CanArgo Energy Spuds Kumisi Well in Georgia

CanArgo Energy reports that drilling has commenced at the Kumisi #1 well in the Republic of Georgia. This well which is being drilled with a CanArgo rig is an appraisal well to the West Rustavi #16 Cretaceous gas condensate discovery made in Soviet times. Seismic data shot by CanArgo indicates a potentially large structure may be present and test data from the discovery well indicates that reservoir productivity should be good. This prospect is situated just to the south of the capital city, Tbilisi, close to the Rustavi industrial complex, the Gardabani thermal power plant and the route of the new South Caucasus gas trunkline. The well is expected to reach total depth of 12,140 feet (3,700 meters) in late June.

The government of Georgia, in accordance with a memorandum of understanding signed by the Ministry of Energy and a CanArgo subsidiary in March 2006, has committed to purchase any gas discovered at Kumisi, within the Nazvrevi / Block XIII Production Sharing Contract area on a take-or-pay basis and agreed commercial terms with security for payment.

At the Manavi M12 location, the Saipem drilling rig has now been demobilized from the site and preparations have commenced for the acid stimulation of the reservoir and the resumption of the testing program. FracTech Ltd., a UK company providing independent well completion and stimulation laboratory testing, design and consultancy services, and Schlumberger well completions experts have been consulted and have advised on the chemicals for the test. These chemicals are being sourced in Europe and Asia and are expected to be in Georgia by early March. The stimulation itself will be performed through coiled tubing and this unit is expected to be available by the end of the month. A number of acid treatments may be required which will take approximately two to three weeks to complete before the effectiveness of the stimulation can be determined. If necessary, it would be planned to follow this with a hydraulic fracturing program in order to fully eliminate the potential formation damage. If the contingent hydraulic fracturing program is deemed to be required, it will be necessary to bring in specialist equipment to Georgia, and the Company is currently ascertaining the availability of such equipment.

In the meantime, well head pressure continues to build up at the M12 well which is opened periodically and flowed to the pit in order to assist in the clean up process. From time to time this flow is accompanied by a gas flare with black oil recovered at the surface. Analysis of the oil has shown it to be a light, 40 degrees API, sweet crude.

CanArgo is an independent oil and gas exploration and production company with its oil and gas operations currently located in Georgia and in the Republic of Kazakhstan.