Citadel Exploration Inc. provided an update on its current operations, including its first official oil production. Citadel has signed a non-binding letter of intent (LOI) with its operating joint venture partner in the Pastoria Creek area of Rancho Grande. Going forward, Citadel will be the sole-working-interest owner on a 55-acre block at Pastoria Creek.

Citadel's joint venture partner will receive certain economic interests as part of the transaction. As a result, Citadel expects to commence additional drilling at Pastoria Creek in the next 60 days. This area offsets the previously drilled 1-2 and 3-2 wells, but is expected to be higher structurally than those wells.

The company believes that this area has in excess of 1 million barrels of unrisked reserve potential. Citadel has initiated recompletion work on the Yowlumne 2-26, a well that the company acquired in May 2013. The Yowlumne 2-26 was first drilled in 2008 under supervision of Citadel CEO Armen Nahabedian during his previous tenure with his family's oil company.

Although the well tested oil at that time, the well was left idle for five years as lease issues prevented operations on the well until the appropriate curative measures could be taken. Citadel approached operations on this well with extreme caution and installed a 10,000 psi production tree as the well had shut-in pressures exceeding 500 psi with fluid to surface. The productive zones in this well are at a depth of approximately 12,500' and have slotted liner set across them.

Current operations have demonstrated the entry of 34.5 API oil and associated gas at an undetermined rate. Flow tests have recovered approximately 100 barrels of oil over the course of the last week and the Company is currently moving in a service rig to better determine rates of entry, possible pump sizes, or potential necessity for stimulation of the well. In addition, the company has installed tanks and other related infrastructure on the property to facilitate future production.

Citadel has received the final required permit for the first well at Project Indian from the California Division of Oil, Gas and Geothermal Resources (DOGGR). Citadel believes that Project Indian could contain some 100-200 million barrels of oil in place. The oil at Project Indian is "heavy," meaning that it is low gravity and highly viscous.

Previous efforts in the area have demonstrated that the oil will not produce without stimulation. The company plans to implement a pilot thermal recovery program whereby steam will be injected into the reservoir which should help mobilize the oil. This method is very safe, efficient and widely utilized in California, accounting for approximately 60% of the State's current production.

Historically, thermal projects have seen recovery levels of 20% to 40% of the original oil in place. Citadel's pilot project has been designed to delineate the potential field boundaries and test the feasibility of a full scale thermal recovery program over the project area. Initial test drilling is expected to begin this quarter.