HMGP | Hemi Energy Announces Well Results

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Jul 31, 2008 9:51:00 AM

Copyright Business Wire 2008

Hemi Energy Group, Inc. (Pink Sheets: HMGP) is pleased to announce exceptional results from the drilling and completion of the Collins Hemi 1 well.

President and CEO Keith A. Anderson is quoted as saying, "During drilling of this well I felt this was going to be an exceptionally strong well as the drill cutting were bleeding oil from the samples." Mr. Anderson continued, "The open hole log suite confirmed a Squirrel payzone that we are producing is about 13 feet thick and with top 10 feet clean sands with excellent porosity and good resistivity showing through that interval with oil saturations of 55% or greater. This was the main reason we waited so long until the weather and ground conditions cleared so that we would not have accessibility issues with this well, which is comparable to many Texas type oil and gas wells. The well is currently flowing natural gas, gas condensate and oil and is not being pumped yet. At one point we were venting significant volume of natural gas, potentially valued over $ 5,000 per day in management's opinion. In addition to the multiple payzones referred to in previous press releases, we also have discovered a yet-to-be-named 12-feet-thick payzone at approximately 600 feet deep in this well, which also contained exceptional saturations of oil. The oil well on the Collins lease has 4 to 5 times the pounds per square inch (PSI) of an average shallow oil well in southeast Kansas that generally has less than 500 PSI borehole pressure. We have 100% working interest and 80% net revenue interest in the Collins lease that is not considered a mature field and has had no prior oil production."

The Company has confirmed results that very important natural gas dissolved in water solution drive is present in this well. Therefore longer production and a slower decline curve will be much better than wells that were drilled on our mature leases that have lost most of this drive. This well will have a much longer lasting production at a higher rate because of this presence of this drive per the experience of service experts in Kansas. The current well results indicate we have found one of the strongest areas in this developing trend. With the natural gas cap in place, excessively strong reservoir pressure and very good oil shows in the formation.

Due to the results of the Hemi Collins 1 well and quality of the formation, the Company will focus on the leases it has in the immediate area, crews are now staking new drill sites and intend to drill in the area of the Collins lease as we have leases on both sides of the creek. The new Weseloh well is producing oil but needs additional completion techniques to be performed before the Company can determine its best rate of production.

An oil bbl count per day is not available yet because the exceptionally strong Hemi Collins 1 well requires more completion techniques and specialty equipment which is not normally required for shallow oil wells in Kansas. Even with the needed delays and additional cost, Hemi still has more than sufficient funds on hand to complete these new wells and all the supplies and equipment necessary for oil production from these wells. Craig L. Trieber, chief operating officer, for environmental and safety reasons, ordered new equipment necessary for this type of well. This new oil well on the Collins lease validates what the company has thought all along about the Cherry Creek and East Owl Creek oil trends.

Hemi's very artificially low market cap is substantially below book value and even below tangible asset values based on conservative oil and gas industry standards, especially when ongoing due diligence on lease values in 2 states and also North Dakota's leases are factored in. Hemi has been cash flow positive for all of 2008 and continues to be cash flow positive and meeting all normal operating expenses from oil production. In addition to its budgeted funds, Hemi is also tanking extra oil for several months more than is necessary for normal operations.

Hemi Energy Group is an independent crude oil and natural gas producer employing a unique business model capitalizing on technological advances to exploit mature fields with millions of barrels of proven oil remaining in the ground. Using attractive lease/royalty packages Hemi has secured, in its history tens of thousands of acres of productive domestic projects.