Exploration activities

Peru, South America
On October 24th, 2007 the Company announced it had signed a formal agreement with Perupetro, Peru's national oil and gas regulator, to explore on Block 126 in the Ucayali Basin of east central Peru. The Block is 2.7 million acres in size and has only been tested through the drilling of three wells. The La Colpa 1X was drilled, by Occidental Petroleum, in 1988-89 and was plugged and temporarily abandoned due to completion issues, after testing oil from both the Cretaceous, Agua Caliente formation and from the carbonates and sandstones of the Permian Copacabana/ Ambo group. Occidental assigned ~59MMbbls in place to the well with an anticipated 7MMbbls recoverable; this well will be the focus of the Company's initial exploration effort. The Company has access to all the geological, geophysical and engineering data Perupetro has compiled for the region; this includes well logs, a substantial gravity and magnetics survey, and over 2000km of 2D seismic. Existing infrastructure on the Block consisting of two airstrips and a network of roads will provide the Company with access to the Block, reducing the logistical costs as well as the impact of the Company's work in this environmentally sensitive area.

Veraz has signed a four period, seven year exploration contract for Block 126.

Period 1: The first, one year period commenced on December 21, 2007 and committed Veraz to re-process and reinterpret 1000km of existing seismic data. This work has been completed and several exciting leads were identified. A final report outlining the Company's conclusions and further plans was submitted to and approved by Perupetro in December 2008. In conjunction with seismic reinterpretation, the Company began its first Environmental Impact Assessment (EIA) in January 2008. This study established baseline environmental parameters in both the wet and dry seasons. In conjunction with this three community workshops were held with the indigenous communities impacted by our exploration activities. The final EIA document was submitted to the Ministry of Energy and Mines on December 16, 2008 and approvals were granted in May 2009.

Period 2: On December 11, 2008 the Company provided a letter to Perupetro indicating it would proceed to the second exploration phase which is two years in length. Veraz and Petrominerales submitted a proposal to shoot 150 sq. km of 3D seismic and an additional 50km of 2D. This work commenced September 2009 and was completed on budget at the end of Q4 2009.

Period 3: The third exploration period commenced in December 2010 and is two years in length. The partners proposed to Perupetro to drill two and possibly three wells as described on the home page. During 2011 permitting and logistic work have been ongoing and the first well, the La Colpa 2X is anticipated to spud in Q4/2011. Following completion of this well the rig will be moved to a separate geological structure and the Sheshea 1X will be drilled. If the La Colpa 2X well is successful the rig will then be moved to the La Colpa Norte location which is to the north, on the same structure as the La Colpa 2X. It is currently anticipated the three wells will be completed by August 2012. .