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Solimar production testing lighter oil pool in Kreyenhagen oil field

Thursday, Nov 22, 2012

Solimar Energy (ASX:SGY)(TSX VENTURE:SXS) ("The Company") provides the following update for the Company's 100% owned Kreyenhagen shallow oil field redevelopment project in the San Joaquin Basin, California. As a follow-up to the previous announcements of establishment of production testing and a 3,101% increase in Contingent Recoverable Resource (C2 - Best Estimate) attributable to the Temblor Sandstone, the Company now has initiated long term primary production in the field and confirmed the presence of a potentially significant down-dip, lighter oil pool.

Will Satterfield, CEO of Solimar, commented "We are pleased that the initial round of production testing in the Temblor sandstone has confirmed a new down-dip lighter oil pool in the field area. Based on the well results we are increasingly confident in the applicability of steam enhanced production and reserve growth and are actively investigating the potential for primary production in conjunction with the steam flood."

COMPETENT PERSONS STATEMENT: The information in this report has been reviewed and signed off by Will Satterfield B.S., M.A. who is a petroleum geologist with over 24 years of relevant experience within the oil and gas sector.

Kreyenhagen Field Temblor Production Testing

On October 15 the Company announced the initiation of production testing of the Temblor Sandstone at the Kreyenhagen Field. This involved the testing of the shallow Temblor sandstone heavy oil zone which was not previously tested in wells drilled in 2007 by an earlier operator to a deeper zone (Avenal sandstone). The wells were previously completed with 7 inch casing and cemented, which provided a unique opportunity for the Company to carry out zonal testing of Temblor pay zones to better understand reservoir and fluid properties. All but one of the vintage field wells were drilled and completed with an uncemented slotted liner across the entire Temblor pay zone preventing an accurate analysis of intra reservoir zones and oil quality. The Kreyenhagen Field contains an approximate 200 ft gross oil pay zone, however study of the older well logs and sample descriptions suggested the presence of intra Temblor sandstone zones with better reservoir quality and oil characteristics that could potentially be exploited via zonal completions or horizontal wells, resulting in enhanced production rates for both primary and thermal production. The purpose of the 2012 production testing was to investigate the above premises to further reduce reservoir uncertainty leading up to the cyclic steam pilot in 2013.

To view the figure associated with this section of the press release, please visit the following link: http://media3.marketwire.com/docs/SEImage001.jpg

While the 1-33 well tested the core of the field and recovered 14 degrees API oil as expected, the 4-33 well was fortuitously located down-dip of the main field in an area with no previous production. Core descriptions from a nearby well (Schrock-1), drilled in 1927 and not tested, suggested that a light oil zone was separate and segregated from the main pool section. Also, mud log oil and gas show descriptions in the 4-33 well suggested a similar conclusion. Testing results from the 4-33 well unequivocally confirmed the Company's premise of a down-dip lighter oil pool. The well contains net pay of 130 feet with sidewall core porosity and permeability of 32% and 500-1,100 md (millidarcies) respectively. The well began production at a rate greater than 15 bopd from perforations between 850-1,030 ft before stabilizing after a few weeks at 4-5 bopd with a water cut of 35%. The well is currently producing to a temporary production facility.

Based on these encouraging results, the Company is in the process of preparing to test the Temblor Sandstone in the 2-32 well and investigating running a mini-frac job on one or more of the wells.

To view the figure associated with this section of the press release, please visit the following link: http://media3.marketwire.com/docs/SEImage002.jpg

Implications of Production Testing Results

The Company is very encouraged from the initial testing results from the shallow Temblor sandstone reservoir. The results illustrate that a previously unrecognized lighter gravity oil pool could be developed via primary production. It is envisioned that the pool could be a low cost, shallow primary development via vertical or horizontal wells, which the Company is actively studying. As shown in analogous settings in the San Joaquin Valley, along strike horizontal wells targeting a down-dip oil wedge could be used to provide a near term primary production boost, while the steam flood is being implemented. The Company is also looking to further enhance the well productivity through small frac jobs that are proven to work in similar, shallow reservoirs in the area.

To view the figure associated with this section of the press release, please visit the following link: http://media3.marketwire.com/docs/SEImage003.jpg

As previously reported, laboratory analysis of the 17.3 degrees API crude oil sampled from the 4-33 well shows an oil viscosity profile which is significantly lower (better) than previously modeled. At current reservoir temperature, the measured oil viscosity is 125 cP (centipoise) as compared to the modeled 800 cP, representing an 84% positive decrease. At an expected steam enhanced reservoir temperature of 300 degrees F (Fahrenheit) the measured oil viscosity is 3 cP (centipoise) as compared to the modeled 6 cP, representing a 50% positive decrease. As a result, under steam stimulation, the oil would be more fluid than previously modeled which would result in increased oil production rates and recoveries. This translates to lower water cuts versus time and versus percent recovery compared to previous modeling. Ultimately this will equate to higher oil recoveries. For reference, a recovery factor of up to 60% is reported for the Temblor sandstone under steam enhanced development at the analogous, nearby Coalinga Field. Recovery factors modeled by Sproule as part of the Contingent Resource determination at Kreyenhagen Field are 10% (low estimate), 35% (best estimate), and 60% (high estimate). The combination of shallow depths, bedding dip of 35-40 degrees, and favorable reservoir and oil quality creates an ideal setting for an anticipated economic thermal recovery project in the Temblor Sandstone at Kreyenhagen Field.

To view the figure associated with this section of the press release, please visit the following link: http://media3.marketwire.com/docs/SEImage004.jpg

On October 29th the Company announced an increase in contingent recoverable resource in the 100% owned Kreyenhagen shallow field in the San Joaquin Basin by 3,101%. The 4.2 mmbo (best estimate) of oil was delineated within a 115 acre portion of the 500 acre discovered and undiscovered field area.

For reference and as previously reported, total contingent recoverable oil for the Temblor Sandstone in the limited part of the field studied is 4.2 mmbo (best estimate), 2.4 mmbo (low estimate), and 6.2 mmbo (high estimate)(i). The Contingent resource is taken from the total discovered oil in place for the Temblor Sandstone of 23.8 mmbo (best estimate), 19.0 mmbo (low estimate), and 29.0 mmbo (high estimate). Undiscovered total oil in place for the Temblor Sandstone is 24.1 mmbo (best estimate), 11.8 mmbo (low estimate), and 50.1 mmbo (high estimate). With the initiation of the cyclic steam pilot in Q1 2013 and further primary production, the Company anticipates reporting proven reserves in 2013. In addition, further Contingent Resource is anticipated to be confirmed with appraisal drilling within the DOGGR defined field boundary in 2013.

(i)Reference: Contingent Resource Assessment of the Temblor Formation in the Kreyenhagen Field Administrative Boundary Lease for Solimar Energy Limited (as of 31 July, 2012) - By Sproule Unconventional Limited. This report was highlighted in a release to the ASX and Canada on 29 October, 2012. A copy is on Solimar Energy's website under "Investor Centre" and "Resources Reports".

Source: Marketwire

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