CanArgo Acquires Two Blocks in the Republic of Georgia

CanArgo Energy's subsidiary, CanArgo Norio, has signed a Production Sharing Contract for Blocks XIG and XIH in the Republic of Georgia. The Contract was signed between CanArgo Norio Limited and the Georgian State, represented by the State Agency for the Regulation of Oil and Gas Resources and the Georgian State oil company, Saknavtobi. CanArgo Norio views these blocks as having good potential, being adjacent to productive acreage.

The Production Sharing Contract gives CanArgo Norio the right to explore and produce hydrocarbons from the Blocks XIG and XIH in the eastern part of Georgia. These areas are located adjacent to CanArgo's existing acreage close to Tbilisi and cover in total some 485 square kilometers. The main hydrocarbon potential in Block XIG is a gas play within Cretaceous and Palaeocene fractured limestones. Wells drilled on separate structures along the same structural trend, but outside the block, have tested gas at significant rates of up to 250,000 m3/d. In Block XIH gas condensate has been tested in the past from the Middle Eocene. Potential for oil accumulations may exist in Upper Eocene and Oligocene sandstone units which have been proven to exist from earlier exploratory drilling. CanArgo currently produces oil from these horizons in the main Ninotsminda area to the northeast where current production is approximately 2,000 bopd.

Under the terms of the PSC, CanArgo Norio will evaluate existing seismic and geological data during the first year and acquire additional seismic data within four years of the effective date of the Contract. The total commitment over the next four years is $350,000. This Contract is expected to become effective before the end of the year following necessary bureaucratic procedures. The commercial terms of the PSC are similar to those governing CanArgo Norio's other exploration areas.

CanArgo Chairman & CEO Dr. David Robson commented, "The signing of this new Production Sharing Contract consolidates our position in eastern Georgia with only a minimal financial commitment. These blocks strengthen our existing portfolio, being adjacent to our Norio and Nazvrevi acreage, and reconfirms CanArgo's dominant position in this area. Our funds are currently being invested in enhancing production through our horizontal program at the nearby Ninotsminda field, which remains our priority with the next horizontal due to commence shortly, but we look forward to exploring this promising new area once we have achieved our existing production goals."

CanArgo Energy holds a 64.2% interest in Can Argo Norio Limited.