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Calvalley & Yemen MOM Finalize Transport Agreements

Source: 2/22/2011, Location: Middle East

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Calvalley Petroleum Inc. has finalized all agreements with the Ministry of Oil and Minerals (“MOM”) and the Third Party Operator ("Third Party") to transport blended crude from Block 9 through Block 51 to the Masila System (Block 14) for export (the “Agreements”).

The Agreements will enable Calvalley to transport blended crude of 26 degree API or better to market through the Masila facility. Calvalley will blend heavier crude oil from the currently shutin Al Roidhat field with lighter oil produced from other fields within Block 9 to achieve the 26 degree API blend for shipment to Masila.

The Masila Blend consists of different quality crude produced by various Third Party Users (“TPU”) with an average gravity of 32 API. All TPU’s who ship crude oil through the Masila facility receive the Masila Blend price for their crude. Consequently,Calvalley will receive the Masila Blend price for its crude oil shipped through the facility. The Official Selling Price for Masila crude oil is based on Dated Brent and is currently set at a premium of 97 cents per barrel to Dated Brent for March supply.

The key aspect of the Agreement is that Malik Block 9 Blend will be treated in the same manner as all other Third Party Users of the Masila System from a crude price and Facility Usage Fee point of view.

Calvalley will initially truck crude oil to Block 51. The oil will then be transferred into the Masila System at Block 14 via an existing pipeline. To facilitate crude transportation, Calvalley is required to construct a Truck Offloading Facility ("TOF") at Block 51. The Company expects to complete the construction of the new TOF and commence trucking crude oil in the third quarter of 2010. The engineering work for the TOF has commenced. In the long-term, a pipeline will be used for crude oil transportation. Calvalley will initiate the engineering work for the pipeline construction shortly. Once the pipeline is commissioned, the trucking of oil will cease.

The agreements are expected to enable Calvalley to add significant new production including the Al Roidhat field which is currently shut-in. Eight wells have been drilled and completed at Al Roidhat, five of which are fully equipped to commence production. The Company plans to drill eight additional Al Roidhat and six Hiswah development wells in the next 12 months.

In light of the finalization of the agreements, Calvalley has initiated discussions with its joint venture partners to revise the 2010 capital budget to expand the capital program for development and exploration drilling activities. The exploration and appraisal program will focus on the Qarn Qaymah Fractured Basement and Kohlan Sands and the Ras Nowmah structure. Development will occur in both Al Roidhat and Hiswah.

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