Falcon Oil & Gas Ltd. Releases Review From the Scotia Group

    BUDAPEST, Hungary, Aug. 28 /CNW/ -- 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
    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
    -- 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
    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
    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
    -- 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
    -- 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

    -- 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
    -- 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
    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.

    Lonnie J. McDade, P.E.
    Vice President

    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
    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 www.sedar.com
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.

For further information:

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

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