposits lie at a depth of less than 1,000 feet below the surface in thick, porous sandstone beds extending over more than 20 square miles. Core drilling of the Rimrock sandstone of the Mesaverde formation was carried out by several major oil companies.

The United States Department of Energy (DOE) conducted extensive pilot production projects on the Uinta heavy oil deposit in the period 1975 to 1978. The DOE performed two successful reverse-combustion projects, in which the recovery of heavy oil was 25% of the original oil in place (OOIP). During the 1979 to 1982 period, the DOE developed a nine well pilot project that used in-situ combustion with vertical production wells. This pilot recovered 40% of the OOIP. Engineers estimate that the use of horizontal production wells would have raised recovery substantially.

Included in the LOI are terms for other projects and acquisitions in the heavy oil sector. These projects are currently under negotiation.