CanArgo Energy Corporation

CanArgo Energy Corporation

March 21, 2005 00:10 ET

CanArgo Energy Corporation: Update on Georgian Activities




MARCH 21, 2005 - 00:10 ET

CanArgo Energy Corporation: Update on Georgian

TBILISI, GEORGIA--(CCNMatthews - March 21, 2005) - CanArgo Energy
Corporation ("CanArgo") (OSE:CNR) (AMEX:CNR) today announced that it had
reached agreement with the Georgian government on issues relating to the
purchase of gas. CanArgo also announced interim test results from its
recently drilled N22H horizontal well.

Following a meeting between the Prime Minister of Georgia, Zurab
Nogaideli and CanArgo's Chief Executive Officer, Dr David Robson,
agreement was reached on the general terms for the purchase of natural
gas produced by CanArgo in Georgia.

For some time, CanArgo has been considering the appraisal of several gas
discoveries which exist in its acreage around Tbilisi, as well as
exploration of additional prospects. Progress on gas exploration and
development has been hampered by the lack of certainty of payment in the
gas market; however CanArgo has now received confirmation that the
Georgian government will enter into suitable take-or-pay contracts to
purchase gas produced by CanArgo and thereby underwrite such payments.
This removes a large element of the commercial risk in gas exploitation
and will allow CanArgo to move forward with gas projects.

CanArgo believes that there is considerable potential for gas in the
area (a view shared by independent consultants) and is now planning to
move ahead with the appraisal of the West Rustavi R16 gas discovery
south of Tbilisi. This well tested a small gas column in the regionally
prolific Cretaceous reservoir, encountering the gas-water contact.
Seismic mapping indicates that this well was drilled down dip on what
could prove to be a very large structure with potential for a
substantial gas deposit. Given the assurances CanArgo has now received
from the Georgian government, CanArgo plans to appraise this discovery.
An appraisal well on the Kumisi prospect, up dip of the R16 discovery
well, is now planned in Q3 of this year. In the event of success, it
would aim to place the well on production as soon as possible while a
full development of the deposit took place. The prospect is close to
existing gas pipelines and infrastructure, and is only some 17
kilometres (10.6 miles) from the large Gardabani thermal powerplant.
CanArgo has a 100% interest in the production sharing contracts covering
the Kumisi prospect.

Whilst the new gas sales agreement provides additional drilling
possibilities for testing large prospects in our licenses, the current
development focus very much remains the planned 15 well under-balanced
horizontal drilling program on the Ninotsminda and Samgori Fields.

On the Ninotsminda N22H horizontal well, recently drilled by the US
service company Weatherford as the first under-balanced coiled tubing
well drilled in Georgia, testing has been taking place over the past two
weeks. This well was drilled in the north-east of the Ninotsminda Field,
an area where the reservoir is regarded as being of lower overall
permeability, with the build-up section of the well penetrating the gas
cap. Whilst drilling under-balanced Weatherford measured gas production
from the well at rates in the range of 560 to 700 thousand cubic metres
(20 - 25 million standard cubic feet ("MMscf")) per day with the well
effectively un-choked. A slotted liner has been run over the production
interval and the well tested at various choke sizes. Initially the well
flowed mainly gas, with production of approximately 150 thousand cubic
meters (5.3 MMscf) per day of gas and 85 barrels of oil and condensate
(968 barrels oil-equivalent(1) ("boe")) on a 16 mm (40/64ths in) choke,
and a flowing tubing head pressure of 60 atmospheres (882 psi). As
testing continued the oil rate has tended to increase and the gas rate
has fallen, with the oil rate increasing to 140 barrels per day, and the
gas rate decreasing to 92,000 thousand cubic metres (3.25 MMscf) per day
(681 boe). Based on evidence from other wells in the Field which are
perforated near the gas cap, CanArgo believes that this trend will
continue with an increase in oil and a decrease in gas production. The
well is now shut-in for a pressure build-up test after which production
will continue to be monitored whist the well flows into the field
gathering system. Preliminary build-up analysis indicates that the
permeability in the well is indeed low, but with the absence of apparent
fractures during drilling the oil leg, the probability is that this well
is flowing from the matrix of the reservoir, rather than from fractures.
The vertical well N22 from which the under-balanced horizontal section
was drilled, was producing at 42 bopd prior to being shut-in.

The Weatherford under-balanced coiled tubing drilling unit has now been
mobilised to the N100 well location, again on the Ninotsminda Field, to
drill the N100H2 horizontal well. Additional equipment has been
mobilised to Georgia by Weatherford in order to address some of the
technical problems encountered while drilling the N22H well. It is
anticipated that drilling will commence during the first week of April.
The N100 area has been a much more productive area of the Field than the
N22 area, and as such it would be expected that the N100H2 well should
be more productive than N22H.

Dr David Robson, CEO of CanArgo commented, "I am extremely pleased to
have reached agreement with the Georgian government which allows us to
move forward with our gas appraisal and exploration program. In my view
the Prime Minister has adopted a very positive approach with regard to
investment into the oil and gas sector in Georgia. The Georgian
government's support will allow us to invest in gas projects within our
production sharing contracts. Whilst this is of considerable importance
for CanArgo, it could also be important in meeting Georgia's energy
needs and reducing its dependence on imported gas."

On the subject of the N22 well, Dr. Robson said "Whilst the interim
results from the N22H well are encouraging, further production testing
is to be carried out before we will have a complete analysis. Given its
location in what we believe to be a tighter part of the field, and the
observed high gas flow rates whilst drilling, the production potential
of these tighter zones appears to have been enhanced by the
under-balanced drilling, with significant increases on rates obtained
previously. Clearly we will need to see the longer term production
history of the well in order to draw any firm conclusions. We look
forward to the results of the N100H2 well, which by contrast, is being
drilled in a historically more productive area of the field. Of course
the N22H well is just the first in our planned program of 15 horizontal
wells, and the ultimate development will be a mix of higher rate
"fracture" producing wells, and lower rate but steady "matrix" producing

CanArgo is an independent oil and gas exploration and production company
with its oil and gas operations currently located in the Republic of
Georgia and the Caspian area.

The matters discussed in this press release include forward-looking
statements, which are subject to various risks, uncertainties and other
factors that could cause actual results to differ materially from the
results anticipated in such forward-looking statements. Such risks,
uncertainties and other factors include the uncertainties inherent in
oil and gas development and production activities, the effect of actions
by third parties including government officials, fluctuations in world
oil prices and other risks detailed in the Company's reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission. The
forward-looking statements are intended to help shareholders and others
assess the Company's business prospects and should be considered
together with all information available. They are made in reliance upon
the safe harbor provisions of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company cannot give assurance that the results will be

(1) Assuming 6,000 standard cubic feet of gas = 1 barrel of oil


Contact Information

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    Investor Relations Manager
    +44 7740 576 139
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    Gambit H&K AS
    Regina Jarstein
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    Michael Wachs
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