Calvalley Moving Forward with Yemen Exploration Program

Calvalley Petroleum has arranged all the necessary equipment and supplies for the drilling of the next two exploration wells on Block 9 in the Republic of Yemen. The company has faced a number of delays this year in Yemen, as a result of the war in Iraq. However, along with its partners Hoodoil and Reliance Industries has agreed on the location of the next two exploration wells, being identified as Qishn No. 3 and Qishn No. 4. Both wells will be drilled on good terrain with easy access from the existing road system. The tender for the drilling services has been granted to Jiangsu Oil Exploration Co. (Joeco) and mobilization of the rig will commence shortly with an anticipated spud date of July 20th. It is anticipated that the second well will spud about one month after the first well. Calvalley is the operator of Block 9 and retains a 60% majority interest.

In March 2003 the Ministry of Oil and Minerals unilaterally granted the company a one year extension in the First Exploration Period to April 2004, with the result that the company's exploration rights on Block 9 do not expire until April of 2007. With the completion of these next two exploration wells Calvalley will have substantially completed its work commitments under both the First and Second Exploration Periods.

The company recently commissioned Chapman Petroleum Engineering to evaluate the two discoveries made by Calvalley and to update the 1998 engineering valuation of Block 9. Chapman found both the Hiswah and Auqban discoveries to be commercially viable. In addition, the Chapman assessment identified significantly more reserves than those identified by the earlier study. To date, three independent reservoir discoveries have been made on Block 9 with four out of the five wells that have been drilled proving the existence of either oil or condensate. Highlights of the Chapman report, that was completed in accordance with disclosure standard: National Instrument 51- 101, include:

• The Hiswah and Auqban structures contain estimated recoverable probable reserves of 24.5 million barrels and recoverable possible reserves of 48 million barrels (assumes 30% recovery factor).
• Chapman's assessment of four out of 24 Qshin prospects, on the Block, identified 320 million barrels of potentially recoverable oil (100% interest). Previous third party and internal geological assessments, have identified additional recoverable oil resources, associated with the remaining 20 prospects, of 542 million barrels, along with 54 BCF of natural gas. This yields total potential recoverable reserves of 934 million barrels, significantly greater than the 647 million barrels identified for Block 9 in 1998.
• Calvalley's share of probable plus possible reserves, discounted at 10% has an after tax cash flow, net of capital expenditures, of $US 108.5 million ($US 38.1 million, risked). While the company's share of the four drill ready Qshin prospects, discounted at 10% has an after tax cash flow of $US 417 million ($US 58.4 million, risked).
• Calvalley's external financing costs for development of the probable and possible reserves have been estimated at $US 10.5 million.
Block 9 is situated approximately 75 km west of the Masila oil fields operated by Nexen and TotalFinaElf which are currently producing approximately 250,000 BOPD.