Business Update:

Although average production over this period increased from 794 Boe/d in the first quarter of 2008 to 1,020 Boe/d in first quarter of 2009, the decrease in revenue was due to substantial drop in energy prices. Oil prices received, decreased from an average of CAD80.08/bbl in first quarter of 2008 to CAD44.86/bbl in first quarter of 2009. Average gas prices received, decreased from CAD7.41/Mcf in the first quarter of 2008, compared to CAD4.42/Mcf average price received in the corresponding period of 2009.

The company exited the quarter at 937 Boe/d. This drop from the first two months of the quarter was mainly due to required downtime within the Berwyn field for minor workovers. Average oil production for the quarter was 109 Boe/d as compared to 208 Boe/d in the first quarter of 2008.

During the same period average gas production increased from 3,286 Mcf/d at March 31, 2008 to 5,280 Mcf/d at March 31, 2009 (from 548 Boe/d to 880 Boe/d, an increase of 332 Boe/d). The overall increase in gas production can be attributed to primarily to Boundary Lake and Berwyn areas.

Funds from operations for the three months ended March 31, 2009 totaled CAD506,550 or CAD0.03 per share, compared to CAD1,910,453 or CAD0.14 per share for the same period in 2008. Although production increased, the drop in energy prices resulted in a reduction in cash flow from operations.

The loss in the quarter was a result of a decrease in energy prices, an increase in production volumes resulting in an increase in operating costs, an increase in depreciation, depletion and accretion charges and an increase in general administration costs.

General and administrative (G&A) expenses increased 64% in the first quarter of this year to CAD747,128 from CAD455,196 in the same period in 2008. However, G&A before capitalization decreased by 13%, or by CAD5.65 per Boe. In third quarter 2008 the company decided to take a conservative approach by not capitalizing any of the G&A expenses. The company continues to monitor and control these expenses.

The company has budgeted about CAD7 million in capital expenditures for balance of 2009 and expects to rely on internally generated cash flows and available lines of credit to fund its capital program. The company had established and has available an operating line of credit of CAD10 million. However, capital expenditures will be reviewed in light of current energy prices, the surplus of natural gas inventories in North America and general economic conditions.


The company’s management has been immersed in the review of the assets of the company and appraising the opportunities to enhance the financial performance from those assets. The volatility of the oil and gas markets affects all producers and the higher prices have benefited the company in the past. However, the current decline in energy prices coupled with anemic demand and oversupply of natural gas impacted the company’s performance in the first quarter.

There is much discussion on the pricing levels of oil and gas and it is difficult for the company to project where these will be at any point in time. However, due to our strong balance sheet we see opportunities to expand our presence in the Canadian market place through a selective program of acquisition of oil and gas producing properties under acceptable financial conditions, which exhibit significant future development opportunities. Through such a program, the company will increase production, revenue and profit streams and be able to generate the funds to make further acquisitions as those become available.

The company will continue to review its capital expenditure program in light of the current economic climate. Since the present portfolio is about 80% gas, the company will focus on opportunities that increase the oil component because we feel that the present outlook for near term oil prices is more favorable than natural gas prices.


At Berwyn, Alberta, the company recently drilled the Berwyn 7-11 well, which came online during late October, 2008 at a rate of 0.750MMCFD (125 BOED). Currently the well is producing 1.25MMCFD (208 BOED). The Berwyn area continues to be a major focal point of the company, and it will continue to develop the field.


The international properties in Pakistan and Ecuador will receive appropriate attention so that the company can best benefit from those significant investments.


The company signed two farm-in agreements with Mari Gas Company (MGCL) of Pakistan the second largest producer of gas in Pakistan. The company’s direct working interest in each block is fifteen percent (15%) with all the work and management performed by a local seasoned and well established gas producer.

The farm-in agreement provides that the company be responsible for 25% of the development costs of the first three wells in the Sukkur block. Pakistan government approval for development of the Sukkur block has been obtained and approval of the Sujawal block is pending.

The Sukkur joint venture (SJV) is comprised of MGCL, the operator, with a 50% working interest (WI), Petroleum Exploration Limited with a 35% WI and the company , as mentioned above, with a 15% WI. The SJV is committed to drilling three wells within the Sukkur block.

Drilling, completion, and stimulation of the first well, Koonj Well #1A, proved to be a success. The well was tested at gross rates of 15MMCFD and is expected to have commercial sales in the latter half of 2009. The second well, Bodla Bahar, drilled in late 2008, proved to be a commercial failure. Spudding of Indus 1-B, which seems to have significant potential based on seismic, has been pushed back for 18 months while the partners conduct a post-mortem on the failure of Bodla Bahar.


Management recently met with PetroEcuador officials with a view to determine if it fits the company’s risk profile. The Charapa concession is currently being analyzed in detail and a work plan has been developed, in conjunction with the local authorities, to identify the method to achieve the maximum returns for both the company and for Ecuador. This project is 100% owned by the company and, as such, the company is responsible for 100% of the costs and the attendant risks with, what is in effect, an under developed property. All environmental permits have been received.

Eugene Hretzay, chief executive officer, added: We presently trade at about 1 times 2008 YE cash flow before non-recurring items, which is historically cheap, and have a NAV/share value of CAD2.72 at 2008 YE. We have no debt and our balance sheet allows us to make opportunistic acquisitions during this period of drilling inactivity and depressed commodity prices to immediately capitalize on the upswing in commodity prices.

One component of our strategy is to rebalance our portfolio with a greater allocation to oil. We presently have about 80% of our reserve allocation in natural gas. Since I believe that oil prices will recover more quickly than natural gas because oil is subject to world demand of countries like China and India, while natural gas is a North American market, which is currently experiencing a supply glut and anemic demand due to the recession of the US economy, such a reallocation makes strategic sense.