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Shilo, OK Projects

The Company owns a 7.5% working interest in Shilo #1 with 80% net revenue interest, in the gas and oil lease described as The N/2 NE/4 of Section 17, Township 16N, Range 10E, containing 40 acres more or less, located in Creek County, State of Oklahoma. The Company also owns a 11.5% working interest with 80% net revenue interest, in the gas and oil lease described as The SW/4 NW/4 NE/4 of Section 17, Township 16N, Range 10E, containing 10 acres more or less, located in Creek County, State of Oklohoma (the ''Shilo #2'').

On June 10, 2010, the Company obtained a valuation report for each of the two leases from Richard F. Mooney, a petroleum geologist/geophysicist, based on reported well data and available production history (the ''Reports''). The following is a discussion of the Reports with respect to such leases.

Two wells were drilled in 2006, the Shilo #1, NE/4 SW/4 NE/4 NE/4 and the Shilo #2, SE/4 SW/4 NW/4 NE/4. The wells were drilled by a now defunct operator, Mr. Dempsey Todd Shelton, of Tulsa. The Shilo #1 originally produced 550 MCFG/D w/no water from a 10 foot Dutcher section (2940'  2950'). From June, 2007 through November, 2009, (the available production history of the well) this well produced a cumulative 61,087 MCFG at an average monthly rate of 2068 MCFG/month and 374 BO. Logs were not available for this well, but pertinent reservoir characteristics are well known. Dutcher sands typically have porosities of 15  25 %.

Although the well made no water, a water saturation of 25% was assumed (again, the values for this reservoir average 14  33% in producing sands). Allowing for a 10 acre drainage, this reservoir volumetrics calculates to 588,060 cubic feet of available reservoir. This translates to a 104,738 barrel capacity, or 1,047,380 MCFG capacity. Deducting the gas already produced leaves a volume of 986,287 MCFG in place. Industry standard is a 33% primary recovery rate, leaving 284,542 MCFG available for primary recovery. If $3/MCFG is assumed (gas is presently @ $4/MCFG), this represents a potential of $853,627 revenue for a net 100% revenue interest, or @ $85,363 for a 10% revenue interest.

Initial reservoir shut-in pressure was 875 psi (11/64 choke). The reservoir was perf'd and given a light acid job, but not frac'd. Historically, the production went from a high of 3,361 MCFG/M in January, 2008, and tapered off in late 2009 to a low of 625 MCFG/M in November, 2009. This probably is more representative of the quality of the operator than reservoir quality. This well, with a light frac and acid job and an ongoing program of pressure maintenance will potentially resume the volume of production formerly seen. This well is shut-in and non-producing.

The Shilo #2 produced from the Bartlesville sand at 2410'  2414'. Initial production was 55MCFG + 2 BO +  BW per day. Initial shut-in pressure was reported @ 800 psi and the reservoir flow via a 16/64 choke. No production history is available for this well, but applying volumetric analysis as above (porosity is assumed @ 15% and water saturation @ 33%), then a reservoir volume of 175,111 cubic feet of volume is estimated in 10 acres. This translates to a volumetric equivalent of 31,189 barrels. The gas to oil ratio is roughly 27:1 and the gas equivalent is 5.5 barrels. This means original oil in place would be 10,292 barrel - equivalent by primary recovery, or about 9,924 MCFG and 368 BO from this reservoir. This represents a potential 100% revenue interest of $29,772 for gas and $22,080 for oil. A 10% revenue interest would be $2,977 and $2,208, respectively. This well also was perf'd and acidized, but not frac'd. A light frac and follow-up acid job may increase potential production. This well is shut-in and non-producing.

Oklahoma Corporation Commission Orders # 523196 (Bartlesville) and #30640 (Dutcher) place spacing at 40 acres on this acreage. This would increase drainage area potential by a factor of 4 to the above calculations, increasing potential of a 10% revenue interest in the Shilo #1 to $341,452 and the Shilo #2 to a potential of $20,740. Actual value of the leases will be increased by the equipment remaining in place on the lease. The Company currently considers these well to be ''Shut-In'' but not ''Abandoned''. They produce no revenue.

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