Salamander Takes Stake in Simenggaris Block in East Kalimantan

Salamander Energy has agreed to acquire a 21% interest in the Simenggaris block located in the Tarakan Basin, East Kalimantan from Medco Simenggaris Pty. Ltd., a wholly owned subsidiary of PT Medco Energi Internasional Tbk (MedcoEnergi).

This transaction would provide Salamander with an increased presence in core area of East Kalimantan and access to a targeted proven but under-explored basin. This transaction also provides for the addition of a low-moderate risk appraisal and exploration opportunity which complements and builds on Salamander's current East Kalimantan deltaic positions in the Bontang PSC and SC41 concession.

Appraisal drilling is imminent on the South Sembakung gas-condensate discovery with a two well program due to start in July 2007. The Apexindo-2 rig is currently being mobilized to the well location. The operator estimates South Sembakung resources to be in the region of 125 Bcf and 3 million barrels of condensate.

The Simenggaris block contains more than 20 identified leads and prospects.

There is a robust local gas market that is critically short of supply.

The transaction is subject to approval by the Indonesian regulatory body, BPMigas.

Commenting on the deal, James Menzies, Chief Executive of Salamander Energy stated:

"We are pleased to announce the acquisition of a stake in the Simenggaris block. This is a proven, productive basin and provides Salamander with an exciting, near term appraisal opportunity. We look forward to the commencement of the drilling program in July."

Simenggaris Block

The acreage comprises 1,351 square km and is located onshore in the Tarakan Basin, East Kalimantan. Oil and gas production is well established in the Tarakan basin, with between 400 – 500 million barrels of oil equivalent being found in the shelf area. Recent significant oil discoveries have been made in the deepwater fold belt outboard of the Bangkadulis half-graben, east of the Simenggaris block location.

Within the original license area some 20 exploration wells have been drilled resulting in seven discoveries and two commercial oil fields. Other nearby oil and gas production includes the Tarakan and Bunyu Island fields.

The block contains numerous gas, condensate and oil prospects and leads, seen as structural traps with Middle Miocene sandstone reservoirs. A significant gas and condensate discovery, South Sembakung, is scheduled for imminent appraisal through a two well program. These wells represent the final commitment on the block.

The Simenggaris PSC is operated by a Joint Operating Body (JOB) between Medco Simenggaris Pty Ltd as representative of the Contractor and PT PERTAMINA (PERSERO), Salamander Energy will become a party to the Simenggaris PSC on completion of this transaction.

South Sembakung Discovery

South Sembakung was originally discovered by Arco in 1977. The SS-1 well tested 12.7 mmscfd and 115 barrels of condensate per day from sandstones of the Miocene Meliat formation between 7,308 and 7,352 ft sub-sea. Gas indications were also seen in the shallower Tabul formation at 4,085 ft – 4,096 ft and in a deeper zone between 9,042 ft – 9,102 ft.

A second well (SS-2) was drilled on the structure last year, which terminated in the upper Meliat formation at circa 6,950 ft sub-sea. The well saw indications of gas within the Tabul formation, but did not reach the deeper zone, which tested gas in SS-1. A third well location has been selected at the crest of the structure. The forward work program includes a deepening of the SS-2 well to 9,000 ft into the lower Meliat formation and the drilling of new well SS-3.

The Medco-Pertamina JOB carries a resource estimate of 125 Bcf and 3 mmbc of liquids for the feature.

Local Gas Market

The main gas market is the Bunyu methanol plant, which started production in 1983. Production has been falling consistently over the past four years as natural gas feedstock is in short supply.