POWDER RIVER BASIN, WYOMING, USA

The Powder River Basin encompasses approximately 67,000 square kilometres in the northern Rocky Mountains of the USA straddling the northeast of Wyoming and the southeast of Montana. The Powder River Basin is estimated to contain more than one trillion short tons (0.9 trillion tonnes) of coal with potential CBM resources of over 25 trillion cubic feet. CBM production in the Powder River Basin has increased at a rapid rate since 1995 with production today of around 1,100 million cubic feet per day from over 16,000 producing wells.

ESPONDA PROJECT

The Esponda Project comprises two project areas, East Esponda which has been developed under joint venture arrangements and is currently being dewatered in advance of the commencement of production and West Esponda which has begun to be developed by the completion of a pilot production program and an extension of that production program. The Esponda Project is located approximately 25 kilometres southeast of Buffalo, Wyoming, and totals 11,453 net hectares (28,303 acres) in Townships 47 to 50 North, Ranges 79 and 80 West, Johnson County, Wyoming.

East Esponda

The East Esponda project covers a total of 469 net hectares (1,160 acres). To date there have been 23 wells completed within the Company¡¯s East Esponda leasehold interests. These include 14 wells in the Big Cat Field and 9 in the Indian Creek Field. Although 3 wells are located exterior to the Company¡¯s leasehold (see diagram below), the Company retains an interest in these wells due to the State¡¯s mandated 32 hectare spacing orders in its proportional share.

The Company¡¯s East Esponda project is situated in the Western Gas Indian Creek-Big Cat fields. Since the commencement of dewatering, production ranging between ~200 to +1,000 barrels water per day per well (bwpd/well) have been produced.

Of the 12 wells in Sections 2 and 9 of this area, a varying 5 or 6 wells are now contributing to gas production, although not yet of saleable quantities. As can be seen in the table below, monthly gas production from these wells continues to increase with a significant increase in June and July production as the dewatering program continues to advance the project towards commercial production.

West Esponda

The West Esponda Project is located approximately 110 kilometres west of Gillette, Wyoming, and totals 10,984 net hectares (27,143 acres) in Townships 47 to 50 North, Ranges 79 to 81 West, Johnson County. The West Esponda Project has the capacity for more than 340 wells on the State mandated 32 hectare (80 acre) spacing.

The West Esponda Project lies near the Powder River Basin¡¯s asymmetric structural axis, and is situated between the depositional centres of the stratigraphically higher Buffalo-Lake De Smet Coalfield to the west (Eocene Wasatch Formation) and the Gillette Coalfield (Paleocene Fort Union Formation) to the east. Thus, the more shallow Eocene-aged coals are being eroded to the east and south across the region and depositionally splitting with less ash content than its thickest member near Buffalo; and the Big George Coal, a part of the Gillette Coalfield, present at East Esponda is splitting towards the west.

Geological mapping based on the Company¡¯s previous West Esponda pilot program wells and stratigraphic bores in this area of the deep Powder River Basin estimates that between 20 to 45 metres of coal is present. This estimate is supported by results from the Company¡¯s stratigraphic drilling program which intersected gassy coal with cumulative intersections of up to 50 metres and an average of 35.4 metres, of which the Big George coal seam intervals were between 17 to 22 metres, thereby indicating that the Big George coal horizon can be extended 16 kilometres to the northwest with a total thickness correlative to that present in the western portions of the Company¡¯s East Esponda project.

Development of the West Esponda project has begun in the northern portion of the West Esponda project where the Company¡¯s tenements have the capacity for approximately 106 contiguous or near contiguous well locations. To date, 10 wells have been completed in a pilot production program and a further 8 production wells in an extension program have been permitted and are currently being drilled. During the half year, permitting of the well locations in the northern portion of the West Esponda project was commenced with the field staking of the well locations in preparation for the development of these wells which will follow the completion of the Highlands Resources Inc transaction (refer Corporate Activities below).

Acquisitions

During the half year, the Company increased its interest in West Esponda project tenement holdings by 3,185 net hectares (7,871 acres), or approximately 41%.

Ten Federal mineral leases totalling 3,153 net hectares (7,791 acres) have been conveyed from Lance Oil and Gas, a subsidiary of Western Gas Resources-Anadarko to the Company.

The new leases, shown as Federal Leases in the map below, are situated either adjoining or within a kilometre of the Company¡¯s West Esponda tenements in Townships 48 and 49 North, Ranges 79 and 80 West, Johnson County.

These leases are not restricted to CBM, but, like the Company¡¯s Oriva Federal project which is currently developing a conventional oil and gas project, convey all oil and gas rights to the Company. While the primary CBM target is the Big George Seam at depths of approximately 600 metres, conventional oil and gas prospects to depths greater than 2,500 meters are being evaluated.

Federal leases carry a 12.5% Federal royalty and these new leases also have an additional 5.5% to 7.5% overriding royalty payable. Thus, the Company¡¯s net revenue interest in these leases ranges between 80% and 82% and averages 80.9%.

In addition to the 10 Federal mineral leases, the Company further consolidated a minority freehold interest within the Esponda leasehold during the half year. This lease comprised 32 net hectares (80 acres).

This resource estimation was completed by Dr. Jimmy Goolsby of Goolsby, Finley & Associates (¡®GFA¡¯) of Casper Wyoming who are considered to be pre-eminent authorities on the CBM geology of the Powder River Basin, providing consulting services to the State¡¯s leading CBM producers and developers. Additionally, the State of Wyoming retained GFA to conduct a study of the CBM reserve potential of the Powder River Basin.

The GIP resource was calculated using 32 hectare (80 acre) blocks (legal drill spacing units), the seams¡¯ thicknesses (contour interpolation) and a gas content factor of up 100 standard cubic feet per ton depending on each coal seam¡¯s depth. The gas content factor is an estimation based on a published study by GFA completed on behalf of the State of Wyoming.

Pilot Production Program

Located in the northern portion of the West Esponda project, a pilot production program, comprising 10 wells, has been developed and is currently in the dewatering phase. The commencement of production from these wells will be assisted by the development of the 8 well extension program which was commenced in June 2007.

The sole focus of the pilot production program is CBM production from the Big George coal seam. Stratigraphic and pilot production program drilling has indicated that the Big George coal seam at the West Esponda Project is 17 to 22 metres thick. In addition, coals of 17 to 24 metres in total thickness overly the Big George coal seam. Whilst these are not intended to be produced from at this time, they will be 'behind pipe' so they can be readily accessed in the future. The stratigraphic program also intersected deeper coal units which will be valid targets for the future.

The pilot production program not only tests the most westerly extensions of the Big George coal seam in the Powder River Basin, but will provide invaluable site specific technical knowledge of the reservoir by its initial development, dewatering and production and will provide an evaluation of the completion methodologies.

During the half year, the 10 well pilot production program in the northern portion of the West Esponda project continued its dewatering period. Extreme, late northern hemisphere winter weather caused the loss of dewatering production due to two extended periods of subzero temperatures causing the generator¡¯s diesel fuel to ¡®gel¡¯ and the water outfall to freeze solid. As can be seen in the table below, dewatering improved towards normal levels in June 2007.

Extension Program

The extension program, which comprises 8 wells drilled in a staggered offsetting pattern, will total approximately 5,500 metres of drilling was initiated in June 2007. This development is situated immediately northwest of the existing 10 well pilot production program at West Esponda.

All 8 wells will be drilled in a continuous program by the contractor Texas Wyoming Drilling of Gillette, Wyoming. As with our prior drilling programs, on-site supervision will be carried out by Goolsby, Finley and Associates of Casper Wyoming.

All wells are being fully cased on reaching total depth. Well completions, including downhole cleanup, seam perforations, formation enhancement, pump installation, and in-field reticulation are to be initiated with the completion of the drilling portion. The existing generator to power in-well pumps will be utilised for these wells.

The estimated cost to drill and complete the eight wells is US$2.0 million with a projected monthly operating cost of US$25,000.

Wells drilled to date have recorded the following coal seam intercept results:

West Esponda Permitting

The Company is required by the Federal Bureau of Land Management¡¯s Buffalo Field Office (¡®BLM-BFO¡¯) to develop a Plan of Development ('POD') to conduct CBM operations on its Federal lease interests. Approximately 125 CBM production wells are able to be developed on the new Federal lease interests based on the State mandated 32 hectare drill spacing units.

To meet the specific requirements of the POD process, the Company has initiated the requisite long lead items for the POD with seasonal wildlife surveys. These will continue through the northern hemisphere¡¯s 2008 winter season. Additional studies for archaeological and cultural heritage and the development of a Water Management Plan to contain the water generated from its well dewatering program are being evaluated.