Arsenal Energy Inc. has drilled and tested two 100% working interest horizontal wells at Princess Alberta. The first well flowed at an average rate of 600 b/d of oil and 730Mcf/d of gas over a five-day test period. The well has been tied in and turned over to continuous production operations.

Solution gas production at Arsenal's Princess facility is capacity-limited. This limitation has required that the well be choked back to 200 b/d of oil. The second well tested at a rate of 170 b/d over a 24-hour period. It is anticipated that the second well will be tied in and placed on production by the end of October. It is expected to produce at between one half and one third of its test rate. It is anticipated that alternative processing arrangements for the solution gas should be in place by yearend.

Both wells have an oil gravity of 21 API. Arsenal has approximately 20,000 net acres of land in the Princess area. Six new drilling locations at Princess are in the permitting phase. Average drill and complete costs for the first two wells was $1.7 million and each new well pays a royalty rate of 5% for the first 18 months of production.