Oilsands Quest Updates on Canadian Exploration Program

Oilsands Quest has provided the following update on its reservoir test program.

Exploration Programs

During the three months ended July 31, 2009, we focused on developing our 2009-2010 oil sands exploration plans for the Axe Lake, Raven Ridge, Wallace Creek and Eagles Nest areas and our oil shale exploration plans for the Pasquia Hills area. These planning activities included scouting seismic and exploration drilling targets, preparing regulatory applications and initiating consultation processes for approval of the winter drilling program. Specific activities we have been planning on our Axe Lake permits include an overburden core drilling program on permits 208 and 210 and 2-D seismic on the permits to the north and south of Axe Lake in Saskatchewan. Both of these programs will further our geological knowledge of the deposits while meeting work commitments required to extend the exploration permits until May 31, 2010.

We are also continuing with the additional processing and interpretation of the 1,847 kilometres (1,149 miles) of 2-D and 3-D seismic data collected and initially processed in the 2007-2008 winter program. This interpretation is proving valuable in planning for the specific reservoir tests this year and in assessing the geological structures across our permits. We expanded our baseline environmental programs in the Axe Lake and the Raven Ridge areas in anticipation of a comprehensive Environmental Impact Assessment report required as part of the application for regulatory approval for development of Axe Lake. Other environmental work included initiating baseline environmental studies in the Wallace Creek and Eagles Nest areas. We commissioned an active (continuous) air quality monitoring station at Axe Lake during the period, the first of its kind in northwest Saskatchewan, in addition to our passive (periodic) air monitoring activities which have been ongoing since 2005.

In early 2009, we drilled an additional 23 exploration and delineation test wells in Raven Ridge. The Raven Ridge drilling program has demonstrated continuity of bitumen characteristics extending from Axe Lake in Northwest Saskatchewan westward into Alberta and we are in the process of updating our resource estimates based on the results of this drilling program. We expect to release these results in October of 2009.

Axe Lake Area -- Reservoir Development Activities

At Test Site 3, the electric downhole heating program was continued. The objectives of the field test are to reliably measure pressure and temperature changes within the reservoir and adjacent formations as a result of heating and use those measurements to calibrate numerical simulation calculations to the field measurements in order to reduce uncertainty in future reservoir planning. The electric downhole heater in well 1OBS 5-29-94-25 provided heat to the reservoir and pressure and temperatures were measured and recorded continuously at ten locations in the hot heater well, 1OBS 5-29-94-25, and the cold observation well, INJ 5-29-94-25. The heater was removed from the well on June 26, 2009, pressures and temperatures were and are being measured and recorded during the post-heating period, and an application for perforating and continued testing of 1OBS 5-29-94-25 and INJ 5-29-94-25 is being prepared.

Our detailed engineering and numerical simulation analysis has confirmed the formation characteristics anticipated and our ability to establish and control the relevant fluid heat properties to be used in continued reservoir planning at Axe Lake. We presented a more detailed description of the conceptual reservoir simulation model, analytical heat transfer calculations, Test Site 3 geo-models, supporting laboratory work and numerical simulations at the Canadian International Petroleum Conference held June 16-18, 2009. In preparation for the commencement of the field testing of the reservoir test program we are in the final stages of construction and commissioning of the facilities at Test Site 1. Phase Three testing in the reservoir test program are planned:

  • Phase One of the test program at Test Site 1 will include the injection of cold water and will be followed by the injection of hot water and steam into the reservoir. The purpose of the test is to measure heat and fluid movement under specific operating conditions on a field scale to complement our ongoing simulation and laboratory analysis studies. These Phase One tests are designed to confirm and demonstrate our "bottom-up" thermal recovery process and they will further enhance our knowledge and modeling of the thermal and geo-mechanical characteristics of our reservoir.
  • Phase Two of the test program at Test Site 1 will evaluate and analyze information gathered from Phase One regarding mobilization with steam and/or hot water by measuring field-scale response using horizontal wells. As part of the overall Axe Lake development plan, we continue to conduct advanced economic feasibility, financial planning and risk assessment studies for full commercial development and the commissioning of an independent study of infrastructure and bitumen markets to complement our development planning process. Development of a commercial project remains subject to regulatory and other contingencies such as successful reservoir tests, board of directors approvals, financing and other risks inherent in the oil sands industry ("Risk Factors" Section of our Form 10-K).

Pasquia Hills Oil Shale Area

During the period ended July 31, 2009, the Company initiated the planning and regulatory approval process for an exploratory drilling program on its oil shale permits in eastern Saskatchewan. These activities included filing applications and receiving regulatory approvals for drilling up to fifteen locations, surveying drill locations, negotiating and obtaining access rights and contracting for the required services. We expect to commence exploration drilling on these permits in the last quarter of calendar 2009.