Core Property

North Texas/Panhandle Waterflood Project
In November 2005, we acquired a 100% working interest in 1,755 acres in the Quinduno Field in Roberts County, Texas, in the Anadarko Basin. The project is focused on infill drilling and the implementation of a water flood on the property. Quinduno has a large established resource base of original oil in place. Since its discovery in 1953 only 5 million barrels have been produced using primary production.

One infill well has been drilled to date. We have an ongoing program to enter each of the 20 wells that have not been plugged. So far, we have entered 7 of these older wells to determine their mechanical status and establish potential productivity. Two of these wells have been equipped and are now producing.

At present, we are close to finalizing our negotiations with an international oilfield service company for them to install a water treatment facility on the leasehold that will provide us with a secure, continuous, economical source of at least 5,000 barrels per day of treated and filtered produced water from third parties that we can use for injection. This will alleviate the need to use fresh water as our primary source of injection fluids although fresh water will remain available as a back-up source to be used as needed. The facility will also treat our own produced water later in the life of the flood. Our capital investment in the facility would be minimal.

At present we are also in negotiations with potential industry partners to allow for the installation of the flood to begin before the end of the year.

Ryder Scott has estimated proved reserves extractable by water flood at 1.5 million barrels, with probable and possible reserves adding a further 5.0 million barrels. Slightly deeper than the water flood targeted Brown dolomite is as yet undrilled exploration potential that may be tested in a future well.