Investors who have been holding Falcon Oil and Gas (TSX.V:FO) have had the pleasure of enduring the equivalent of a roller coaster ride that doesn't stop. Through ups and downs, (but mostly downs), both institutional and individual shareholders have enjoyed a high of as much as $7.00 a share and as low as $0.28.

The big question has always been whether or not the company will be able to successfully exploit the very deep Mako Trough in Hungary.

The Mako gas deposits are trapped in rock formations created more than 23 million years ago and extend 7,000 meters (23,000 feet) into the ground, according to the U.S. Geological Survey.

The fields contain at least 340 billion cubic meters (12 trillion cubic feet) of gas. About 30 percent is economically recoverable at current prices, the Budapest-based company said April 16. The Scotia Group, a consultant hired by Falcon, estimated two days ago that the deposits hold about 1.2 trillion cubic meters, with a greater than 50 percent probability.

Hungary relies on imports for 78 percent of the gas burned in furnaces and factories. Gazprom last year sold 7.5 billion cubic meters of gas to the nation, about 70 percent of its imports. Falcon's efforts are considered strategically important for that region of Europe, who has historically been subject to the whims of Russian gas giant Gazprom.

Gas from Mako, a collection of fields twice the size of Los Angeles, could loosen OAO Gazprom's hold over European supplies. Demand in the 27-member European Union, the largest energy consumer after the U.S., rose by about 10 percent in the past five years. The urgency of finding new fuel sources intensified after European shipments were reduced when Gazprom cut supplies to Ukraine in 2006 over a pricing dispute.

In April, Falcon announced a milestone event when it entered into a production and development agreement with Exxon Mobil Corporation (NYSE:XOM) affiliate Esso Exploration International Limited (ExxonMobil) under which Falcon and ExxonMobil will become joint owners in a specified portion of Falcon's long-term production license.

Falcon's Chairman and CEO, Marc A. Bruner, stated, "This agreement is a milestone in Falcon's history and is the culmination of Falcon's extensive efforts, announced on June 27, 2007, to find a strategic partner to support and enhance Falcon's exploration and development efforts on Falcon's long-term Production License. We are very pleased that we were able to reach agreement with ExxonMobil, a company which brings to the table all the financial, technical and operating expertise necessary to pursue the completions, testing and evaluation of this resource, and then to maximize value if we are able to commercialize this opportunity."

The Agreement provides for an initial consideration of US$25 million to Falcon and for ExxonMobil to spend US$50 million to conduct an Initial Work Program to test one or more of Falcon's existing wellbores or drill one or more new wells for such tests. Field operations under the Initial Work Program are scheduled to commence this year. After the Initial Work Program is completed and if ExxonMobil elects to proceed to the next phase (the "Appraisal Work Program"), it will pay Falcon an additional US$50 million and will expend US$100 million on the Appraisal Work Program. If ExxonMobil elects not to proceed beyond the Initial Work Program, it will relinquish and reassign to Falcon all of ExxonMobil's interest in the Contract Area. After the Appraisal Work Program is completed, ExxonMobil will pay Falcon an additional US$75 million if it elects to proceed to the next phase (the "Development Program") or it will reassign its interest to Falcon, subject to the terms of the Agreement.

Falcon will incur no development costs within the Contract Area for ExxonMobil's commitments during the Initial Work Program or the Appraisal Work Program. Beginning with the Development Program, Falcon and ExxonMobil would each receive revenues and be responsible for its proportionate share of expenses within the Contract Area (that is, 33% Falcon and 67% ExxonMobil), under a joint operating agreement.

Last month Falcon announced a new, independent report from RPS Scotia disclosing an updated resource estimate within the production license area of Falcon's deep gas exploration project in southeastern Hungary (the "RPS Scotia Report").

The RPS Scotia Report is compliant with National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities" ("NI 51-101").

The RPS Scotia Report on the resource of the Makó Trough describes a probabilistic distribution of the potentially recoverable portion of "Contingent Resources" as defined by the Canadian Oil and Gas Evaluation Handbook and does not represent an estimate of reserves.

Based on all available data, RPS Scotia has assigned the following probabilistic estimation of potentially recoverable contingent resources in the Szolnok formation, the Lower Endrod, the Basal Conglomerate and the Synrift Sequence. The RPS Scotia Report measures the Makó Trough in trillions of cubic feet (Tcf) and millions of barrel oil (mmbo):

RPS Scotia consists of approximately 20 geoscience and petroleum engineering professionals and has offices in Houston and Dallas. RPS Scotia provides advisory services to the oil and gas industry specializing in technical and economic analysis of projects, properties and companies. In addition to advisory services RPS Scotia provides traditional consulting services including integrated field studies, reserves reporting, geology, geophysics, and reservoir engineering. Clients include banks, financial institutions, the legal community, government agencies, and major and independent international energy organizations including ChevronTexaco, (NYSE:CVX) EnCana, (NYSE:ECA) Petrobras, (NYSE:PBR) Reliance Industries, Repsol Exploration, Pemex Exploración y Producción, Woodside Petroleum and the U.S. Department of Energy. The RPS Group has over 164 professionals located worldwide, in the U.S.; Canada, the U.K., Australia, Russia, and Singapore and provides similar and expanded capabilities including sedimentology, environmental services, and geohazards.