Lundin Drilling Ahead on Lytham Prospect

Eternal Energy says that drilling is in progress on its 41/10a-2 well on the Lytham prospect located in Block 41/10a, Production License P1129, in the southern North Sea sector of the United Kingdom continental shelf (UKCS).

The operator, Lundin Petroleum, has contracted the Global Santa Fe Galaxy II jack-up rig to drill this prospect. Drilling is expected to continue until the end of the month.

Eternal Energy initially contracted with Palace Exploration Company and International Frontier Resources, to pay 15% ($1.5- million USD) towards the cost of the 5,500-foot exploration well to earn a 10% interest in a 240,000-acre block in Quad 41/42. Changing market conditions have put the new cost structure to drill and case the well at approximately $26-million USD. This would cause an unforeseen increase in EERG's investment share to a proposed $4.2-million USD. Discussions with Palace Exploration and IFR have been ongoing and the parties continue to explore this development with a view to reducing EERG's position in the prospect.

The final determination will be announced when discussions among the parties have concluded.

Partners in the well include Lundin Petroleum (operator), Challenger Minerals (North Sea) Ltd. and Palace Exploration Co. (E&P) Ltd., Gulf Shores U.K. Petroleum Ltd., Eternal Energy Ltd., Britcana Energy Ltd., and Monarch Energy Ltd.

In other developments, Eternal Energy Corp., after final analysis of geophysical and gravity data, has elected to reduce its exposure to 73,000 acres on its Nevada prospect. EERG is now looking for an operator to joint venture its Mississippian-aged, fractured shale project in the Great Basin of Nevada, adjacent to the prolific Railroad Valley.

EERG continues to own a five percent (5%) overriding royalty interest in 150,000 acres leased to Heartland Resources (HRI:TXv), an oil company that holds leased land with potential reserves in Western Canada and the northern US. Two wells have been commenced to begin to test the potential of this project. EERG has received $500,000 USD spud fees for the first two wells commenced. EERG will receive a $250,000 USD spud fee for each of the next six wells drilled by the operator.

EERG has increased its ownership to fifty percent (50%) of the SW extension of the West Ranch Field in Jackson County, Texas. The Glasscock reservoir that underlies EERG's interest is believed to be a hydrocarbon- bearing reservoir.

Ryder-Scott Co., a Houston-based petroleum engineering consulting firm, has analyzed the potential for waterflooding of the Glasscock reservoir underlying the Eternal acreage. Ryder-Scott attributes 900,000 bbls of proven undeveloped reserves in the Glasscock reservoir (420,000 bbls net to Eternal's 50% interest). Simulation testing is nearly completed and a pilot waterflood in the reservoir is expected begin in the fall.

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