Flair Petroleum to Acquire 20% Stake in California Heavy Oil Project

Flair Petroleum has executed a Letter of Intent with experienced operators in the development of Heavy Oil resources, providing it with the option to acquire a 20% working interest in a major California heavy oil project with considerable Oil in Place in an area with developed infrastructure of oil pipelines, heavy oil refineries and excellent industry service company support. The estimated Oil In Place reserves in the lease area exceed 1 billion barrels. The exclusive option to participate in the venture is exercisable by Flair within the next 60 days.

Under the terms and conditions of the LOI, the parties have entered into confidential substantive negotiations for the completion of definitive Joint Venture and Operating Agreements among the working interest partners. These final negotiations are expected to be concluded within the next 90 days.

Heavy oil was discovered in California before the year 1900 and current production of approximately 400,000 barrels of heavy oil per day represents about half of the present California crude oil production. Original total reserve of California heavy oil resource of 77 billion barrels has a remaining reserve of over 62 billion barrels to be developed using improved methods of recovering heavy oil. Many reservoirs have over 90% of the original oil in-place remaining to be developed with modern oil recovery systems. Market prices for California heavy oil have averaged $60 per barrel in 2006 and represent a strategic energy supply for the USA.