Bakken

Our first non-operated wells were brought on-stream in 2004. With last year’s drilling Bakken production increased to 910 bopd in December 2006 and further to 1,090 bopd in February 2007. With this rapid production growth, 2007 will see a concentrated drilling program in the Bakken, with at least 40 horizontal wells planned and two rigs dedicated to the program. Our growing inventory of locations now exceeds 200 and we will soon be constructing a Petrobank-operated battery in our main producing area.

At the end of 2006, the Company’s land base in the area with Bakken potential totaled 62,448 acres (49,105 net). Since the beginning of 2007, through Crown land sales and acquisitions, we have increased our acreage by a further 52,950 (52,845 net) acres to a total of 115,398 (101,950 net) acres. The majority of this increase was Crown land purchased at Saskatchewan's April 2007 land sale where we spent $59.5 million to acquire 47,285 (47,285 net) acres. We are also in the process of closing an additional acquisition and a farm-in transaction that, combined, will provide an additional 9,426 (4,813 net) earned interest acres and the potential to earn a further 13,345 (9,400 net) acres on the Bakken play through drilling. These acquisitions will increase our total potential Bakken land position to 138,169 (116,163 net) acres.

Petrobank's Competitive Advantage

Of the eight horizontal wells drilled in 2006 by Petrobank, seven were successful. The first four producers came on-stream at over 250 bopd and, in the first three months of production, have already produced more than 12,000 barrels per well. Each of these successful wells has yielded at least three follow-up development locations to be drilled through 2007.

The economics are attractive in the Bakken play. At least four wells per section can be drilled. Drilling and completion costs are approximately $1.7 million per well, and according to our independent reserve evaluator, proved plus probable reserves are 100,000 barrels of oil per well, representing less than 10 percent recovery of original oil-in-place, are well below our internal estimates of well potential. This leaves considerable upside potential for improved recoveries. The economics are further enhanced by high realized oil prices due to the high quality oil and the Saskatchewan government’s royalty holiday of 35,000 barrels per well.

The Bakken formation is found in the Williston Basin, underlying much of North Dakota, eastern Montana and extending up into southern Saskatchewan. Unlike the conventional Mississippian oil resources in this area of Saskatchewan, which accumulate in distinct reservoirs, the Bakken is an extensive regional resource play with the oil contained mostly in siltstones and thin sandstone reservoirs with low porosity and permeability. The Mississippianaged Bakken formation, found between two tight horizons, is capable of high production rates and yields sweet, light oil with a 41 degree gravity, and liquids-rich gas. The resource is significant with approximately 4.5 million barrels of original oil-in-place per section of land in the greater play area.

The key to unlocking the potential in the Bakken has been advances in horizontal well techniques, particularly the application of new horizontal fracturing and completion technologies. Essentially, the drilling of long horizontal wells allows maximum exposure to the reservoir, and new completion techniques allow fracturing of the siltstone along the extent of the wellbore. Until the introduction and validation of these technologies, the Bakken was generally not considered economically viable.

The Bakken play is relatively new in Canada, but has been highly successful in the United States portion of the basin where, since 2000, drilling activity has increased dramatically and geologists with the United States Geological Survey are now estimating 413 billion barrels of original oil-in-place in the Bakken. In Canada, Bakken activity has been more limited, starting only in 2004 with about seven rigs working continuously versus approximately 20 rigs working the U.S. side of the play. Different players in Canada are using slightly different drilling and completion techniques, which have yielded widely different results.