Permit issued by the KCC - Tebbens Hemi I Disposal Well
Wednesday October 10, 2007

As the investors, you are undoubtedly aware that the Kansas floods of late June and early July hit us very hard. There was not a well or a lease in Woodson County that was not impacted or submerged under several feet of water. During July, we went through a drying out period before the field crews could get to the effected wells to evaluate the damage and begin repairs. Damage was not limited to the wells alone; the floods also destroyed the electrical grid that supplied their power. We lost almost all the surface equipment (tanks, separators and other auxiliary equipment) and miles of lease roads. Due to the extensive damage, our production was 90 to 95% off-line. In August, we began the rebuilding process in order to get the wells back online while continuing to drill new wells.

The most critical piece of the oil production puzzle is the water injection/water disposal well, which is needed to begin de-watering the oil fields. The reason we need to de-water the field(s) is simple: in the past, fields around our leases have been saturated water-flooded, which raised the water/oil contact lines above the old well perforations and caused the oil to migrate back to the Owl Creek fault line. This blocked the oil from migrating to the well bores. In order to increase production, our water injection/water disposal well is vitally important. This process requires lifting the water out with our well pumps and sending it to a central tank before pumping it down into a formation deep below the current squirrel sand stone formation. We feel that we can very easily dispose of a minimum of 1000 BOWD. As the water is extracted from the formation, the water-oil contact levels will drop, and we will again be able to pump oil from these mature wells.

Since the floods, we have at least 30 mature wells ready to go back online and begin pumping. These wells have been serviced, test pumped and all infrastructures have been restored. These are the wells we have targeted for the de-watering process. As of this date, October 10, 2007, we have been permitted by the KCC (Kansas Corporation Commission) to begin using the Tebbens Hemi 1 disposal well. The de-watering process will begin immediately, and we will keep you informed of our progress.