Salinas Basin Overview

Oil Field Redevelopment Projects

Overview

The Company’s Salinas Basin assets are characterised by heavy crude oil (approximately 12º API gravity) reservoired in highly porous, permeable and shallow (600’-3500’) sandstone reservoirs.

Salinas is focused on the redevelopment of a series of previously discovered heavy oil fields located in a geological trend centered around the small town of San Ardo.

Salinas has secured operatorship of three of these fields so far, with the first to be brought into production, North San Ardo or “NSA”. In addition to redeveloping the oil fields, Salinas is very actively leasing follow up exploration plays in the area and is targeting holding some 10,000 operated acres within the next 6-12 months.

Drilling costs are relatively low and Salinas is improving its cost performance with each drilling program it undertakes.  Exploration wells are expected to cost the Company US$300,000 to US$400,000.  Development wells on the North San Ardo oil field (reservoir at approximately 2100’) have been successfully drilled and completed for production by Salinas for US$420,000 (vertical producer) and US$800,000 (horizontal producer).

Maintaining good control on capital costs helps to improve the commercial value of the heavy oil fields which will incur relatively high operating costs when steam enhanced thermal recovery techniques are applied.  This is common practice in California which produces over 260 million barrels of oil a year, 65% being heavy oil.

In the current oil price environment (despite attracting a discounted price to light oil) very strong margins are achievable for heavy oil projects and the Company has commenced substantial long term oil production and cash flow (plus 10 years) from its San Ardo area projects. The Company's interim production target of 1,000 bopd was met from the North San Ardo field (NSA) in December, 2007.

Independently verified proved and probable (2P) recoverable reserves of 5.5 million barrels net to Salinas have been booked at NSA.  There is potential to prove up reserves levels many times this amount in the Company’s San Ardo area projects, particularly in the large Paris Valley oil field which Salinas will operate with 50% equity.