Pleasant Valley

The Pleasant Valley property is located in Ventura County in the Oxnard Oil Field, where we and the TVC OPUS 1 Drilling Program, L.P. own 25% and 75% working interests, and 18.75% and 56.25% net revenue interests, respectively, in four oil and gas leases. We are in the early stages of developing and producing heavy oil from the Upper Vaca Tar Formation using thermal oil recovery technology. Since 2007, we have drilled a total of eight horizontal wells and installed temporary production facilities. Currently, we are producing heavy oil from the Upper Vaca Tar from seven wells using Cyclic Steam Stimulation (CSS) and artificial lift on the Hunsucker lease.

During 2010, we completed extended steam cycles on six of the seven horizontal wells on the Hunsucker lease, resulting in increased gross production. As a result of this success, we are completing an extended steam cycle on the remaining well on this lease; and we plan to continue using extended steam cycles on all wells until CSS is replaced in the future by Steam Assisted Gravity Drainage (SAGD) technology, which will allow higher production rates and higher recovery of original oil in place.

Our plans for 2011 include the drilling of a horizontal injector well that will be paired with an existing horizontal producing well to pilot continuous steam injection and production using SAGD technology. The pilot will test the benefits of possible future deployment to fully develop and produce heavy oil from the Upper Vaca Tar in all of the leases. We anticipate the continuous steam injection and oil production from the SAGD pilot will commence in the second half of 2011, and we will be able to fully evaluate the results by mid 2012.