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Canadian Operations & Production Update

Source: www.gulfoilandgas.com 8/7/2014, Location: North America

Northern Petroleum, the AIM quoted oil company focusing on production led growth, provides the following update on operations, production and cashflow at the Virgo redevelopment project in north west Alberta, Canada.

Highlights
- The first of three new wells will spud this week.
- All wells to be drilled and completed by the end of October.
- Production in July averaged 165 barrels of oil per day ("b/d") from two wells, 13-33 and 16-19.
- 16-19 deliberately choked back to ensure the flaring of associated gas is below the regulatory limit prior to well tie-in, planned for the winter.
- Third well, 14-22, expected to be brought back on production at a restricted 50 b/d next month following gas tie-in work.
- Sales price achieved after pipeline tariff of approximately US$90 per barrel.
- Unaudited cash balance as at 30 June 2014 was US$22.0 million.
- US$2.5 million from the sale of the UK assets to be satisfied entirely in cash.

Keith Bush, Chief Executive Officer, commented:
"Our second drilling campaign in Canada this year will build on the success of our initial programme conducted in the spring. The priority of these three wells is to continue to build production and reinforce the attractive economic and development assumptions of the Virgo redevelopment. Upon success, the field will deliver material oil production and cashflow for the business by the fourth quarter of this year, in-line with the Company's production led growth strategy."

Virgo redevelopment
Operations have commenced on the three well summer drilling campaign, with the first well spudding this week. The three wells are to be drilled and completed consecutively and the entire programme is planned to be completed by the end of October.

The wells will target unswept oil towards the edge of carbonate pinnacle reefs that have been previously produced. Two of the wells will be drilled into the same reef structure and will provide a central hub for future development. This reef will also provide the opportunity to test secondary recovery with the introduction of a water injection well at a later date. The third well will be drilled into a different reef structure.

The expected cost for the drilling and completion of the three wells is approximately US$6.0 million. Assuming the wells are drilled and completed as planned, they will immediately be put on production, with the produced fluids initially trucked to a local processing facility. Options for tying the wells into the local infrastructure are currently being evaluated with the aim to tie them in during this winter.

As previously announced, 14-22 was shut-in in May to conserve its solution gas until approvals were granted to undertake a short gas tie-in. The necessary approvals have been obtained and the tie-in work is expected to be completed in September, after which the well will be brought back into production at a rate of approximately 50 b/d, which is a restricted rate until the full pipeline tie-in work is undertaken in the winter.

Aggregate production from the other two wells drilled in the spring this year, 13-33 and 16-19, averaged approximately 165 b/d in July taking into account a small amount of downtime. This rate is below the expected 200 b/d due to 16-19 being deliberately choked back to ensure that the flare limit for the well is not exceeded. Once the well has been tied into the local infrastructure, the gas will be sold and the limit will not apply. This is expected to happen during the upcoming winter period.

The Company is currently trucking the oil to a local processing facility and is receiving approximately US$90 per barrel, after payment of a tariff to transport the crude to Edmonton.

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