July 21, 2004

NEWS RELEASE 
 
Summer Drilling Program - Pt-123 Well
 
Loon Energy Inc. (“Loon”) (TSX-V:LEY) announces that Troy Ikoda Limited (“Troy Ikoda”)  have submitted the first part of their report on the Petisovci-Globoki (“Pg”) gas reservoirs (the “Report”) which underlie Loon lands in northeastern Slovenia. Troy Ikoda is an independent UK engineering and consulting firm who have been retained by Grove Energy Limited (TSX-V:GRV) to undertake a technical review of the Pg reservoir to determine Gas Initially In Place (“GIIP”) as well as to review operational issues associated with the stimulation applied to earlier wells. The second part of the Report, which will evaluate potential frac design and stimulation alternatives, will be completed after the drilling of the Grove D-14 well.  Grove is a joint venture partner of Loon in the development of the deeper gas horizons contained in the Pg zone.
 
The Pg reservoir (Middle Miocene) underlies the Upper Miocene Petisovci-Dolina oil field in eastern Slovenia.  The Pg reservoir was first discovered in 1960.  A total of nine wells (Pg-1 to Pg-9) were drilled through the zone with five of them, drilled in the 1980’s, having the benefit of modern logs.  The wells produced sweet natural gas (91% methane, 2.5% C02) with some condensate.  Cumulative gas production from earlier wells totalled approximately 9 Bcf of which more than 8.5 Bcf was contributed by two wells from a single zone.
 
The Pg reservoir section consists of approximately 1,100 metres of interbedded sand, siltstone and shales interpreted to be deposited in a turbiditic environment.  The formation requires hydraulic fracture stimulation to enhance flow rates.  Limited stimulations were attempted in the existing wells prior to 1990 and post-stimulation performance was variable.  In a number of instances, the stimulation work has proven the success of hydraulic fracturing with pre- to post-fracture treatment rate enhancements up to ten-fold being achieved.  Wells Pg-1 and Pg-5 responded positively to fracture treatment and between them produced more than 8.5 Bcf of natural gas from the E-1 reservoir zone, lying at a depth of some 2,700 metres.   
 
The Report splits the GIIP estimates into two tables.  Table 1 indicates GIIP estimates for zones which were tested in earlier wells (Zones D and E) and Table 2 indicates estimates for untested zones.

Over the past 15 years there has been significant improvement in frac design, fluid technology, equipment and implementation procedures.  The analysis undertaken by Troy Ikoda and outlined in the Report has identified numerous gas-bearing zones which may be capable of production.  Enhanced flow rates from both existing and future wells may be achievable using modern hydraulic fracturing techniques and multiple zone stimulations. 
 
Actual recovery of natural gas from the Pg will be dependent upon the success of any stimulation undertaken.  No quantification of potential recoverable gas reserves in the Pg has been provided in the Report or estimated by Loon.  Loon will have a 10.5% carried working interest in all gas ultimately produced from the Pg. 
 
The Grove D-14 well will be drilled in late August and early September at no cost to Loon to evaluate the potential of the Pg zone underlying the Petisovci and Dolina fields.  The fields lie on a large anticlinal structure approximately 18 km in length and up to 2 km in width which continues east into Hungary.  Approximately 40% of the structure, all of which is included in the Loon-Grove joint venture area, is in Slovenia.  The Troy Ikoda estimates of GIIP for the Pg relate only to the Slovenian portion of the structure, all of which is subject to the Loon/Grove arrangement.   
 
The Lovaszi oil field, on the Hungarian side of the structure, has produced 50 million barrels of oil and 230 Bcf of gas.  The Petisovsci-Dolina field area has produced 5.6 million barrels of oil and 34.3 Bcf of gas, less than 15% of the volumes produced at Lovaszi.   All of the oil production and 75% of the gas production coming from the Slovenian side of the structure was produced from zones above 2,000 metres which are not subject to the joint venture arrangement with Grove.  The Company believes that significantly more oil and gas can be produced from these shallower zones underlying the Slovenian part of the structure.  The Pt-123 well, which will evaluate the potential of these shallower zones, will spud in late July.
 
Loon is focused on exploration and development projects in Slovenia and other countries in south-central Europe.  Slovenia is bounded by Croatia (south), Hungary (east), Austria (north) and Italy (west).  The principal project area is located in eastern Slovenia near to the borders with Hungary and Croatia approximately 210 kilometres south of Vienna, Austria and 180 kilometres northeast of Ljubljana, the capital of Slovenia.  Slovenia joined NATO in April, 2004 and the European Union (“EU”) on May 1 of this year.