Cadogan Fires Up Gas Production at Zagoryanske Well

Cadogan reported the commencement of commercial production from the Zagoryanske3 well. The Zagoryanske3 well was drilled to a total depth of 5,110m in 2009. Following the results of tests on the Upper Visean V-18 zone announced in May 2010, the construction of production facilities and a pipeline to tie the well into a sales point has now been completed. Production commenced on August 1, 2010 as planned, on budget and on schedule. This is the first occasion that the V-18 horizon has proved commercial in the Zagoryanske license.

Based on analysis undertaken by the Ukrainian State Geological Exploration Institute ("USGEI"), the well is expected to average around 35 mcm/day (1.2 million scf/day) gas and 15 t/day (120 bb day) condensate. After a period of stable production further analysis will determine whether higher flow rates of up to 50 mcm/day could be sustained. The extent of the V-18 reservoir in the Zagoryanske 3 area has still to be fully mapped and confirmed, but it is anticipated that additional wells will be required to fully exploit this accumulation.

Although the current focus is on the V-18 discovery, the above mentioned report from the USGEI also points out that, despite the previously announced unsuccessful tests on the Tournasian and Lower Visean intervals of the Zagoryanske 3 well, it could also produce at commercial rates from those intervals by utilizing proper test procedures, an appropriate completion string and a series of stimulation treatments.

The Company's CEO, Ian Baron, stated, "Bringing the Zagoryanske 3 well on stream, on budget and on schedule, is an excellent result for Cadogan and demonstrates the capability of our team. With this success we will also review our farm-out strategy, as there is clearly value we can extract from our licenses using our own resources. The production revenue from the well will also be a welcome contribution to our cash flow which we hope will be further embellished from our other, previously announced, drilling programs later in the year."