Country Information

South America

Guyana
Takutu Basin PPL

Farm-in Agreement
Groundstar has obtained a farm-in partner for the Takutu Basin. The fiscal terms for the Farm-in Agreement have been finalized in which the Farmee will pay 100% of all exploration expenses up to US$ 12 million to earn an undivided 55% working interest in the block. The Farm-in Agreement will lead to the drilling of a minimum of two exploratory wells. Groundstar has started community consultation and environmental impact management studies and is procuring drilling and tubular services.

Seismically Mapped Prospects and Leads on Groundstar’s Permit in the Takutu Basin

TAKUTU BASIN: GROUNDSTAR PPL, WELLS, PROSPECTS AND LEADS

Drilling Inventory
Three drillable prospects and seven leads have been seismically mapped in Groundstar’s 7,800 sq. km. Petroleum Prospecting License (PPL) in the onshore Takutu Rift Basin of Guyana. The prospects are named Karanambo Offset, Rewa and Pirara River. The proposed Karanambo #2 well will test a 65 sq. km. closure on the Northern Savannah Arch for the fractured oil bearing reservoir discovered in Home Karanambo #1 in 1982. The 225 sq. km. Rewa Prospect is near the northeastern margin of the rift basin and has both fractured and conventional sandstone reservoir objectives. The 55 sq. km. Pirara River Prospect will be tested for both fractured and conventional sandstone reservoir objectives on the southern side of the Northern Savannah Arch.

Drilling planned for Q1 2009

Drilling Plans
Groundstar is initially planning to drill two exploratory wells in the same order as above. If a potential commercial oil discovery is made by the either of the Karanambo Offset or Rewa wells the Pirara River Prospect would then be drilled. The proposed Karanambo #2 well is expected to take about 30 days to drill, to a prognosed TD of 2,751 meters in the top of the Apoteri volcanics. The Rewa Prospect could be drilled as deep as 2,100 meters after the completion of Karanambo #2. The Pirara River Prospect would be drilled after Rewa to a prognosed total depth of 3,200 meters. A successful oil discovery in Karanambo #2 would lead to this prospect being drilled for a similar fractured reservoir.

Timing of Drilling
The Company is planning to drill Karanambo #2 on the Karanambo Offset Prospect near the 1982 Home Karanambo #1 oil discovery during 2008 or 2009. Preparation for the drilling of the Rewa structure will be done while Karanambo #2 is being drilled. Minor upgrading of the already-prepared Hunt Oil Pirara River access road and drilling location will occur if an oil discovery is made as stated above and following the completion of the Rewa exploration well.

Productive Capacity of Wells
The Karanambo #1 well produced 42 degree API oil at a rate of 411 bbls/d from open hole DST #7 over a 105 meter thick fractured basalt and shale sequence. Analysis and modeling of DST #7 showed that the hydrocarbons were coming from an interconnected system of radial fractures and that the theoretical production index was over 1,200 bbls/d of oil from the near vertical wellbore.

Extended testing of the anticipated fractured volcanic-shale reservoir section in Karanambo #2 will determine the initial productive capacity of wells for the Karanambo
Offset Prospect.

The Rewa and Pirara River prospects have potential for conventional reservoirs in addition to the fractured basalt and shale objectives. No discovery has been made in such reservoirs in the basin to date so the productive capacity of wells is unknown.

Africa: Upper Egypt

Figure 1

Egypt Exploration Blocks

Figure 1: Egypt Exploration Blocks

The Republic of Egypt, approximately 1 million square kilometers in area and with a population of about 80 million, is considered to be one of the most stable countries in Africa. The official language is Arabic with English and French being widely understood. Egypt's GNP is derived from agriculture 17%, industry (including oil and gas) 33%, and services (including tourism) 50%. Cairo is the administrative capital of Egypt.

Oil was first discovered in 1886 and the country continues to attract local and foreign multinational companies to explore for, develop and produce oil and gas resources. The country currently produces approximately 700,000 bbls oil per day from proved oil reserves of 2.7 billion barrels. In excess of 50% of these reserves have been discovered within the complex faulting and associated traps of the Gulf of Suez rift basin system. Continental rift basins, while being found in many parts of the world are of particular interest in Eastern Africa and the Middle East where they have become highly productive and prospective exploration targets. In addition to significant hydrocarbon accumulations in the Gulf of Suez, rift systems form the geological environment productive in the Muglad Basin in Sudan, and the Marib Basin in Yemen. More recently, international explorers have turned to the Upper Egypt region where a significant trend of rifting, the Nuqra/ Kom Ombo basin system has been defined.

Groundstar has a working interest in two Upper Egypt blocks; the West Kom Ombo block which lies west of the Nile River opposite the cities of Luxor and Aswan and the West Esh El Mellaha block onshore Gulf of Suez west of the city of Hurghada.

Figure 2:

West Kom Ombo (WKO) Block

Figure 2: West Kom Ombo (WKO) Block

The figure illustrates the location of the WKO block relative to Centurion’s block immediately to the east and Transglobe’s block east of the Nile River. The WKO block operated by Groundstar is one of the largest onshore blocks in Egypt totalling 42,291 square kilometers (approx. 10.5 million acres). Groundstar has a 60% working interest (Pan Pacific Petroleum Egypt has a 40% working interest). The green dashed lines are the location of the 2D seismic grid acquired by Repsol in 1997. The seismic grid on the block is approximately 850 line kilometers of 2D seismic and was re-processed by Groundstar in 2007.

No wells have been drilled on the block. The nearest well control is 75 kilometers to the east which was the focus area for several wells drilled by Repsol and is the location of the current successful exploratory drilling by Centurion. The Centurion Kom Ombo #4 well discovered the Lower Cretaceous Al Baraka field in 2007. This well recovered significant light gravity oil (38 degree API) on test establishing the presence of an active oil system in the area. The Centurion Kom Ombo #5 appraisal well recently discovered a new Lower Cretaceous reservoir which has significantly increased the oil reserves of the field. Centurion has announced the location of another exploration well in the area.

Groundstar has recently awarded a tender to CGG-Ardiseis to acquire a new 2D seismic program of 600 to 800 kilometers. Centurion has announced plans to acquire a 3D survey over the Al Baraka field. Transglobe has budgeted one exploration well on a Cretaceous target for 2008 on a contingency basis.

Figure 3:

West Kom Ombo Lower Cretaceous Time Structure Map

Figure 3: West Kom Ombo Lower Cretaceous Time Structure Map

Groundstar completed an interpretation of the re-processed Repsol seismic at the top of the Lower Cretaceous event. The figure shows the location of five large structural highs at the approximately the same depth as the Centurion Al Baraka Lower Cretaceous discovery. These structures highs could be among the largest undrilled structures in Egypt. The new 2D seismic program will provide more subsurface detail over the five structures. The best two prospects will be selected for drilling to begin in the first half of 2009.

Figure 4:

Geologic Cross Section and Seismic Section Across West Kom Ombo Block

Figure 4: Geologic Cross Section and Seismic Section Across West Kom Ombo Block

The geologic cross section starts on the ENE side at the Kom Ombo area currently the center of activity by Centurion. The geology in the Kom Ombo is expected to persist to the WSW across the West Kom Ombo block and shows that the areal extent of the structure highs increase in size to the west. This is consistent with the mapping results from the re-processed Repsol seismic data as illustrated by NNW/SSE seismic line 330. In addition to the Lower Cretaceous structures, the seismic line shows evidence of deeper structures that could be of Jurassic or older age.

Figure 5:

Gustavson Associates Recoverable Resource Estimate for West Kom Ombo

Figure 5: Gustavson Associates Recoverable Resource Estimate for West Kom Ombo

Groundstar contracted Gustavson Associates of Boulder, Colorado to undertake an independent NI 51-101 compliant resource assessment of the block. Gustavson re-interpreted the re-processed seismic data and well results prior to the completion of the resource estimate calculations. The recoverable resources are determined from a single Lower Cretaceous sandstone reservoir. As the Lower Cretaceous is thick sandstone/shale sequence, Gustavson states that multiple reservoir zones are possible as has been reported by the drilling results of the Centurion Kom Ombo #5 appraisal well in the Al Baraka field. In addition no resources have been assigned to the potential deeper structures demonstrated on the Repsol seismic sections.

Figures 6,7,8: West Kom Ombo Prospects

The three figures illustrate the location and area of the five Lower Cretaceous prospects independently identified by Gustavson Associates on the seismic data provided by Groundstar. The prospects are very similar though smaller in area to those shown in Figure 3. The new 2D seismic program will provide additional subsurface detail over the prospects and will assist the prioritization of the prospects prior to the exploration drilling program.

Figure 9: West Esh El Mellaha (WEEM) Block

Groundstar Resources acquired a 20% working interest in the prospective West Esh El Mellaha (WEEM) block in the southern Gulf of Suez area. Aminex is the operator of the block. The WEEM block covers 1,328 square kilometers on a western arm of the major northwest trending Gulf of Suez rift system. The sedimentary section is predicted to be in communication with and consistent with the Gulf of Suez area thereby offering access to proven source rock while the complex structural history of the area indicates the presence of us potential traps. Infrastructure essential for production and transportation of oil and gas is mature in the Gulf area, and is expected to readily accommodate new discoveries on WEEM.

Adjacent to WEEM in the southeast, five oil accumulations have been discovered: Rabeh, East Rabeh, Tanan, Tawoos and Wadi El Sahl. Current production, operated by Lukoil is approximately 12,000 bbls oil per day. To the east of WEEM, both on-shore and off-shore, numerous prolific oil accumulations have been discovered in the Gulf of Suez rift basin environment.

The Malak-1 and NW Tanan-1 wells were selected and drilled by Aminex in 2008. Although encouraging gas shows were encountered in Malak-1 no reservoir rocks were recognized and the well was abandoned. NW Tanan-1 was dry and abandoned also due to the lack of reservoirs. The results from both wells are being studied and integrated with the seismic grid to determine future drilling locations. A third exploration well is expected to be drilled in the first quarter of 2009.

Figure 10:

West Esh El Mellaha Resource Estimate

Figure 10: West Esh El Mellaha Resource Estimate

There are currently seven undrilled seismically defined prospects on the WEEM block. Four prospects were identified by Aminex and three were identified by Groundstar. The P50 resource estimate for the seven prospects is 96 million barrels (19.2 million net to Groundstar). Interpretation work is continuing on the seismic control and well results so the resource estimate may be subject to revision as the work progresses.

Syria

Groundstar has been awarded exploration, development and production of petroleum for Blocks XIV and XVI in Syria. The contracts have been endorsed by the Minister of Petroleum and Mineral Resources representing the Government of the Syrian Arab Republic. These blocks are immediately adjacent to blocks XIII and XV operated by Shell.

Groundstar is the operator and retains a 100% working interest in both blocks that total approximately 3.35 million acres. The initial exploration period is four years from the time the contracts are ratified by the Syrian Parliament. The Company has begun the data collection process in order to undertake a reinterpretation of the available subsurface data to identify prospects on the blocks.

The progress of Groundstar's exploration activity in Syria and its relationship with the Syrian Petroleum Company has been very good at a time when an up-swing in drilling and field development is occurring in the country in which prominent Canadian exploration and production companies are playing a significant role. The Company looks forward to increasing its participation in Syria through a possible development and/or enhanced oil recovery project.

Kurdistan

As a member of a consortium operated by Niko Resources, Groundstar has entered into its first Production Sharing Contract ("PSC") with the Kurdistan Regional Government ("KRG" or "Government") for the exploration, development and production of petroleum resources in the 846 square kilometre Qara Dagh Block in Sulaymaniyah governorate of the Federal Region of Kurdistan – Iraq.

The PSC provides that Groundstar will have a 6% participating interest. The Block lies on trend with existing discoveries, a portion of which covers a large unexplored 65 kilometer long by 6 kilometer wide surface structure with existing oil seeps. Of interest Qara Dagh translates to Black Mountain.

The consortium operated by Niko has a 60% participating interest that is not subject to further dilution by the KRG. The Government will have a direct 20% interest and will be carried exclusively by the consortium. The remaining 20% will be assigned by the Government to a third party or parties, within a period of 8 months, with the requirement to pay back their share of costs incurred by the consortium.

The obligations under the PSC include a onetime signature bonus and capacity building bonus paid to the Government within 30 days from the execution date of the contract. Annual contributions to personnel, training and technological funds established by the Government, as well as community support contributions to be paid over a period of 15 months to assist with infrastructure projects in the area. The consortium will also be responsible for paying its proportionate share of certain production bonuses in the case of commercial discovery. The remaining minimum work program obligations represents an exploration commitment, expected to commence in the near future, which includes the acquisition, processing and interpretation of a minimum of 300 kilometers of 2D seismic data and drilling of one well during the first exploration period.