Esrey Energy Ltd. entered into an exclusive term sheet with TransAtlantic Worldwide Ltd., a wholly owned subsidiary of TransAtlantic Petroleum Ltd. ("TransAtlantic") to earn a 50% interest in a future gas shale formation production concession in northwest Bulgaria.

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Esrey will initially fund up to US$7.5 million to immediately drill, core and test a 3,200 meter (approximately 10,500 foot) exploration well on the A-Lovech exploration license in Bulgaria targeting the Middle Jurassic Etropole shale formation. As required in Bulgaria, on a successful result from this well, TransAtlantic's subsidiary, Direct Petroleum Bulgaria EOOD ("Direct Bulgaria"), will apply to the government of Bulgaria for a production concession (the "Etropole Concession"). The Etropole Concession is expected to cover an area up to 1,640 square kilometers (405,080 acres) for a term of up to 35 years.

Subject to certain conditions, including the issuance of the Etropole Concession, Esrey is expected to form a subsidiary in Bulgaria which will fund up to an additional US$12.5 million, of which US$7.5 million is expected to be used to drill a second well or for other exploration activities on the Etropole Concession. In return, and subject to Bulgarian government approval, the Bulgaria subsidiary will acquire a 50% undivided interest in the Etropole Concession.

The Etropole Formation, especially its organic-rich lower part (Stefanetz Member), is the targeted interval for a gas resource. This formation is the proven source rock for major oil and gas fields in northwestern Bulgaria. The Etropole formation is a thick, black organic rich source rock lying at depths ranging from less than 2500 meters to greater than 5000 meters; it shows appropriate maturity for gas generation and is also over-pressured throughout much of the region. The Etropole shale is calcareous in nature similar in characteristics to the Upper Jurassic Haynesville shale in the US.

The proximity to an established gas market, an existing gas pipeline infrastructure and gas prices of over $10/mcfg make the Etropole play an economically attractive target. Significant gas shows were detected while drilling the Etropole formation in the most recently drilled well by Direct Bulgaria (Deventci R-1). Many older wells have also encountered shows while drilling in the play area. Given the rock properties of the Etropole, it is believed that it will respond favourably to modern completion and stimulation techniques and may yield significant economic gas resources.

Drilling Program

In January 2012, the Peshtene R-11 well was successfully drilled to its total depth of 3,190 meters under the farm-in agreement with TransAtlantic.

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The Peshtene R-11 well ("Peshtene"), located on the A-Lovech exploration license, targeted the Middle Jurassic age Etropole formation. Peshtene was successfully drilled in a total of 56 days to a depth of 3190 meters, including 354 meters of Etropole argillite. Numerous gas shows were recorded in the argillite, consisting of methane, ethane and propane (C1, C2, and C3). Over 289 metres of the Jurassic age Etropole and Ozirovo whole core has been taken from the well. The Ozirovo formation produces nearby in the Chiren Gas Field and in TransAtlantic's Deventci R1 discovery well 36 kilometers to the east.

Petrophysical analysis of the Etropole formation indicates net pay of 114 meters, with an average porosity of 6% and water saturation of 48%. Comprehensive core analysis by Core Laboratories is expected to be completed in the first quarter of 2012. The core data from the Etropole argillite and Ozirovo carbonate will be evaluated for reservoir rock properties, geochemical analysis, and rock mechanics. The results of the core and well log analysis will help to design and plan the future completion procedure for the well. Peshtene is scheduled to be completed and tested in Q2, 2012. Based on the data recovered to date, TransAtlantic's subsidiary, Direct Petroleum Bulgaria EOOD ("Direct Bulgaria"), has applied to the government of Bulgaria for a Production Concession (the "Stefanetz Concession"). The Stefanetz Concession is expected to cover an area up to 1,600 square kilometers (395,000 acres) for a term of up to 35 years.