Mooney Heavy Oil Project -- Alberta

As of the end Q3 2008 Pearl has drilled ten net horizontal wells in our Mooney area thus far in 2008. Four of the eight wells were drilled as part of the polymer pilot which will consist of two polymer injection wells and two producers. Regulatory approval has been obtained for the polymer pilot and polymer injection began in late October of 2008. Preliminary results from the pilot are expected by Q1 2009. Plans for a field wide polymer flood implementation are expected to be finalized by Q2 2009 with the initiation of full field implementation targeted as early as Q4 2009.

In addition we have continued to advance the conversion of the field to a water flood project. During Q3 an additional 1.5 sections were approved for water flood with water injection expected to commence in late Q4 2008 and early Q1 2009.

In addition, one additional section is awaiting waterflood approval which is expected to commence water injection in Q1 2009. The water flood will ultimately assist in both maintaining production levels and increasing reserves as recoveries are expected to increase with the demonstration of pressure maintenance, a decreasing gas/oil ratio ("GOR") and sustained production. In the event that the polymer pilot is successful the investment in the infrastructure implemented for the water flood will be used as base infrastructure for the polymer flood. While the Company expects that the implementation of the water flood will result in both sustained production and higher reserve recovery, in the short term as the field is converted there will be intermittent production disruption in Mooney.

The Company was successful at a crown land sale acquiring 6 sections (1536 hectares) of land at 100% working interest in the Mooney core area.

The Mooney field produced approximately 1,650 Boed during Q3. Production from Mooney was curtailed significantly for approximately nine weeks, beginning at the end of June by approximately 700 Boed. This shut-in was a result of our pipeline provider, on short notice, terminating our ability to ship solution gas that contained higher than permitted CO2 on their system. To rectify the situation we procured, installed and commissioned an amine plant in less than 10 weeks. As a result we now have the capability to remove excess CO2 from our gas stream which allows us to ship our gas production to market without interruption to service.

Onion Lake Heavy Oil Project -- Saskatchewan

In Onion Lake the Cyclic Steam Stimulation (CSS) thermal pilot continues. The first well ("Z1") has completed the first steam and production cycles, with a peak rate of over 150 Bopd being achieved. The Z1 well began its second injection cycle September 21/08. Steam injection on the second well ("Z2") began on June 20th and the first production cycle commenced on August 11, 2008. Mechanical issues were experienced during the steam cycle on the Z2 well resulting in a small amount of steam entering the reservoir. As a result, the first production cycle of the Z2 well was lower than expected. It is anticipated that the Z2 well will perform similarly to the Z1 well when similar amounts of steam have been injected into the reservoir. We are currently preparing to begin the second steam cycle in the Z2 well.

During Q3 production from Onion Lake average approximately 2,300 Boed; this excludes production from the CSS thermal pilot as net revenue from the pilot is captured as an offset to the net capital costs for that project.

Blackrod Heavy Oil Project -- Alberta

At Blackrod, as previously announced the Company closed a transaction on August 20th to acquire an additional 30% working interest in the Blackrod project area. The company paid $4.5 million in cash and, if successful, will be required to make additional payments totaling up to $11 million, based on pre-set criteria of success. In September and early October the Company was also successful at 2 separate crown land sales and acquired an additional 36 sections (9,216 net hectares) of oil sands leases contiguous to our project area. Subsequent to the end of Q3 the Company entered into an agreement with Serrano to increase our working interest in the original project area from 65% to 80% in return for the disposal of our interests in Serrano and a carried work program of net $5 mm over the next twelve months.

Pearl intends to continue its plan to drill 10 to 15 stratigraphic core wells in the 2008/2009 winter to further delineate this deposit and gather additional petrophysical and reservoir fluid characteristic data. The application for the required governmental approvals of the thermal SAGD pilot project was submitted in May of 2008 and is expected to be approved in the next 6 to 12 months.

There is currently no production at Blackrod and we do not anticipate any production coming from Blackrod until our pilot project is operational. We currently anticipate the pilot being operational in 2010.

San Miguel Heavy Oil Project -- Maverick Basin, South Texas

At San Miguel, Pearl and its 50% partner TXCO continued steam injection at the Steam Assisted Gravity Drainage ("SAGD") pilot located within the Chittim "B" Lease. Production, temperature, and pressure monitoring of the well pair continue to confirm that the well pair has entered SAGD mode with initial oil flows being observed.

At Saner Ranch, the pilot facility construction is proceeding on schedule with mechanical completion still expected to be completed in early December. The Saner Ranch pilot includes a vertical inverted five spot well pattern and a horizontal three well pattern that both utilize a modified Fracture Assisted Steamflood Technology ("FAST") process. Steam injection into the vertical inverted five spot pattern commenced on August 28 as part of the reservoir warm-up phase with initial indications of connectivity being observed within the inverted 5 spot pattern. The three horizontal wells were completed in September and achieved first steam injection / reservoir warm-up phase as scheduled on October 8, 2008. Preliminary performance results from both patterns are anticipated during the first half of 2009.

By the end of the second quarter of 2009, Pearl expects to be in a position to select which of the three recovery techniques will be used to form the basis of a commercial development project, SAGD or one of the two modified FAST techniques. In addition, work continues on the commercial aspects of a successful project in San Miguel including the method in which the JV will generate energy to produce steam and the markets and value of the production from the project.

The is currently no commercial production in San Miguel and we do not anticipate any commercial production originating from San Miguel until the JV moves into a commercial development of this resource. We have begun to see early production in the Chittum pilot in October.

Other Properties -- Alberta, Saskatchewan

In order to enhance the value of certain non-core assets, Pearl initiated a 9 well drilling program at Ear Lake, Salt Lake and Druid in Q3, which is now complete. All of these wells will initiate production in Q4. Overall, the production increase from this program is expected to reach between 400 and 500 bopd by year end.

Production from other non-core Canadian properties averaged 1,800 Boe/d in Q3. It is still the intention to sell these properties once market conditions improve.

Other Properties -- U.S.

The Company also holds interests in several other areas in the United States, including Queen City gas fields, the West Rozel and Gunnison Wedge in Utah, Promised Land and Fiddler Creek in Montana and Queen City gas field in Texas. There is limited or no production from these areas and there are only minor evaluation plans contemplated for these lands in 2008. However, the Company believes certain of these lands contain large resource potential and may, based upon further evaluation, be developed in the future.

In September, we agreed to dispose of our land and tangible interests in the Palo Duro basin to Tyner Resources Ltd. ("Tyner") in exchange for an equity interest in Tyner. This transaction is consistent with our strategy to focus on our 4 core areas and is expected to close prior to year-end.

Onion Lake Heavy Oil Project -- Saskatchewan

In Onion Lake the Cyclic Steam Stimulation (CSS) thermal pilot commenced steam injection on May 15th, over a month ahead of schedule. The first steam cycle on the first well was completed on June 19th and the well is currently producing approximately 140 barrels of oil per day which is above expected modeling predictions. Steam injection on the second well began on June 20th and first production commenced on August 11, 2008.

Mooney Heavy Oil Project -- Alberta

During the first half of 2008 Pearl drilled four net horizontal wells in our Mooney area. Three of the new wells will form the basis of a polymer pilot which has been accelerated to be initiated in Q4 2008. Preliminary results from the pilot are expected by Q1 2009. Plans for a field wide polymer flood implementation are expected to be finalized by Q2 2009 with implementation targeted as early as the end of 2009. Permits have now been obtained for the implementation of the waterflood with its initiation expected in Q4 2008 and continuing into the first half of 2009. In addition, plans are underway to commence a development drilling program by year end to extend the productive area to the west with the goals of increasing production and proven and probable reserves

Blackrod Heavy Oil Project -- Alberta

At Blackrod, as previously announced, the Company has entered into an agreement to acquire an additional 30% working interest in 3,886 contiguous hectares of oil sands leases in the project area. In addition, Pearl is continuing with its plans to drill a 10 to 15 stratigraphic core well program in the 2008/2009 winter to further delineate this deposit and gather additional petrophysical data. Pearl remains on track to initiate steaming at its Steam-Assisted Gravity Drainage ("SAGD") pilot, comprised of single well pair pilot and related facilities, during the first half of 2009. The application for the required governmental approvals of the thermal SAGD pilot project was submitted in May of 2008.

San Miguel Heavy Oil Project -- Maverick Basin, South Texas

At San Miguel, Pearl and its 50% partner TXCO have finished construction of its SAGD pilot located within the Chittim "B" field. Steam injection commenced on June 1, 2008 with preliminary results expected by Q1 2009. Temperature monitoring of the well pair indicates that the steam chamber is building as anticipated. At the Saner Ranch portion of the field, construction is continuing on the second production pilot. The Saner Ranch pilot includes both a vertical inverted five spot well pattern and a horizontal three well pattern utilizing a modified Fracture Assisted Steamflood Technology (FAST) process. The three horizontal wells were drilled and completed successfully in Q2 2008. All major long lead time items for the pilot are on site with assembly of facilities and infrastructure installation proceeding on schedule. The pilot is expected to be operational in the third quarter of 2008 and allow preliminary results to be analyzed during the first half of 2009. By the end of the second quarter of 2009, Pearl expects to select which of the three recovery techniques will be used to form the basis of a commercial development project.

Other Properties -- Alberta, Saskatchewan

During the current quarter, the Company sold certain non-core heavy oil producing assets for $75 million. These assets were located in the Lloydminster, Celtic, Pikes Peak and Thunderchild areas of Saskatchewan and were part of the non-core asset package that the Company announced its intention to rationalize on January 8, 2008.

Other Properties -- U.S.

The Company also holds interests in several other areas in the United States, including Queen City gas fields, the West Rozel and Gunnison Wedge in Utah, Promised Land in Montana and Queen City gas fields in Texas, however, there is limited or no production from these areas and there are only minor evaluation plans contemplated for these lands in 2008. However, the Company believes certain of these lands contain large resource potential and may, based upon further evaluation, be developed in the future.

Onion Lake Heavy Oil Project -- Saskatchewan

Activity at Onion Lake during the first quarter focused on the installation of facilities to reduce operating costs and optimization of well operations. A fuel gas system was installed to collect solution gas from the field and provide dry fuel gas to the generators powering the wells. Beginning in the second quarter, the fuel gas system will allow a majority of the field to convert to this lower cost solution gas rather than using propane.

Engineering design continued on the sand handling and salt water disposal facilities. It is anticipated that both facilities will become operational during late Q3 2008. This will further reduce operating costs at Onion Lake by reducing the amount of trucking required in the field.

Construction commenced on the Onion Lake Thermal Pilot with the facilities at 90% complete by the end of Q1 2008. First steam is anticipated by mid May 2008 with first production expected during July 2008

Mooney Heavy Oil Project -- Alberta

During the first quarter, Pearl drilled one Bluesky horizontal development well at Mooney. The well production tested at 230 Boed and was shut-in due to infrastructure constraints. The well will be brought on production later in 2008 once tie-in is complete. This well, along with the vertical stratigraphic wells drilled in Q4 2007 were successful in identifying multiple additional development drilling locations.

Also during the first quarter, a second booster compressor was installed to allow for the recovery and sales of all the produced solution gas from the field.

Pearl is continuing work on its polymer flood enhanced oil recovery pilot. Planning is currently focused on selection and procurement of the polymer additive, location of the polymer plant, design and procurement of the treating facilities and identification and distribution of source water. Pearl has identified horizontal wells that will be converted to polymer injection and regulatory approval is pending. Polymer flooding is expected to begin in early Q4 2008. In addition to the polymer pilot, the water flood will be expanded from the current single water injection well to 14 water injection wells by year end.

Blackrod Heavy Oil Project -- Alberta

During 2007 the Company acquired, in two separate Crown land sales, a 35% working interest in 15 contiguous Sections (8,960 acres) of oil sands leases located north-central Alberta between Townships 76 -- 77, Ranges 17 -- 18, west of the 4th Meridian. This project consists of a large scale heavy oil resource in the Athabasca region with over 100 million barrels of possible net reserves according to the Company's most recent third party reserve report. The Company also has an additional indirect interest of approximately 8% in this project through its approximate 18% ownership in Serrano Energy Ltd., who have a 35% working interest in the same acreage.

The Company has plans to drill one stratigraphic core well this winter and is in the process of preparing an application for required governmental approvals of a thermal pilot project utilizing Steam-Assisted Gravity Drainage (SAGD) technology. Upon confirmation of positive results from this appraisal well, and receipt of the required regulatory approvals, a SAGD pilot comprised of single well pair pilot and related facilities will be initiated. The Company is also investigating the possibility of executing a shallow corehole program to further delineate this deposit in the 2008/2009 winter season.

San Miguel Heavy Oil Project -- Maverick Basin, South Texas

The San Miguel heavy oil deposit is located in South Texas near the Mexican border and contains an estimated 2 to 3 billion barrels of oil in place in the Area of Mutual Interest ("AMI") jointly held by the Company and its 50% partner TXCO.

During the quarter, the Company continued with plans to convert the initial steam injection pilot located within the Chittim "B" Area to a Steam-Assisted Gravity Drainage (SAGD) process. Pearl participated in the successful drilling of a horizontal producer/injector pair placed between the existing cyclic steam wells, which will be converted to temperature monitoring wells. Pearl is currently leading the facilities expansion project of the existing operations and took delivery of a second 25 MMBTU steam generator at site in March that will double steam generation capacity at the pilot. The remaining facilities modifications will be made to integrate this equipment into the existing process and tie-in the additional new wells to the gathering system to enable the pilot to commence SAGD operations in the second quarter of 2008.

Field operations were initiated on the second larger production pilot (Saner Ranch Field) approximately eight miles north of the existing pilot and will utilize the Fracture-Assisted Steamflood Technology (FAST) technique previously proven by Conoco. Drilling the inverted five spot well pattern was completed in Q1 2008 and will augmented by further drilling of a horizontal line drive pattern to compliment the inverted five well pattern. Detailed facilities engineering continued with a contracted engineering firm to finalize facilities layout, process, and operation with initial field construction expected to commence in the second quarter. The production pilot will have four times the steam capacity of the original pilot, be capable of evaluating both recovery methods, and is projected to be operational by the second quarter of 2008.

Fiddler Creek -- Montana

During 2007, the Company acquired a 100% working interest in a large heavy oil opportunity with significant resource upside potential in the Fiddler Creek area of Montana. Pearl initiated the assessment and development of this area in December 2007 by drilling an appraisal well, Beartooth Federal 43-33, into the Fiddler Creek field of Stillwater County, in southern Montana. The well was drilled into the main structure of the property, the Fiddler Creek Dome, in order to extend the known limits of the southwestern portion of the field, and it will be further evaluated during the first half of 2008 to validate reservoir continuity and potential reserve additions. In addition to this well, an existing well, Mowell #1, was re-completed for evaluation. Both wells are connected to tank facilities to gather reservoir and production data that will be used to confirm and complete a field development study.

The Company expects to drill an additional appraisal well following regulatory approvals in the second half of 2008. This work is in preparation of future field development which, beginning in 2009, is anticipated to include horizontal development drilling in order to establish commercial production rates, installation of production facilities, acquisition and analysis of additional geophysical data, and examination of enhanced recovery methods.

Other Properties -- Alberta, Saskatchewan

On April 24, 2008 the Company announced that it had entered into a binding agreement with a large integrated energy company to sell certain non-core heavy oil producing assets for $75 million. These assets, principally located in the Lloydminster, Celtic, Pikes Peak and Thunderchild areas of Saskatchewan, currently produce approximately 3,200 boe/d and are part of the non-core asset package that the Company intended to sell as announced on January 8, 2008. This deal is expected to close during the quarter ending June 30, 2008.

Other Properties -- U.S.

The Company also holds interests in several other areas in the United States, including Queen City gas fields, the West Rozel and Gunnison Wedge projects in Utah and the Promised Land project in Montana however, there is limited or no production from these areas and there are only minor evaluation plans contemplated for these lands in 2008. However, the Company believes certain of these lands, contain large resource potential and may, based upon further evaluation, be developed in the future.

Onion Lake Heavy Oil Project - Saskatchewan

During 2007, the Company continued its successful multi-well development drilling program of the heavy oil trend at Onion Lake. A total of 70 new wells were drilled and placed on production. This increased net production at Onion Lake by over 6 times, raising it from approximately 350 boepd at the beginning of 2007 to approximately 2,300 boepd at year end. A 3-D seismic survey was completed in the third quarter and is currently being evaluated to assess the Company's southern acreage and prioritize further development drilling locations. The Company also completed the engineering design of centralized sand handling facilities and is presently completing the design of centralized emulsion treating facilities. Going forward, construction of these facilities, as well as construction of a fuel gas system, are expected to reduce overall operating costs at Onion Lake.

During 2007, planning and procurement for a thermal recovery pilot were completed and regulatory approvals received. The necessary wells were drilled in December and construction began on pilot facilities in late 2007. Commissioning of facilities will begin in the first quarter of 2008 in order that the pilot will be fully operational in the first half of 2008.

Mooney Heavy Oil Project -- Alberta

The Company had continued success at its Mooney field with the drilling of 27 horizontal development wells and 12 vertical stratigraphic wells. Production at Mooney increased by over 300% during 2007 with the property exiting 2007 producing approximately 2,700 boepd net to the Company. Increased volumes and operational efficiencies also led to a reduction of overall operating costs at Mooney of approximately $2.00 per boe over the year.

In 2008, the Company plans on drilling a total of 7 horizontal and 4 delineation wells at Mooney. The 7 horizontal wells will be brought on as producing oil wells and a number of previously drilled horizontal wells will be converted over to water injection in preparation of the water flood. Additionally the Company will also construct water handling and related facilities at Mooney in preparation of converting to a water flood.

The 4 delineation wells will also be drilled in 2008 to test the western extent of the reservoir.

The Company also plans to commission a study regarding the feasibility of introducing polymer flood techniques at Mooney in 2008.

Blackrod Heavy Oil Project -- Alberta

During 2007 the Company acquired, in two separate Crown land sales, a 35% working interest in 15 contiguous Sections (8,960 acres) of oil sands leases located northcentral Alberta between Townships 76 -- 77, Ranges 17 -- 18, west of the 4th Meridian. The Company also has an additional indirect ownership of roughly 13% in this project through its ownership in Serrano Energy Ltd., who have a 35% working interest in the same acreage. The Company has plans to drill one appraisal well this winter and is in the process of preparing an application for required governmental approvals of a thermal pilot project utilizing Steam-Assisted Gravity Drainage (SAGD) technology. Upon confirmation of positive results from this appraisal well, and receipt of the required regulatory approvals, a SAGD pilot comprised of single well pair and related facilities will be initiated.

San Miguel Heavy Oil Project -- Maverick Basin, South Texas

During 2007 the Company continued with steam injection pilot operations at the San Miguel Heavy Oil Project to determine the technical and economic feasibility of cyclic steam injection to enhance oil recovery. The pilot has demonstrated that cyclic steam may not be the optimal development option. Based on these results and continuing reservoir simulation studies that incorporated the third cycle of injection and production, the existing pilot will now be converted to evaluate a Steam-Assisted Gravity Drainage (SAGD) process. This will involve doubling its current steam capacity and drilling two horizontal wells; both of which have been drilled in the first quarter of 2008. This will enable the pilot to continue operations in the first half of 2008.

Additionally in 2008 a new, larger production pilot is being initiated approximately eight miles north of the existing pilot. Planning and procurement of long-lead items necessary for facility modifications and construction were underway prior to the end of 2007. The production pilot will have four times the steam capacity of the original pilot and is projected to be operational in the second half of 2008. This production pilot will be capable of evaluating more than one recovery method (e.g., horizontal steam drive patterns, vertical well patterns and potentially a combination thereof) and will include the drilling of between 6 and 8 new horizontal and vertical wells.

Palo Duro Shale Gas Exploration Project -- North Texas

The Company continued to participate in its non-operated Palo Duro Shale Gas Project in 2007. Following the drilling of the MacIntosh #1-76 appraisal well in the first quarter, no additional drilling occurred in 2007. Additional long-term testing of the five wells drilled will be required to establish the economic viability of the project. Discussions with our partners have focused on the building of a required pipeline and facilities to tie-in and test the long term performance of the two existing MacIntosh wells.

Fiddler Creek -- Montana

During 2007, the Company acquired a 100% working interest in a large heavy oil opportunity with significant resource upside potential in the Fiddler Creek area of Montana. Pearl initiated the assessment and development of this area in December 2007 by drilling an appraisal well, Beartooth Federal 43-33, into the Fiddler Creek field of Stillwater County, in southern Montana. The well was drilled into the main structure of the property, the Fiddler Creek Dome, in order to extend the known limits of the southwestern portion of the field, and it will be further evaluated during the first half of 2008 to validate reservoir continuity and potential reserve additions. In addition to this well, an existing well, Mowell #1, was re-completed for evaluation. Both wells are connected to tank facilities to gather reservoir and production data that will be used to confirm and complete a field development study.

The Company expects to drill an additional appraisal well following regulatory approvals in the second half of 2008. This work is in preparation of future field development which, beginning in 2009, is anticipated to include horizontal development drilling in order to establish commercial production rates, installation of production facilities, acquisition and analysis of additional geophysical data, and examination of enhanced recovery methods.

Other Area Properties -- Alberta, Saskatchewan

During 2007, drilling and other production enhancement projects continued on the Company's non-core heavy oil and natural gas producing properties in Alberta and Saskatchewan with a total of 54 wells drilled. This drilling activity increased production in the short term but was insufficient to cover the overall decline in production from these non-core properties in 2007. Production exited the year at approximately 5,500 boepd net to the Company. In order to dedicate more capital and intellectual resources to its core properties, the Company has initiated a sales process to divest certain non-core assets situated in Saskatchewan and Alberta. The outcome of this process is unknown at this time.

Other Area Properties -- U.S.

The Company also holds interests in several other areas in the United States, including Texas City, West Rozel, Gunnison Wedge and Promised Land; however, there is limited or no production from these areas and there are no significant plans contemplated for these lands in 2008. However, the Company believes certain of these lands, namely Gunnison Wedge, West Rozel and Promised Land, contain large resource potential and may, based upon further evaluation, be developed in the future.

Onion Lake Heavy Oil Project -- Saskatchewan

The Company continued its multi-well development drilling program of this heavy oil trend in the third quarter of 2007. Of the 50 wells drilled thus far in 2007, 40 wells have been placed on production. The Company received down-spacing approval from the regulatory authorities. This has resulted in an additional 43 drilling locations in the current producing area. Drilling of these locations commenced in mid-October. A 3-D seismic survey is being designed and permitted to further evaluate the Company's southern acreage and prioritize 2007 and 2008 development drilling locations. At the end of September 2007, production was approximately 1,900 boepd net to the Company. Plans are proceeding with the thermal recovery pilot. To facilitate an operational start-up in late 2007, the pilot facilities design has been completed and procurement is now underway. The Company is continuing with the engineering design of centralized production facilities for sand and oil handling. Based on the positive results of the drilling campaign in the first half of 2007, the Company elected to shift wells from the contingent budget to the firm budget which will result in the drilling of 80 wells in the 2007 drilling season; subject to regulatory approvals and weather conditions. At this time we anticipate that the remaining infill locations will be drilled in the first quarter of 2008.

Mooney Heavy Oil Project -- Alberta

Development drilling continued at the Mooney Bluesky "A" oil pool throughout the summer period. As of the end of September 2007, a total of 20 new horizontal oil wells had been drilled and are on production. The field production net to the Company at the end of September 2007 was approximately 2,800 boepd. Three additional Bluesky horizontal wells and four vertical stratigraphic test wells are planned for the fourth quarter of 2007. The water injection and potential pilot polymer injection development projects are continuing.

San Miguel Heavy Oil Project -- Maverick Basin, South Texas

The Company is continuing with the San Miguel Heavy Oil Project's steam injection pilot operations to determine the technical and economic feasibility of cyclic steam injection to enhance oil recovery. Both pilot wells are presently on a third cycle of injection and production, and additional cycles will continue into 2008. Expansion of the current pilot prior to the end of 2007 is underway as are arrangements for the drilling of additional wells and the procurement of long-lead items for facility modifications. Planning is also underway for a second, 16 well production pilot project to the north of the existing steam injection pilot facility. The production pilot is presently projected to be operational in the second quarter of 2008.

Palo Duro Shale Gas Exploration Project -- North Texas

No additional drilling was undertaken during the quarter ended September 30, 2007 on the Palo Duro Shale Gas Project. Discussions with our partners focus on the building of a required pipeline and facilities to tie-in and test the long term performance of the two existing MacIntosh wells. The Company will continue to monitor the results of the extended production testing as well as the results of other operators in the basin in order to evaluate the long term economic viability of the Palo Duro Shale Gas Project.

Other Area Properties -- Alberta, Saskatchewan

Drilling and other production enhancement projects continued on the Company's heavy oil producing properties in Alberta and Saskatchewan. The greatest efforts were placed on the Ear Lake/Salt Lake area where the largest short term production additions are expected. The Company has also completed the drilling of a horizontal production well on the Druid field to test the reserves potential of this field which has a significant amount of oil-in-place, and has the potential for a water cycling project in the first half of 2008.

Onion Lake Heavy Oil Project -- Saskatchewan

The Company resumed its multi-well development drilling program of this heavy oil trend in July 2007 with 15 wells being drilled during the third quarter and of these, 12 have been placed on initial production. This brings the total number of wells drilled in 2007 to 40 wells, with 35 wells having been placed on production. At the end of August the Company's gross production has increased approximately 300 boepd, bringing the average production up to over 1,500 boepd. Based on the positive results and current progress of the drilling campaign thus far, the Company is expecting to drill approximately 110 wells in the 2007 subject to regulatory approvals and weather conditions. A well "down-spacing" application has now received regulatory approval and will allow a total of 85 locations to be drilled over the second half of 2007. The Company is also beginning construction of centralized facilities for sand and oil handling in September 2007 which will lead to operating cost reductions. A 3-D seismic survey will also be permitted to further evaluate the Company's southern acreage and prioritize 2007 and 2008 development drilling locations. A thermal recovery pilot involving two wells will become operational in late 2007, with the procurement and construction of pilot facilities now underway.

Mooney Heavy Oil Project -- Alberta

Development drilling continued at the Mooney Bluesky "A" oil pool throughout the summer period. As of the end of September 2007, a total of 20 new horizontal oil wells will have been drilled. Eleven of these new wells are currently on production and by mid September the remaining nine horizontal wells will be brought on production. At that time there will be a total of 32 horizontal producing wells in the field. With the Company's recently announced acquisition of an additional 24% Working Interest, the Company's gross production has increased to approximately 2,300 boepd for the month of August. In September this production will increase another 900 boepd, bringing the September average production up to approximately 3,200 boepd. Development projects including water or polymer injection continue to be evaluated and advanced.

Other Canadian Properties - Alberta, Saskatchewan

Drilling and production enhancement projects continued on the Company's other heavy oil producing properties. Near term production additions will be realized from a successful summer recompletions program carried out in the Celtic area, and focused area drilling primarily in the Ear Lake / Salt Lake region. At Ear Lake, 4 development wells were drilled and completed in the third quarter. Early production testing is now underway and results suggest that a productive geological trend has been identified. An additional 6 "follow up" drilling locations are being licensed for drilling during September. At the adjacent Reward area, 2 development drilling locations have been licensed to offset a producing discovery well. In the Salt Lake area, an exploration location has been licensed for September drilling, and 3 development horizontal locations are proposed for the Lloydminster sand in the Salt Lake pool. The Company drilled an additional 5 wells in the Lloydminster area and is currently drilling a sixth well. One of these wells, drilled in the Standard Hill area, has discovered a new Waseca pool.

The Company also completed the drilling of a horizontal well in the Druid field and placed it on production in order to test the reserves potential of this field which has the potential for a water cycling project in the first half of 2008. The Company also purchased an additional 4 Sections of 100% working interest land at Druid to offset the existing land base. Two additional horizontal locations are proposed for drilling in early fall.

San Miguel Heavy Oil Project - Maverick Basin, South Texas

The Company is continuing with the San Miguel Heavy Oil Project's steam injection pilot operations to determine the technical and economic feasibility of cyclic steam injection to enhance oil recovery. Both pilot wells are presently on a third cycle of injection and production, and additional cycles will occur throughout 2007. Following discussions with our partners, a decision has been made to expand the current pilot prior to the end of 2007. Initial planning and procurement is therefore underway for the drilling of additional wells and the procurement of long-lead items for facility modifications. Discussions and planning are also underway for a second, 16 well production pilot project to the north of the existing steam injection pilot facility. The production pilot is presently projected to be operational in the second quarter of 2008.

Palo Duro Shale Gas Exploration Project - North Texas

No additional drilling was undertaken during the quarter ended June 30, 2007 on the Palo Duro Shale Gas Project. Efforts were concentrated on building the required pipeline and facilities to tie-in and test the long term performance of the two existing MacIntosh wells. The Company will continue to monitor the results of the extended production testing as well as the results of other operators in the basin in order to evaluate the long term economic viability of the Palo Duro Shale Gas Project.

Onion Lake Heavy Oil Project -- Saskatchewan

The Company began a multi-well development drilling program of a heavy oil trend in January 2007. An initial 25 wells were drilled out of a budgeted 90 well program over the winter drilling season. Twentythree of these wells have been placed on initial production; the remaining drilling program will continue throughout the year. Production is currently at 850 boepd, net to the Company. Contingent funds have also been budgeted to expand the drilling program in the second half of the year, depending on the impact of weather conditions and the timing of regulatory approvals for drilling operations.

Mooney Heavy Oil Project -- Alberta

Over the winter drilling season, a five well stratigraphic test program of the Bluesky "A" oil pool was undertaken on the west side of the field to appraise the field's areal extent and structure (e.g. reservoir thickness and "oil -- water contact") and guide further appraisal and development drilling. On the east side of the field, an initial waterflood response is being seen in a pilot project area and development drilling is continuing to increase production and further appraise the pool. Prior to spring break up, 11 wells were drilled at Mooney, including the five stratigraphic test wells. The remaining six development wells have been placed on production and field production is now at 1,350 boepd, net to the Company.

San Miguel Heavy Oil Project -- Maverick Basin, South Texas

The Company is continuing with the San Miguel Heavy Oil Project steam injection pilot operations to determine the technical and economic feasibility of cyclic steam injection to enhance oil recovery. From August 2006 to May 2007, over 90,000 barrels of steam (on a cold water equivalent basis) have been injected into the formation at rates between 700 and 1,100 barrels per day with wellhead temperatures ranging from 550 to 650 degrees fahrenheit. Two pilot wells have completed a first cycle of initial steam injection, followed by a "soak" period and then initial production. Both pilot wells are presently on a second cycle of injection and production, and additional cycles will occur throughout 2007. A decision on whether to initiate a phased development program consisting of 30 wells and additional steam generation capability will be undertaken once the pilot steam flood results are conclusive.

Palo Duro Shale Gas Exploration Project -- North Texas

The Palo Duro Shale Gas Exploration Project remains in an initial exploratory stage without significant proved reserves. In the first quarter of 2007, an extension of a four well exploration drilling program begun in the fourth quarter of 2006 was completed with the drilling and casing of a fifth well, McIntosh #1- 76. The results of the combined program are still being evaluated. Flow test results for the first well in the program, McIntosh #1-77, were submitted to the Texas Railroad Commission. The absolute open flow rate of the well measured 3,316 thousand cubic feet per day. Gas sales from this well were planned for second quarter 2007 to assess longer term production performance. A four-mile pipeline connecting this well to a sales line is under construction.

Other Area Properties -- Alberta, Saskatchewan

The Company operates a variety of high working interest properties including: Unity (shallow gas, 100% working interest ("WI")), Salt Lake (heavy oil and gas, 100% WI), Ear Lake (heavy oil and gas, 100% WI), Pikes Peak (heavy oil, 100% WI), and Southern Alberta (shallow and medium gas, 88% WI). During the winter drilling season an additional 32 wells were drilled across several of these properties such as Southern Alberta, Seal, Celtic, Unity, Salt Lake and Ear Lake. Of the wells drilled, three wells have already been placed on production and another 28 wells await tie-in following spring break up (beginning in May).