Stafford Prospect – Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C.H Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect). The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect. As operator, we participated in the drilling of the initial well with an 8.89% working interest and acquired a 6.11 % promoted interest resulting in our having a 15.00% net working interest upon the successful completion of the initial well drilled on the property. Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas. The well was drilled to a total depth of 7,400 feet. Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows. The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 1/2 feet with a 33% porosity and 20% water saturation.

On November 28, 2011 we completed the Stafford #2 an offset well 600 feet west of Stafford #1. The well initially flowed at a rate of 50 to 70 barrels of oil per day and 40,000 to 60,000 cubic feet of gas on a 8/64″ at approximately 650 psi. The well subsequently lost pressure and artificial lift equipment was installed in February of 2012 and production flow levels continue to be optimized at present time.