BUDAPEST, Hungary, August 29 /PRNewswire/ --

Falcon Oil & Gas Ltd. (TSXV: FO) ("Falcon" or the "Company"), today released a copy of a review completed by the Scotia Group, an independent, third party consultant to Falcon. The document provides a review of Falcon's operations and accomplishments, and provides recommendations for the Mako Trough.

The Scotia Group conducted its review in accordance with standards set out in the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook") prepared jointly by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society).

Below please find the full content of the review.

24 August 2007 Mr. Marc A. Bruner President, Chairman & CEO Falcon Oil and Gas, Ltd. 1601 Blake Street Suite 505 Denver, Colorado 80202 RE Mako Trough, Hungary Operations Review Dear Mr. Bruner:


Falcon Oil and Gas Ltd. (Falcon) and TXM Hungary, a division of Falcon, have requested The Scotia Group, Inc. (Scotia) to conduct a review of their operations in the Mako Trough of Hungary. The review is focused as follows:

-- Processes utilized to date in the evaluation -- Operational and geologic -- Accomplishments to date -- Recommended alterations for improvement -- Recommendations as to the next steps

Scotia was contracted by Falcon in June 2006 to conduct a resource assessment of certain properties in the Mako Basin of Hungary. The study "Resource Estimate Mako Trough, Effective Date August 15, 2006" found there to be evidence of hydrocarbon resources within the Mako and Tisza exploration licenses controlled by Falcon.

The resources were found to lie in four prospective horizons: Szolnok, Lower Endrod, Basal Conglomerate, and Synrift Sequence.

The volumes were previously stated in our report entitled "Resource Estimate Mako Trough, Effective Date August 15, 2006."

Falcon's initial phase of exploration was to drill six wells and conduct a 3D survey of the exploration license in an effort to delineate the resource. In addition, Falcon was to conduct extensive testing and evaluation of the exploration wells to gain a better understanding of the rock properties and geologic environment. These objectives have been accomplished.

Scotia, as been Falcon's independent advisor since 2006, is of the opinion that Falcon has been diligent and prudent in its operations to date and, as advisor to Falcon, offers the following observations, comments and recommendations related to accomplishments, improvement considerations and recommendations of next steps and the way forward.


Following due diligence by Gustavson, Falcon conducted a 3D survey of the Foldeak region of the prospective area of interest. The survey was completed in late 2004. Following evaluation of the data, Falcon entered an agreement to participate in the Tisza and Mako exploration licenses.

In the later half of 2005, Falcon conducted two further 3D surveys, the Gater and Hod-Szikancs respectively.

Falcon also sought and was granted an extension to the exploration license in December of 2005.


In late 2005, Falcon began its initial exploration drilling program with the Pusztaszer-1. The well was designed as a delineation well to test the northeastern extent of the Mako Trough. The well was drilled to a total depth of 3,785 meters and encountered Gneiss Basement, the Endrod and Szolnok formations. The Pustaszer was then tested in the Szolnok formation following small fracture stimulation. The well tested approximately 200 Mcfd and 200 bwpd. Although the rate was small, the well established several key points:

-- The well increased Falcons confidence in the recent seismic survey -- The well established the ability to frac the Szolnok at this depth. -- The well tested gas establishing the presence of mobile hydrocarbons in the Solzonk formation.

The results of the Pusztaszer are very encouraging, especially the fact that the well established the presence of mobile gas in the Szolnok formation.

Szekkutas 1

The next well to be drilled and tested in early 2006 was the Szekkutas 1. The well was designed to test the northwest extension of the Mako Trough and was drilled to a total depth of 3,585 meters. The well encountered the Triassic Basement, Endrod and the Szolnok formations. The well tested 130 Mcfd and 549 bwpd from the Triassic Basement. The Endrod tested gas at an unstabilized rate of 1,577 Mcfd at 50 to 100 ppm hydrogen sulfide and 150 Mcfd at similar H2S concentrations from the Szolnok. The presence of H2S in these concentrations required Falcon to abort the test due to safety considerations; however, the well provided much needed critical information.

-- Hydrogen sulfide may be present in the objective formations. Reviews of the other area wells to date had not encountered H2S in any substantial concentration. The Falcon drilling program had not allowed for H2S in these concentrations and would have to be modified accordingly. -- The well established mobile gas in the northwestern portion of the basin in the objective horizons of the Endrod and Szolnok.

The results of the Szekkutas are very encouraging in the further evaluation.

Mako 6

The Mako 6 was the next well in the evaluation program to be drilled and tested. The Mako 6 was drilled to a total depth of 5,692 meters and was the first deep test in the basin. The well encountered the Synrift, Basal Conglomerate, Endrod and Szolnok formations. Petropysical analysis of the log and core data indicated the possible presence of hydrocarbons in all formations, establishing a possible hydrocarbon column of 2 kilometers. A test of the Synrift was attempted which proved tight. An interval at the base of the Basal Conglomerate was tested with initial rates of up to 700 Mcfd with associated H2S of 400 ppm, and improving. The test was aborted when a suspected down-hole failure occurred. The actual cause of the failure is speculative at present but appears to be the movement of a barite plug from below the test interval. The well provided the following information.

-- Falcon established the ability to drill and complete at depths of 5,600 meters. -- The well tested mobile gas from the Basal Conglomerate. -- Established a possible hydrocarbon column of 2 kilometers. -- Established the presence of hydrocarbon in the center basin. -- Confirmed the presence of H2S in the Basal Conglomerate.

Hod-North 3D Seismic

While conducting drilling operations on the Szekkutas 1 and the Mako 6, Falcon completed its fourth 3D survey in the area, the Hod-North.

Mako 7

The Mako 7 was the next evaluation well to be drilled and was designed to be a second deep basin test. The well was drilled to a total depth of 6,085 meters and encountered the Basal Conglomerate, Endrod and Szolnok formations. Petrophysical analysis indicates the possible presence of hydrocarbon in all formations encountered, but no testing has been accomplished to date. If the well tests hydrocarbons it may indicate the presence of a 2.5 kilometer hydrocarbon column.

Magyarcsanad 1

The next well in the evaluation program to be drilled was the Magyarcsanad 1. This well was designed to test the southern end of the Mako Trough. The well was drilled to a total depth of 4,272 meters and encountered the Endrod and Szolnok formations. The well tested oil from the Endrod formation at unstabilized rates of 360 bopd and 1,100 Mcfd, declining to 65 bopd and 137 Mcfd without stimulation.

This is very encouraging in that it establishes the presence of mobile high gravity oil in the Endrod formation. In addition, it indicates the Endrod in the area of the wellbore to be a naturally fractured reservoir capable of delivering hydrocarbon. If future analysis and testing establishes the Endrod to contain a pervasive natural fracture system, charged with hydrocarbon and capable of transmissibility of the hydrocarbon, this could significantly add to hydrocarbon resources of the basin.

The Endrod formation was recently frac'd to evaluate the effectiveness of fracture stimulation to this play.

Mako 4

The next evaluation well drilled was the Mako 4, designed to test the Szolnok formation in the southern portion of the basin. The well was drilled to a total depth of 4,011 meters. The well encountered the Szolnok formation and is suspended pending completion of the current Geologic and Operational review.

Szekkutas and Mako-Kelet 3D Seismic

The first half of 2007, Falcon completed its largest 3D survey acquisition of 870 square kilometers. This completes 1,149 square kilometers of seismic acquisition, covering almost all the BCGA in Falcon's License area. All the seismic surveys are being combined and reprocessed into a single data set for interpretation and analysis.

Licenses Conversion

In May 2007, Falcon achieved a significant milestone with the conversion of a major portion of the exploration licenses to a 245,775 acre production license.


The successful development of BCGAs in the United States is the result of the recognition of the nature of the unconventional resource and the development of advanced technology for gas recovery. Falcon assembled some of the most noted experts in the field of geology and operations to bring that technology to the Mako Basin. To that end, Falcon has be diligent in acquiring the appropriate knowledge and technology.

In summary Scotia is encouraged by the results to date achieved by Falcon. The company has accomplished the following:

-- Established the presence of hydrocarbon in all intervals tested to date, no significant negative test have occurred in the prospective horizons. -- Proven the existence of a BCGA in the Mako Trough of Hungary. -- Produced evidence of a possible BCOA within the Mako Trough. -- Established the company's ability to effectively operate in a HP/HT (high pressure/high temperature) H2S environment in a prudent effective manner. -- Established the company's ability to manage and maintain relationships with the Mining Authority of Hungary.


Each new basin has its own characteristics. Falcon has recognized that in addition to tight reservoirs in a BCGA, there are likely other non-conventional reservoirs, including those involving adsorbed gas and natural fractures. Scotia has held extensive advisory discussions with Falcon regarding the recognition and characterization of a wide range of unconventional and conventional reservoir that may occur in the Mako Basin.

While encouraged by the results to date, Scotia recommends the following be undertaken as the company proceeds with the evaluation of the area of interest.

-- Falcon should conduct a review both technical and operational of all activities to date. The objective of this review will be to produce improvement recommendations as to data quality, data preservation, data integration, operational improvements, HS&E standards and improvements, emergency response and preferred and required improvements in drilling design. -- Falcon should take the time to fully integrate the current geologic data set. This would include all 3D surveys, petrochemical, petrophysical and well test data. Scotia would further recommend that Falcon slow, if not suspend, current evaluation activities until this integration and interpretation is completed. -- All future well designs must consider H2S and CO2 in the selection of tubular, wellhead and down hole equipment. -- All well site activity and procedures must consider the presence of H2S and CO2. -- Falcon should develop, in conjunction with the proper Hungarian authority, an Emergency Response Plan. -- In the technical and operational review, particular attention needs to be paid to the mineralogy of the core samples and their compatibility to various completion and drilling fluids. -- The company should investigate the feasibility and value of utilizing massive hydraulic fracture stimulations in future wells. -- The company should investigate the value of utilizing horizontal and/or multi-lateral wells in conjunction with under-balanced drilling, especially in the Endrod. -- Target conventional reservoirs at the top of overpressure similar to those seen in the western basins of the United States. These are likely to provide production while the deep basin is explored. -- Consider that there might be adsorbed gas similar to that associated with coal and shale gas and conduct on-site sample degassing experiments if such conditions are indicated. -- Carefully examine cores for natural fractures. -- Develop regional geological models for the origin of natural fracture systems, including jointing (expansion) and associated with faulting. -- Utilize seismic impedance data to identify contrasts in impedance that might be tied to natural fractures. -- Used 3-D visualization methods with stratigraphic datum impedance data to identify geobodies related to fracturing and overpressure.

In summary, Falcon has made significant progress in the evaluation of the prospective acreage in a relatively short period of time. The results to date are positive and very encouraging. All objective formations of the basin have tested hydrocarbons, thus proving the existence of mobile oil and gas within the objective horizons. Falcon's data collection and analysis efforts appear to be both comprehensive and advanced as is appropriate for the setting.

As is often the case, the analysis of collected data often does not keep pace with drilling. As of the summer of 2007, Falcon is at the peak of its efforts to complete the analysis of available seismic, petrophysical and well test data and integrate it to formulate reservoir models to aid in efforts to drill and test according to the geology. Plans for future operations will take full advantage of what has been learned to date.

Falcon must now position itself both technically and financially for the next phase of evaluation. The geologic model and interpretation must be advanced utilizing the data gained from Phase I of the exploration activity. The drilling, testing and completion programs need to be redesigned based upon the HP/HT and H2O and CO2 environment encountered.


Independence and Conflict of Interest

This report has been prepared by The Scotia Group. Scotia is an independent oil and gas advisory firm headquartered in Dallas, Texas. All evaluations performed by Scotia are strictly fee-based and Scotia has not and will not receive any benefit which may be regarded as affecting its ability to render an unbiased opinion on the petroleum interests held by Falcon.

Use of This Report

This report was prepared exclusively for Falcon, and should not be duplicated or distributed to any third parties without the express written consent of Falcon and The Scotia Group, except as required by law. The Scotia Group authorizes Falcon to publicly disclose this Report and the information contained within in the Falcon conference of August 29, 2007.

Available Data

This study was based on data supplied by Falcon, on public domain information and on nonproprietary data from in-house files. The supplied data was reviewed for reasonableness from a technical perspective. As is common in oil field situations, basic physical measurements taken over time cannot be verified independently in retrospect. As such, beyond the application of normal professional judgment, such data must be accepted as representative. While we are not aware of any falsification of records or data pertinent to the results of this study, Scotia does not warrant the accuracy of the data and accepts no liability for any losses from actions based upon reliance on data which is subsequently shown to be falsified or erroneous.

We carried out our review in accordance with standards set out in the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook") prepared jointly by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society).

Professional Qualifications

Scotia personnel who prepared this report are degreed professionals with the appropriate qualifications and experience to complete the project brief. Scotia and its staff do not claim expertise in accounting, legal and environmental matters, and opinions on such matters do not form part of this report.

Scotia is pleased to aid Falcon in the evaluation of the Mako Trough. We hope you find our independent view of your operations and activities within the region constructive. We look forward to discussing these recommendations in detail at your convenience.


THE SCOTIA GROUP, INC. Lonnie J. McDade, P.E. Vice President Contact: Weber Shandwick Worldwide Peter Duda /JJ Rissi +1-212-445-8213 / +1-212-445-8224

Falcon's discovered resources are not reserves. Only those quantities of oil and gas that are anticipated to be economically recoverable from discovered resources are classified as reserves. Until such time as Falcon's discovered resources are proven to be reserves, there is a risk that Falcon may not achieve ongoing operations from which it may generate significant revenue.

In the interests of providing Company shareholders and potential investors with information regarding the Company, including the Company's assessment of its and its subsidiaries' future plans and operations, certain statements included in this press release may constitute forward-looking information or forward-looking statements (collectively, "forward-looking statements"). All statements contained herein that are not clearly historical in nature are forward-looking, and the words "anticipate", "believe", "expect", "estimate" and similar expressions are generally intended to identify forward-looking statements. Similarly, forward-looking statements in this press release include, but are not limited to anticipated developments of the Company's drilling project in Hungary and the timing thereof, the Company's drilling project in Romania and the timing thereof, capital investment levels and the allocation thereof, pipeline capacity, government royalty rates, reserve and resources estimates, the level of expenditures for compliance with environmental regulations, site restoration costs including abandonment and reclamation costs, exploration plans, acquisition and disposition plans including farmout plans, net cash flows, geographic expansion and plans for seismic surveys. In addition, please note that statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described can be profitably produced in the future. Such statements represent the Company's internal projections, estimates or beliefs concerning, among other things, an outlook on the estimated amounts and timing of capital expenditures, anticipated future debt levels and incentive fees or revenues or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. These statements are only predictions. Actual events or results may differ materially. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company and the foregoing list of important factors is not exhaustive. These forward-looking statements are made as of the date hereof disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise. Company shareholders and potential investors should carefully consider the information contained in the Company's filings with Canadian securities administrators at before making investment decisions with regard to the Company.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Peter Duda, +1-212-445-8213, JJ Rissi, +1-212-445-8224, both of Weber Shandwick Worldwide