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Madalena Finds Oil Discovery in the Lower Agrio Shale in Argentina

Source: 2/16/2016, Location: South America

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Madalena Energy Inc is pleased to announce the initial results of its completion and testing of the Lower Agrio shale formation on its 90% working interest operated block at Curamhuele in Argentina.

- Successfully completed the vertical exploration well (Yapai.x-1001) with four hydraulic fractures at depths of 3,731, 3,647, 3,566 and 3,457 metres, the upper three intervals being within the Lower Agrio shale and the lowest interval containing both the Lower Agrio shale and Mulichinco tight sand formations;
- All four frac intervals are believed to have penetrated the primary target in the Lower Agrio shale;
- Pumped an aggregate of approximately 430,000 pounds of sand and 13,700 barrels of frac water over four days;
- Flowed back on controlled choke settings (3 mm to 8 mm) over eight days a total of 1,609 Bbls of oil and 5,444 Bbls of water;
- Flowed at 408 Boe/d over last 24 hours on a 9.5 mm choke, comprised of 350 Bbls/d oil, 389 Bbl/d water (47% oil cut) and 350 mcf/d of gas at a flowing pressure of 1,050 psi;
- The oil is light sweet oil with a field estimated gravity of 40 API;
- Recovered approximately 40% of the hydraulic fracture fluid to date; and
- Continued to record an increase in the oil cut and a corresponding decrease in the water percentage throughout the test.

Kevin Shaw, President and CEO, commented:
“We are extremely pleased with the results from this vertical exploration well at Curamhuele and oil discovery in the Lower Agrio shale. Ultimately this Lower Agrio shale play, like the Vaca Muerta shale, will be developed with Horizontal Multi frac wells which are expected to yield considerably more than a typical vertical well.”

Curamhuele Block (90% Working Interest (“WI”) Neuquen Basin, Argentina)
Madalena has a 90% WI and is the operator in the 56,216 (50,595 net) acre exploration concession at Curamhuele. On November 9, 2015, the Company successfully deepened the Yapai.x-1001 well to evaluate the Lower Agrio shale and the Mulichinco tight sand formations. The Company drilled approximately 550 metres of the Lower Agrio formation with the bottom 270 metres having strong and steady oil and gas shows. The well required heavy weight mud (40% over normal) to control the flow while drilling. The wireline log analysis of the Lower Agrio shale estimates a zone of interest of greater than 164 metres with an average porosity of 7.7% and confirmation of brittle shale with minimal clay content.

On January 26, 2016, Madalena initiated completion operations on the Yapai.x-1001 well and finished the fourth hydraulic fracture treatment on February 4, 2016. Flow-back commenced on a controlled 3 mm choke for the first four days after which the choke was gradually increased to test the potential of the well. The well continued to clean up with an increasing oil cut and a corresponding decrease in the percentage of water during the testing period. The Company estimates that the water being recovered is a mixture of water based load fluid and formation water.

Due to the high reservoir or pore pressure in the Lower Agrio, the well continued to flow up 5” casing at strong fluid rates during the testing period. The Company is in the process of installing facilities for a long term test. Production will be trucked and processed with oil sales being recognized at the current Argentina Medanito price of US$ 67.50/bbl and solution gas will be flared at this time.

The Company cautions that although the initial test results are very encouraging, they are preliminary and may not necessarily be indicative of the long term performance or of ultimate recovery from the well. The relatively low gas rates throughout the test suggest that the Mulichinco tight sand formation is not yet contributing significant rates of gas and condensate and the oil volumes being produced are believed to be coming solely from the Lower Agrio shale. This could be in part due to the lower reservoir pressure of the Mulichinco which would delay the production response or a less effective hydraulic fracture treatment in that zone. The Company intends to continue additional testing operations, fluid sampling and production well logging to evaluate the opportunity to optimize the deliverability of the well.

Curamhuele Block - Reserves and Resources
There were no reserves assigned to the 2014 year end reserve report for the Lower Agrio shale or Mulichinco tight sand formation and since the production test occurred after December 31, 2015, there will be no reserves in the pending 2015 year end reserve report which will be released later this month.

On November 4, 2015 the Company released independent third party best estimates (P50) effective September 30, 2015 (prior to the drilling of the Yapai.x-1001 well) for Contingent and Prospective Resources. The Company’s interest best estimate in the Lower Agrio shale is Unrisked Prospective Resources of 365 MMBoe (or Risked Prospective Resources are 99.4 MMBoe). In addition to the Lower Agrio shale at Curamhuele, the Company’s interest best estimate in the Vaca Muerta shale is Unrisked Prospective Resources of 1,157.1 MMBoe (or Risked Prospective Resources of 92.6 MMBoe). Please see the reader advisory at the end of this release for further information on Prospective Resources.

Curamhuele Block - Next Steps
Given the significant inventory of opportunities Madalena has at both Puesto Morales in the Loma Montosa light oil resource play and Coiron Amargo in the Vaca Muerta shale and Sierras Blancas light oil development, the Company intends to actively pursue a strategic partner to help further delineate the Lower Agrio shale and Vaca Muerta shale resources and further assess the Mulichinco tight sand formation on the Curamhuele property. The Company has met its commitment to drill and complete the Yp.x-1001 well prior to September 2016 and will soon commence discussions with the Province of Neuquén and its 10% partner the provincial oil company, Gas y Petroleo del Neuquén S.A., to secure a new block contract allowing for further advancement of the property.

Coiron Amargo Block (35% WI, Neuquen Basin, Argentina) - Sierras Blancas Horizontal Development Update
Madalena and its partners have successfully drilled their seventh horizontal well in the conventional Sierras Blancas formation with a total lateral length of 763 metres. The first 478 metres (63%) has been completed and tested over a five day (120 hour) period. Average production was 596 Bopd and 350 mcf/d gas at 17% water-cut for a total 654 Boe/d. During the last nine hours, the choke was increased from 8 mm to 10 mm and the well produced at a rate of 729 Bopd and 330 mcf/d at 18% water-cut for a total of 784 Boe/d at a flowing pressure of 800 psi. The well has now been tied in to existing production facilities.

Five of the existing seven horizontal Sierras Blancas wells have additional net pay which will ultimately be completed for production. Madalena and its partners intend to recomplete two of these wells in 2016 and test the effectiveness of higher volume lift equipment.

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