Kalrez Outlines 2004 Drilling Program on Oseil Oilfield

Kufpec has presented the second phase development plan for the Oseil Oilfield in Indonesia, that involves the drilling of up to 15 new wells, beginning with 5 wells in 2004. Forecast production levels have the field producing at a rate near 18,000 BOPD by end 2004, with ongoing field development drilling maintaining this production rate through the following 5 years, before field decline commences.

The 3D seismic program has facilitated greatly enhanced interpretation of the Oseil structure. The structural interpretation was completed in June 2003 and has enabled reserves upgrades that incorporate a much improved level of confidence. Fracture interpretation continues with final reporting due end 2004. If the prediction and or identification of fracturing in the reservoir can be enhanced, this has the potential to significantly improve the chance of encountering "sweet spots" during development drilling.

Current reserve estimates are based on recovery from the macrofractures only. The 3D seismic has identified extensions of the existing proven oil accumulations in the Oseil field and reserves have been revised upwards to 62.7MMBO in the second phase of field development. In addition, the 3D seismic has identified three exploration prospects with expected reserves of 24.5MMBO.

From January through May of this year, some 986,000 barrels of crude oil was produced through a temporary production facility (TPF), installed due to delays in completion of the permanent facilities. This crude production was sold into the Singapore market. Since May 2003, production has been shut in, except for some minor subsequent flow utilized for commissioning of part of the permanent facilities.

On commencement of commissioning following shut-in of the TPF, a HAZOP study identified several design faults that the JV has since been working to correct. It is anticipated that the correction of the faults will enable production to recommence in early October 2003. Due to the length of the shut-in, flush oil production should enable initial rates of up to 8,000 BOPD, projected to decline during the remainder of 2003 to around 5,000 BOPD, with further decline through to around August/September 2004 to 3,000 BOPD.

The Oseil Oilfield has tantalized the JV partners since the discovery well Oseil-1 was drilled in 1994. The commencement of the field development by drilling of wells Oseil-2 and Oseil-4 in subsequent years and the award of the EPIC O&M contract for construction and operation of the production facilities in late 2000 have all contributed to taking the project to the brink of fulfillment. In the process, the production of nearly 1 million barrels during the TPS operation has provided valuable insight to reservoir performance and simulation work has provided increased confidence in future planning and development, particularly in well completion planning. The 3D seismic program has provided improved reserves evaluation and enabled field development modeling to locate wells for maximum recovery from the structure. In summary, the TPS production and 3D seismic have provided data that has exponentially improved structural interpretation and reservoir performance prediction. Yours directors are very much encouraged by recent developments and progress by the Operator and consider that the Oseil oilfield is on the brink of delivering steady and long awaited cashflow to the company.

Kalrez Energy Limited is a 2.5% shareholder in the Seram (Non Bula) Block Production Sharing Contract. The major shareholder, and Operator of the Joint Venture is KUFPEC (Indonesia) Limited with 97.5%.