Sydney, Mar 6, 2008 (ABN Newswire) - Mosaic Oil NL (ASX: MOS)("Mosaic Oil")(PNK: MSAOF) is pleased to announce that the Company has signed an agreement with CS Energy Limited (CS Energy) regarding funding for the drilling of two Waggamba horizontal wells (Waggamba-4H & -5H) within the Waggamba Field of the Petroleum Lease (PL) 202 in Queensland.

Under this agreement CS Energy will commit to Mosaic Oil to fund the drilling, and if successful, completion and tie-in of two horizontal wells in the Waggamba field with a firm expenditure of $7.0 million. These wells will be drilled during the first half of the 2008 Calendar Year. In return for funding these wells, CS Energy will be entitled to receive 50% of gas production and 35% of associated free oil and condensate production from the two wells. Mosaic Oil will retain 50% of gas production and 65% of associated free oil and condensate production from these wells.

The agreement also provides for CS Energy to have the right to fund 50% of two additional horizontal wells to be drilled in late 2008 Calendar Year, in return for 50% of gas production and 35% of associated free oil and condensate production from these two wells.

CS Energy will also have the right to participate in the drilling of further gas and oil wells within PL 202 by funding 50% of the cost in return for which CS Energy will be entitled to receive 50% of gas production and 35% of associated free oil and condensate production from any successful wells drilled under this agreement. Mosaic Oil will retain 50% of gas production and 65% of associated free oil and condensate production from any successful wells.

In addition, the agreement also covers the terms for the continuing supply of gas under Mosaic Oil's existing gas sale agreement with CS Energy for a 5 year term to 31st March 2010 and for the supply of additional gas for up to a further 36 month period to 31st March 2013. Subject to CS Energy meeting its obligation under the funding agreement for two horizontal wells and sufficient gas production and deliverability capacity from PL 202 , Mosaic Oil will grant CS Energy an option to purchase up to 4 PJ of gas per annum (from currently up to 3 PJ/annum) during the existing term and also during the extension period.

Mosaic Oil's Managing Director, Mr Lan Nguyen said: "We welcome CS Energy's involvement, and look forward to a successful drilling program with them. The arrangement represents a significant benefit to Mosaic Oil as it not only involves $7.0 million worth of funding, but also involves a company of the calibre of CS Energy and ensures ongoing demand for the Mosaic Oil gas supply through the extended contract for an increased gas supply of up to 20 PJ of gas from PL 202 until April 2013".

Mr Nguyen said that the funding will also bolster Mosaic Oil's overall preparation for the Company's 2008 multi-well drilling campaign.

"Following a successful share placement and rights issue, Mosaic Oil now has over $17 million available to fast-track drilling and exploration activity over the next two years, in addition to the firm expenditure commitments from CS Energy," Mr Nguyen said.

Mosaic Oil's capital management

Mosaic Oil's current strategy of accelerating its activity and further developing its asset base with a particular focus on the exploration and development opportunities in the Company's Surat-Bowen Basin assets, has been enhanced by both the recent capital raising and the CS Energy funding commitment. The board and management have targeted a 200% increase in production and a similar uplift in projected revenues for the period 2008-2010 as part of this strategy.

Mosaic Oil's Managing Director, Mr Lan Nguyen said Mosaic Oil would continue to use a farmout strategy to manage risk and enhance the funding capacity to further expand the currently planned multi-well program beyond 2008.

>>> MOSAIC OIL NL