Mr. Donald Staus reports

CULANE PROVIDES OPERATIONAL UPDATE

Culane Energy Corp. is providing an operational update.

Saskatchewan

Drilling results

On Dec. 27, 2010, Culane commenced drilling operations on its Kerrobert property. The well, at 16-10-34-22w3, reached a total depth of 1,463 metres and was logged on Jan. 13, 2011. The Kerrobert well is a vertical stratigraphic test well with two target formations in the Devonian. First, an 18-metre drill core was retrieved from the Devonian Birdbear formation and sent for analysis. Results of this analysis were encouraging, with oil saturation, permeability and porosity better than expected. Over a five-metre dolomite interval, porosities ranged from 20 to 26 per cent and oil saturations ranged from 40 to 77 per cent. Permeabilities in this interval ranged from 34 millidarcies with an oil saturation of 40 per cent to 545 millidarcies with an oil saturation of 69 per cent. These permeability and oil saturations exceed core results published on the A12-4-39-27 W3M vertical test well located in the centre of the oil-producing Hallam North Birdbear pool located in southwest Saskatchewan. Culane is currently applying for a horizontal well project approval to drill horizontal wells into the Birdbear formation.

A deeper Devonian formation was also tested in the Kerrobert well and although the formation structure increased by seven metres from what was anticipated, the zone proved to be uneconomic.

At Coleville, a stratigraphic vertical test well into the Birdbear formation was drilled in the third week of January and although the structure had increased by six metres from a previous vertical test well, the zone did not warrant further testing.

In Saskatchewan, Culane will pay a 2.5-per-cent Crown royalty on the first 100,000 barrels (16,000 cubic metres) of oil produced from any horizontal wells drilled in the Birdbear formation on Saskatchewan Crown lands. Culane owns a 100-per-cent working interest on approximately 44 sections of land in Kerrobert.

Alberta

Killam water flood results

Water injection rates are now approximately 5,800 barrels of water per day and are expected to rise to approximately 6,500 barrels per day with the tie-in of the latest water source well. In the third quarter of 2010, Culane drilled, cased and completed two new water source wells at Killam. The two new water source wells have been equipped and tied in to the newly constructed water pipeline to the Killam water injection facility. As a result of water injection into the Killam pool, Culane is now observing increasing production rates in the field in the last two months, along with comparable decreasing daily natural gas rates. The new increases in water injection rates into the Killam reservoir are expected to have a positive impact, further increasing oil production rates across all the wells in the pool.

Culane has 31 multileg horizontal producing oil wells at Killam, 13 water injectors that are a combination of vertical and horizontal wells, and 12 water source wells.

Culane's independent engineering evaluator completed its most recent evaluation of the company's reserves as of Dec. 31, 2009. The reserves have been assigned as proved, probable and possible. The evaluator has assigned possible reserves to the surfactant polymer flood. The proved, probable and possible reserves assigned at this time combine for an oil recovery factor of 22.5 per cent. The discovered petroleum initially in place at Killam, net to Culane, is estimated at approximately 42 million barrels of 24-degree API oil. Culane maintains 100-per-cent ownership in this asset and is the operator. A new independent engineering reserve report for Dec. 31, 2010, is expected by late April, 2011.

Water flooding and surfactant polymer flooding can dramatically increase the amount of recoverable oil reserves above the estimated oil recovery of 10 per cent resulting from primary production. Analogous oil-pool case histories have established that water flooding similar oil reservoirs has the potential to recover up to 25 per cent of the original oil in place and surfactant polymer flooding has the potential to recover up to 40 per cent of the original oil in place. The initial feasibility study on the Killam oil pools indicates the potential for these recoveries.

Culane's current production is 1,021 barrels of oil equivalent per day, 76 per cent oil.

We seek Safe Harbor.