CanArgo Revises Joint Production Agreement with Ukrnafta

CanArgo Energy has agreed to terms with Ukrnafta, the Ukrainian State Oil Company, on revisions to the existing Joint Investment Production Activity Agreement for the development of the Bugruvativske Field in Ukraine and reached agreement with Gals-K Ltd, a local Ukrainian oil and gas company, on the terms of a farm-in to the JIPA.

The terms of the farm-in are that Gals-K will invest approximately $3 million in the Bugruvativske field over the course of the next 12 months in order to drill two new wells and they will bear the financial risk under the JIPA during this period. CanArgo, through its wholly owned subsidiary, Lateral Vector Resources Inc., can match up to the amount invested by Gals-K, prior to 31 December 2003. LVR will continue to be fully involved in the Management Committee set up under the JIPA.

Additionally, agreement has been reached with Ukrnafta, on revisions to the commercial terms of the JIPA. The revised JIPA provides that (assuming LVR matches Gals-K's initial expenditure) the financing risk shall be shared between LVR and a subsidiary of Gals-K, IPEC. Ukrnafta shall be entitled to 25% of all net profits distributed to the parties to the JIPA and the remainder shall be shared between LVR and IPEC. Assuming that LVR matches Gals-K's initial expenditure, LVR will be entitled to 34.5% of net profits generated under the JIPA (or a proportionally small amount if the amount invested is less than that invested by IPEC). In the event that LVR decides to not to invest in the project by 31 December 2003, it will receive an ongoing project fee of between 3-4% of the net profits generated under the JIPA in recognition of its earlier involvement in the project.

The Bugruvativske Field is located in a north-eastern region of Ukraine, the Sumy Oblast. The field was discovered in 1974 by Ukrnafta and was put into production shortly afterwards. Cumulative production is about 41 million stock tank barrels with current production from the field of the order of 5,000 barrels of oil per day. Pursuant to the terms of the JIPA, LVR and its farm-in partner will be entitled to share in the incremental production from the field as a result of investment under the JIPA.

Oil production in the Bugruvativske field comes from Lower Carboniferous clastics and, to a lesser extent, from Upper Devonian clastics at depths ranging from 3,200 to 3,900 meters. A total of 13 productive horizons have been identified within the field with the presence of oil extending over a total interval of 760 meters. The crude oil is sweet with API ranging from approximately 14 degrees API to 38 degrees API. In general, the lighter oil is associated with the deeper reservoirs. Production has been mainly from two of the deeper horizons thus leaving significant remaining undeveloped reserves.

Dr. David Robson, Chief Executive Officer of CanArgo said, "The signing of the revised JIPA is a major step forward for CanArgo in Ukraine, and is the result of over 12 months of hard work. We can now move forward and develop the Bugruvativske Field in eastern Ukraine in accordance with our strategy set out when we acquired LVR last year".

The Norio Block XIc exploration well (MK72), has recently has been cased (245mm casing) at a depth of 9,620 feet (2,932m) in the Lower Sarmatian. The well is targeting a large structure in the Middle Eocene. A velocity survey has also been performed at the current depth to allow a review and calibration of seismic data in the drilled section, prior to drilling ahead. Farm-in partners are currently being sort to provide additional capital for completing the well.