Kromolice North Well Drilling Started April 22, 2008

Introduction

We are an independent oil and gas exploration and production company headquartered in Salt Lake City, Utah. Our principal production, reserves, and exploration activities are in Poland, although we have a modest oil presence in the U.S. We hold 3.7 million gross acres (3.2 million net) in Poland. We believe Poland represents a unique international exploration opportunity. Relatively little gas has been discovered in Poland's sector of the North European Permian Basin, compared to the discoveries in the United Kingdom, Dutch, and German sectors. For most of the 20th Century, the country was closed to exploration by foreign oil and gas companies. Consequently, we think the Polish Permian Basin is underexplored and underexploited.

Independent engineers estimated our total oil and gas reserves at 34.1 billion cubic feet of gas equivalents, or "Bcfe". Our total oil and gas reserves increased approximately 50% from year end 2006 to 2007.  Our production more than doubled from 2006 to 2007. In both cases, the increase was virtually all attributable to our exploration in Poland.

References to us on this website include FX Energy, Inc., our subsidiaries and the entities or enterprises organized under Polish law in which we have an interest and through which we conduct our activities in that country.

Corporate Strategy

We hold substantial acreage in productive fairways or geological trends, primarily in Poland, that we consider underexplored and underdeveloped, where we believe we have the opportunity to find significant gas and oil reserves while mitigating risk through the application of new exploration technology. Our strategy is to:

• increase production and reserves in our core area;
  
  
• utilize revenues from our core area to support high potential exploration on our substantial non-core acreage.

Grundy Well Currently Drilling February 2008

Relatively little gas has been discovered in Poland’s sector of the North European Permian Basin compared to the discoveries in the United Kingdom, Dutch, and German sectors. 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 oil and gas 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.”

Acting on this thesis, we have accumulated a large land position in known productive regions or geologic trends and in certain selected “rank wildcat” areas in Poland. We have assembled a sophisticated technical team with modern exploration tools and generated a number of attractive gas prospects. This has already begun to bear fruit with several new discoveries on which to build a production base to support our ongoing exploration program in Poland.

Some of our Polish operations are conducted in partnership with the Polish Oil and Gas Company, or POGC. POGC is a fully integrated oil and gas company, which is largely owned by the Treasury of the Republic of Poland. POGC is Poland’s principal domestic oil and gas 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:

• Since the 1960’s, the dozens of western exploration companies working in the North Sea and onshore Europe portions of the Basin have identified approximately 200 trillion cubin 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.
  
  
• 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, 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 and 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.

Key Personnel for Poland

Our chief technical advisor is Richard Hardman, CBE. He also serves on our board of directors. Mr. Hardman has built a career in international exploration over the past 40 years in the upstream oil and gas industry as a geologist in Libya, Kuwait, Colombia and Norway. In the United Kingdom, his career encompasses almost the whole of the exploration history of the North Sea – 1969 to the present. With Amerada Hess from 1983 to 2002 as Exploration Director and later Vice President of Exploration, he was responsible for key Amerada North Sea and international discoveries, including the Valhall, Scott and South Arne fields. Mr. Hardman was made Commander of the British Empire in the New Year Honours, 1998, and has served as the Chairman of the Petroleum Society of Great Britain, President of the Geological Society, and President of the European Region of AAPG Europe. Mr. Hardman was appointed to our board of directors in October 2003 and is Chairman of our Technical and Advisory Panel.

Jerzy Maciolek is a director of the Company and, as Vice President of International Exploration, heads our exploration team. He joined the Company in 1995 specifically to lead it into Poland where he had identified the exploration opportunity that today is the Company’s core asset. Mr. Maciolek has over 25 years’ experience as a geophysicist with POGC, Gulf Oil Research, and as an independent consultant. He received an M.S. in exploration geophysics from the Mining and Metallurgical Academy in Krakow, Poland.

Our Country Manager in Poland is Zbigniew Tatys, the former General Director of POGC’s Upstream Exploration and Production Division. During his 20-year career with POGC, he rose through the ranks as a production engineer and was serving as Vice Chairman of POGC at the time of his retirement. Mr. Tatys has unique qualifications to lead us through our transition from a pure exploration company to an oil and natural gas producer in Poland.

Our U.S. Presence

Unlike our position in Poland, the US operation does not have substantial exploration potential. It is fairly mature. It provides a modest amount of cash flow and is not capital intensive. It consists mostly of shallow, oil-producing wells in the Cut Bank oil field of Montana. As of December 31, 2007, our U.S. reserves were estimated at 482,000 barrels of crude oil with a PV-10 value of approximately $11 million.

Project Areas

Our ongoing activities in Poland are conducted in six areas: Fences, Northwest, Kutno, Warsaw South, Block 255 and Block 287. Our exploration activities are currently focused primarily on the core Fences area, where the gas-bearing Rotliegend sandstone reservoir rock is a direct analog to the Southern North Sea gas basin offshore the United Kingdom. We are focused on this core area because substantial gas reserves have already been discovered and developed by POGC, we have made five commercial gas discoveries, together with POGC, containing proved gas reserves of approximately 71 Bcf gross (31 Bcf net to our interest), and we have concluded that there is likely to be substantial additional natural gas in the same geologic horizon. Click here.

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