Overview

The Company currently owns a 100% working interest in this prospect. The Lokern Prospect is located in the southern San Joaquin Basin in Township 29 South, Range 22 East, Kern County, California.

Geology

The primary exploration objective is the Miocene Stevens formation. The secondary objectives include the Miocene Reef Ridge and Pliocene Etchegoin sands. The Stevens formation is Upper Miocene age. It is a thick (more than 2,000 feet thick in some areas) marine turbidite sequence consisting of pebbly-to-fine grained, poorly sorted, quartzose to arkosic sands interbedded with dark organic-rich deep water marine shales. Graded bedding is common and water depth in the basin is estimated to have been between 2,000 and 6,000 feet.

The Lokern Project is being developed in part as a result of positive results from the Machii-Ross Ackerman show well in 1979. Based on log analysis, we believe that well had approximately 240 feet of potential net oil pay and an additional 150 feet of potential pay in an Upper Stevens turbidite channel.

We expect that a well will be drilled, either by us or through a farmout arrangement with a third party, to a depth of 15,000 feet in 2009.