Mr. Philip O'Quigley reports

FALCON OIL & GAS LTD-HUNGARY DRILLING UPDATE

Falcon Oil & Gas Ltd.'s initial drilling operations on the Kutvolgy-1 well have ceased, the well having reached a total depth of 3,305 metres.

Kutvolgy-1 is the first of a planned three-well program to evaluate the gas potential of the Algyo formation in the Mako trough. As prognosed, the top of the Algyo formation was encountered at 2,985 metres. The well then penetrated an alternating sequence of sandstones, siltstones and shales over a gross interval of 320 metres to total depth, with gas shows throughout. Two conventional cores have been taken, and extensive wireline logs were run. As planned, the well has been cased to TD and is now suspended while further technical evaluation is undertaken prior to carrying out an appropriate rigless testing program later this year. No operational problems or accidents occurred during drilling.

The location of the second of the three-well program will be decided after a full evaluation of the Kutvolgy-1 well results. Operations on the second well are expected to commence in fourth quarter this year.

In accordance with the terms of the agreement with NIS, announced on Jan. 14, 2013, Falcon is fully carried, as all costs associated with this three-well drilling program are financed by NIS. Any hydrocarbon sales revenue resulting from this program will be shared equally between Falcon and NIS.

Philip O'Quigley, chief executive officer of Falcon, commented: "We are pleased to confirm that our well successfully reached its target Algyo formation and encountered hydrocarbons, and thanks to the close collaboration with NIS, drilling was completed without any operational difficulties. I am looking forward to the technical evaluation of the well results and then the testing program that will take place during Q4 2013."

This announcement has been reviewed by Dr. Gabor Bada, Falcon's head of technical operations. Dr. Bada obtained his geology degree at the Eotvos L. University in Budapest, Hungary, and his PhD at the Vrije Aniversiteit Amsterdam, the Netherlands. He is a member of AAPG, EAGE and SPE. Definitions in this press release are consistent with SPE guidelines.

About the Algyo

The Algyo is a relatively shallow play between 2,300 metres and 3,500 metres. A number of Falcon wells have been drilled through the Algyo in recent years, some of which encountered gas shows, but to date, no well has ever tested the play concept at an optimal location as previous wells targeted deeper intervals of up to 6,000 metres.

Multiple Algyo prospects have subsequently been identified by Falcon through extensive AVO analysis. The continuing exploration drilling program with NIS is targeting three separate high-graded prospects.

A recent independent study by RPS Energy (January, 2013) included for the first time prospective resource recoverable volumes attributable to the shallow Algyo Play. According to the RPS report, eight of the 10 prospects identified by Falcon contain 568 billion cubic feet of prospective recoverable gas resources, each with a 10-per-cent geological probability of success.

About Naftna Industrija Srbije JSC

NIS is one of the largest, vertically integrated oil and gas companies in southeast Europe, focusing on exploration and production of hydrocarbons refining crude oil, and sales of a broad range of petroleum products.

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