FX Energy (FXEN)

Current Activities and Assets in Poland

Our strategy focuses on Poland because we believe Poland has substantial undiscovered hydrocarbon potential. We think the Polish portion of the Permian Basin is underexplored and underdeveloped today because the country was closed to competition and capital from foreign gas and oil companies for many decades. The continuous advances in exploration technology around the world were not immediately applied in Poland during the period it was behind the “Iron Curtain.”

            We concentrate our exploration efforts in Poland primarily on the Rotliegend sandstones of the Permian Basin. We were attracted to the Rotliegend sandstones in Poland by two observations:

(1)          Since the 1960s, dozens of western exploration companies working in the North Sea and onshore Europe portions of the North European Permian Basin have identified approximately 200 trillion cubic feet, or Tcf, of Rotliegend gas. While the Permian Basin extends well into Poland, only 5 Tcf of Rotliegend gas has been discovered in Poland. We believe political and capital restraints impaired POGC’s ability to explore and develop the Polish portion of the Basin.

(2)          In the last 20 years, very little exploration focused on the Rotliegend has been conducted in Poland.

We have identified a core area consisting of approximately 852,000 gross acres surrounding the Radlin Field. This 390 billion cubic feet, or Bcf, Rotliegend gas field was discovered in the 1980s by our joint venture partner, the Polish Oil and Gas Company, or POGC, which owns and produces gas from it. We have emphasized improved seismic data acquisition and processing in our exploration, using technology developed for Rotliegend exploration in the Southern North Sea.

From 2004 through 2008, in the course of our Polish exploration with this approach, we have made commercially successful discoveries in five of the seven wells we have drilled on Rotliegend structural trap targets. In the aggregate, these five discoveries found gross estimated proved reserves of 107 Bcf of gas. Based on these discoveries and associated technical work, we have identified a subset of our core area acreage, the Sroda area, as having significant natural gas potential and low drilling risk compared to the balance of our core area. Within the Sroda area and along trend immediately to the southeast, we have acquired three-dimensional, or 3-D, seismic data over several hundred square kilometers. Using this data, we have identified a number of possible structural traps. We believe the 3-D seismic data gives us better definition of the targets and might further reduce our drilling risk, although we expect that we will continue to drill wells that do not establish production or reserves. We plan to direct the bulk of our available funds to carry out a multi-year exploration, appraisal, and development drilling program in our core area. These operations focus on the first element of our general strategy – to increase production and reserves in our core area.

While maintaining our focus on the Rotliegend structural trap exploration model in our core Fences area, we are also carrying out exploration work on other potential exploration models. These include non-Rotliegend prospects in our core area and various exploration opportunities on our 4.5 million net acres outside our core area. We have accumulated this large land position in known productive regions or geologic trends and in selected “rank wildcat” areas in Poland. We have assembled a sophisticated technical team experienced with using modern exploration tools and generated a number of attractive gas and oil prospects. We are inviting industry participation in the early-stage drilling of these prospects. To the extent our overall strategy results in substantial revenue growth, we plan to direct more of our own funds toward exploration outside our core area. However, the Rotliegend structural trap gas prospects in our core area will continue to receive the greatest portion of our efforts and capital resources over the next several years.

Some of our Polish operations are conducted in partnership with POGC. POGC is a fully integrated gas and oil company, which is largely owned by the Treasury of the Republic of Poland. POGC is Poland’s principal domestic gas and oil exploration, production, transportation, and distribution entity. Under our existing agreements, POGC has provided us with access to exploration opportunities, previously collected exploration data, and technical and operational support. We also use geophysical and drilling services provided by POGC and sell our gas production to POGC.

Current Activities and Assets in Poland

Our strategy focuses on Poland because we believe Poland has substantial undiscovered hydrocarbon potential. We think the Polish portion of the Permian Basin is underexplored and underdeveloped today because the country was closed to competition and capital from foreign gas and oil companies for many decades. The continuous advances in exploration technology around the world were
not immediately applied in Poland during the period it was behind the “Iron Curtain.”

            We concentrate our exploration efforts in Poland primarily on the Rotliegend sandstones of the Permian Basin. We were attracted to the Rotliegend sandstones in Poland by two observations:

(1)          Since the 1960s, dozens of western exploration companies working in the North Sea and onshore Europe portions of the North European Permian Basin have identified approximately 200 trillion cubic feet, or Tcf, of Rotliegend gas. While the Permian Basin extends well into Poland, only 5 Tcf of
Rotliegend gas has been discovered in Poland. We believe political and capital restraints impaired POGC’s ability to explore and develop the Polish portion of the Basin.

(2)          In the last 20 years, very little exploration focused on the Rotliegend has been conducted in Poland.

We have identified a core area consisting of approximately 852,000 gross acres surrounding the Radlin Field. This 390 billion cubic feet, or Bcf, Rotliegend gas field was discovered in the 1980s by our joint venture partner, the Polish Oil and Gas Company, or POGC, which owns and produces gas from it. We have emphasized improved seismic data acquisition and processing in our
exploration, using technology developed for Rotliegend exploration in the Southern North Sea.

From 2004 through 2008, in the course of our Polish exploration with this approach, we have made commercially successful discoveries in five of the seven wells we have drilled on Rotliegend structural trap targets. In the aggregate, these five discoveries found gross estimated proved reserves of 107 Bcf of gas. Based on these discoveries and associated technical work, we have
identified a subset of our core area acreage, the Sroda area, as having significant natural gas potential and low drilling risk compared to the balance of our core area. Within the Sroda area and along trend immediately to the southeast, we have acquired three-dimensional, or 3-D, seismic data over several hundred square kilometers. Using this data, we have identified a number of possible structural traps. We believe the 3-D seismic data gives us better definition of the targets and
might further reduce our drilling risk, although we expect that we will continue to drill wells that do not establish production or reserves. We plan to direct the bulk of our available funds to carry out a multi-year exploration, appraisal, and development drilling program in our core area. These operations focus on the first element of our general strategy – to increase production and reserves in our core area.

While maintaining our focus on the Rotliegend structural trap exploration model in our core Fences area, we are also carrying out exploration work on other potential exploration models. These include non-Rotliegend prospects in our core area and various exploration opportunities on our 4.5 million net acres outside our core area. We have accumulated this large land position in
known productive regions or geologic trends and in selected “rank wildcat” areas in Poland. We have assembled a sophisticated technical team experienced with using modern exploration tools and generated a number of attractive gas and oil prospects. We are inviting industry participation in the early-stage drilling of these prospects. To the extent our overall strategy results in substantial revenue growth, we plan to direct more of our own funds toward exploration
outside our core area. However, the Rotliegend structural trap gas prospects in our core area will continue to receive the greatest portion of our efforts and capital resources over the next several years.

Some of our Polish operations are conducted in partnership with POGC. POGC is a fully integrated gas and oil company, which is largely owned by the Treasury of the Republic of Poland. POGC is Poland’s principal domestic gas and oil exploration, production, transportation, and distribution entity. Under our existing agreements, POGC has provided us with access to exploration
opportunities, previously collected exploration data, and technical and operational support. We also use geophysical and drilling services provided by POGC and sell our gas production to POGC.

Current Activities and Assets in Poland

Our strategy focuses on Poland because we believe Poland has substantial undiscovered hydrocarbon potential. We think the Polish portion of the Permian Basin is underexplored and underdeveloped today because the country was closed to competition and capital from foreign gas and oil companies for many decades. The continuous advances in exploration technology around the world were
not immediately applied in Poland during the period it was behind the “Iron Curtain.”

            We concentrate our exploration efforts in Poland primarily on the Rotliegend sandstones of the Permian Basin. We were attracted to the Rotliegend sandstones in Poland by two observations:

(1)          Since the 1960s, dozens of western exploration companies working in the North Sea and onshore Europe portions of the North European Permian Basin have identified approximately 200 trillion cubic feet, or Tcf, of Rotliegend gas. While the Permian Basin extends well into Poland, only 5 Tcf of
Rotliegend gas has been discovered in Poland. We believe political and capital restraints impaired POGC’s ability to explore and develop the Polish portion of the Basin.

(2)          In the last 20 years, very little exploration focused on the Rotliegend has been conducted in Poland.

We have identified a core area consisting of approximately 852,000 gross acres surrounding the Radlin Field. This 390 billion cubic feet, or Bcf, Rotliegend gas field was discovered in the 1980s by our joint venture partner, the Polish Oil and Gas Company, or POGC, which owns and produces gas from it. We have emphasized improved seismic data acquisition and processing in our
exploration, using technology developed for Rotliegend exploration in the Southern North Sea.

From 2004 through 2008, in the course of our Polish exploration with this approach, we have made commercially successful discoveries in five of the seven wells we have drilled on Rotliegend structural trap targets. In the aggregate, these five discoveries found gross estimated proved reserves of 107 Bcf of gas. Based on these discoveries and associated technical work, we have
identified a subset of our core area acreage, the Sroda area, as having significant natural gas potential and low drilling risk compared to the balance of our core area. Within the Sroda area and along trend immediately to the southeast, we have acquired three-dimensional, or 3-D, seismic data over several hundred square kilometers. Using this data, we have identified a number of possible structural traps. We believe the 3-D seismic data gives us better definition of the targets and
might further reduce our drilling risk, although we expect that we will continue to drill wells that do not establish production or reserves. We plan to direct the bulk of our available funds to carry out a multi-year exploration, appraisal, and development drilling program in our core area. These operations focus on the first element of our general strategy – to increase production and reserves in our core area.

While maintaining our focus on the Rotliegend structural trap exploration model in our core Fences area, we are also carrying out exploration work on other potential exploration models. These include non-Rotliegend prospects in our core area and various exploration opportunities on our 4.5 million net acres outside our core area. We have accumulated this large land position in
known productive regions or geologic trends and in selected “rank wildcat” areas in Poland. We have assembled a sophisticated technical team experienced with using modern exploration tools and generated a number of attractive gas and oil prospects. We are inviting industry participation in the early-stage drilling of these prospects. To the extent our overall strategy results in substantial revenue growth, we plan to direct more of our own funds toward exploration
outside our core area. However, the Rotliegend structural trap gas prospects in our core area will continue to receive the greatest portion of our efforts and capital resources over the next several years.

Some of our Polish operations are conducted in partnership with POGC. POGC is a fully integrated gas and oil company, which is largely owned by the Treasury of the Republic of Poland. POGC is Poland’s principal domestic gas and oil exploration, production, transportation, and distribution entity. Under our existing agreements, POGC has provided us with access to exploration
opportunities, previously collected exploration data, and technical and operational support. We also use geophysical and drilling services provided by POGC and sell our gas production to POGC.

Current Activities and Assets in Poland

We focus our exploration efforts in Poland primarily on the Rotliegend sandstones of the Permian Basin. We were attracted to the Rotliegend sandstones in Poland by two observations:

We have identified a core area consisting of approximately 852,000 gross acres surrounding the Radlin field. This 390 billion cubic feet, or Bcf, Rotliegend gas field was discovered in the 1980s by our joint venture partner, POGC, which owns and produces gas from it. We have emphasized improved seismic data acquisition and processing in our exploration, using technology developed for Rotliegend exploration in the Southern North Sea. With this approach we have made commercially successful discoveries in four of the five wells we have drilled on Rotliegend structural targets using new two-dimensional, or 2-D, seismic data.

We have made commercial discoveries in the course of our Polish exploration which, at December 31, 2007, were estimated to total 31 Bcf of gas and 14,000 barrels, or Bbls, of light crude oil, net to our interest. Future net revenues, discounted to present value at 10% per annum, or PV-10 value, were estimated at approximately $103 million after taxes. These figures exclude all of our historical Polish production and cash flows through December 31, 2007.

Based on these discoveries and associated technical work, we have identified a subset of our acreage, the Sroda area, as having significant natural gas potential and low drilling risk. Within the Sroda area we have acquired three-dimensional, or 3-D, seismic data over several hundred square kilometers. Using this data, we have identified a number of possible structural traps. We believe the 3-D seismic data gives us better definition of the targets and might further reduce our drilling risk. We have scheduled two rigs for the Sroda area to carry out a multi-year exploration, appraisal, and development drilling program. Our operations in the Sroda area focus on the first element of our general strategy–increase production and reserves in our core area.

While maintaining our focus on the Rotliegend structural trap exploration model in our core area, we are also carrying out exploration work on other potential exploration models. These include non-Rotliegend prospects in our core area on various exploration opportunities on our 2.8 million net acres outside our core area. For example, we are currently drilling a well, the Grundy-1, to test a Zechstein carbonate prospect in our core concession. Outside our core concession we are acquiring seismic data on several possible leads in our Northwest concession block. We anticipate continuing exploration work on our non-core acreage and on the secondary exploration targets in our core area. However, the Rotliegend structural trap gas prospects in our core area will continue to receive the greatest portion of our efforts and capital resources.