Canoel announces agreement to purchase oil exploration and development block in Mongolia



    
    /THIS PRESS RELEASE IS NOT TO BE DISTRIBUTED TO U.S. NEWSWIRE SERVICES OR
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    (TSXV: CIL)

    CALGARY, May 27 /CNW/ - Canoel International Energy Ltd. ("Canoel" or the
"Company") (TSX VENTURE: CIL) is pleased to announce that the Company has
taken a major step in a new direction by entering into an Agreement to become
the operator of a large oil exploration block in Mongolia. The Agreement
provides that a Canoel subsidiary will become the controlling shareholder of
Block XXIII (as such block is designated by the Mongolian Petroleum Authority)
by purchasing such interest from the present shareholder who will continue a
co-venture partner.
    The agreed terms call for the Company to purchase shares of the entity
presently holding the rights to explore and develop Block XXIII and for
seller/co-venture partner to retain an amount of free carried working interest
of 6% through the first commercial discovery. The Corporation is required to
pay up to approximately US$46 million over the next five years, but only a
small portion of that amount during this next year. In order for the
Corporation to conclude this purchase of shares, it will seek the required
approval of the TSX.
    Block XXIII is located in the Mongolian part of the Gobi desert,
immediately north of the boundary with China. It covers 13'575 square
kilometres (about 3.37 million acres). The railway line from the Mongolian
capital, Ulan Bator to Beijing runs through the eastern part of the Block;
railway is the most important method of transportation for crude oil in
mainland Asia.
    Block XXIII includes a structural feature that separates the highly
prospective Erlian Basin in China from the East Gobi Basin in Mongolia. The
biggest field in the Erlian Basin, the Ershan field, is said to contain
reserves of 500 million barrels of oil in Lower Cretaceous sediments. It
produces currently about 60'000 bopd, all of which is transported to a
refinery at Dong Wu, China. In Mongolia, two smaller discoveries have been
made in the East Gobi Basin. The Zuunbayan Field and the Tsagaan fields are
located a few kilometers north of Block XXIII and are producing about 1'600
bopd from Lower Cretaceous sediments at relatively shallow depths. These
discoveries were made by Roc Oil, and the fields are now operated by a
subsidiary of PetroChina.
    No intensive exploration activity has been carried out in Block XXIII.
The Soviets conducted regional gravity and magnetic surveys and shot in 1970 a
small amount of seismic lines. A significant amount of the results of these
surveys has been published in Soviet academic publications. No wells have been
drilled in Block XXIII since the Soviet exploration efforts.
    The Mongolian Petroleum Authority imposes certain minimum work
commitments on those to whom it grants licenses in blocks such as Block XXIII.
Accordingly, these commitments to do seismic testing and drilling are spread
over the next 5 years.
    Hans Oesterle, Vice President for Exploration says: "Preliminary work
identified several large structures in Block XXIII under major regional thrust
faults. These leads need to be verified by modern seismic data; but the
current size of the mapped structures is such that any discovery will be of
significant size. Future production will satisfy local requirements, but
surplus production can be transported by railway to the Chinese refinery at
nearby Dong Wu".

    
    Neither TSX Venture Exchange nor its Regulation Services Provider (as
    that term is defined in the policies of the TSX Venture Exchange) accepts
    responsibility for the adequacy or accuracy of this release.
    

    Please go to www.canoelenergy.com for a view of a mapping of our block
within the Mongolian and the Asian context





For further information:

For further information: Andrea Cattaneo, Chief Executive Officer and
President, James H. Grossman, Chairman, Email: info@canoelenergy.com,
Telephone: (403) 629-9799

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CANOEL INTERNATIONAL ENERGY LTD.

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