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Calvalley Petroleum Provides Operations Update

Source: www.gulfoilandgas.com 2/14/2012, Location: Middle East

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Calvalley Petroleum Inc. provides the following operations update for shareholders.

At least 1,000 workers employed by Yemen PetroMasila at Block 14 have initiated a work stoppage, which will impact production from all crude oil producers in the Hadramout province including Calvalley at Block 9.

The Government of Yemen established PetroMasila in November to operate Block 14 in the Masila area, Hadramout province to replace Nexen Inc.

Production operations at Block 9 will be shut down shortly when crude oil storage tanks are full.

In December 2011 gross production from Block 9 averaged approximately 7,000 bopd and included production from the Hiswah, Ras Nowmah and Al Roidhat fields. Production from the Al Roidhat field (which has the capability of producing over 1,500 bopd) and the Ras Nowmah field have been curtailed due to heightened security risks posed by locals in the area. Ras Nowmah was producing 2,600 bopd when it was shut in. Production has been maintained at the Hiswah field (approximately 3,000 bopd).

Recently, certain groups within the region have organized blockades on major roads within the Masila basin including the trucking route from Block 9 to Block 51 curtailing the movement of crude oil for export and the movement of fuel and supplies. The Company anticipates production from the Hiswah field will be curtailed within the next few days as a result of both the local blockades and the work stoppage at the export facilities.

Calvalley management and staff are working closely with the government of Yemen and local officials to resolve the concerns of locals in the region of Block 9. The Company believes these concerns can be resolved in a timely manner.

The current work stoppage at Block 14, which is impacting the operation of the export pipeline and terminal and restricts the deliveries of crude oil for export from Block 9, is being monitored closely to ensure production from Block 9 will be reinstated in a timely manner.

Management is cautiously optimistic that the current political environment in Yemen will improve after the February 21, 2012 election and that operations will return to normal, however, the timing is uncertain at this point.

The Company is planning to conserve its working capital (current fair value estimate – US$82mm) and restrict capital project expenditures until the operations in Block 9 can be resumed safely and effectively.

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