NEW TAITON PROSPECT (25%)

Background

The Ilse-1 well which was drilled on the New Taiton prospect commenced drilling on 1 st December, 2006 and drilled to a total depth of 17,000 feet (5,183 metres) by the end of March 2007. High bottom hole pressures and well control issues caused the operator to terminate the well short of the original planned total depth of 17,300 feet.

Log interpretation identified three zones of interest with interpreted hydrocarbon bearing sands in the Lower to Middle Wilcox section and other potential gas/condensate bearing sands in the Upper Wilcox. It was decided to fracture stimulate and test what was considered to be the best zone over a 16 foot interval in the Lower Wilcox at approximately 16,780 feet. Upon flow back of the well, only minor sub-economic quantities of gas were able to be recovered.

The forward program for this well which may include testing a second zone of interest in the Middle Wilcox, has been stalled since July 2007 pending resolution of technical as well as financial issues concerning the operator of this well. Arbitration proceedings have recently been initiated in order to resolve this matter as soon as possible.