USE OF PROCEEDS

The estimated net proceeds to the Company from the sale of the Units will be approximately $50,812,500 after deducting the Agent Fee and the estimated expenses of the Offering. The Company intends to use the net proceeds of the Offering as follows:

(a) $28,000,000 for development activities on the areas covered by the Exploration Licenses and Production License which do not form part of the Contract Area, which development activities are currently expected to consist of the following:

(i) the exploration drilling of one or more wells for the purpose of extending the Production Licence or obtaining a new production license, covering lands which are currently included within the Exploration Licences; and

(ii) future appraisal and development drilling of one or more wells on the Falcon Lands; and

(b) $22,812,500 for working capital.

To ensure that the Company is able to meet its interest payment obligations to July 1, 2010 and to otherwise assist the Company in meeting its obligations to the Debentureholders under the Trust Indenture, the Company will deposit the Interest Escrow Amount in escrow at Closing, which amount is included in the $22,812,500 allocated in the Use of Proceeds for working capital. See “Description of Securities to be Distributed”. Prior to expenditure, the net use of proceeds from the Offering will be invested in short-term government securities,

certificates of deposits or guaranteed investment certificates issued by banks or trust companies or similar investments until such time as expenditures are required to be incurred. The Company does not have a formal investment policy.

The amount actually expended for the purposes described above could vary significantly depending upon, among other things: the progress of the Company’s drilling programs, regulatory approvals, technological advances and the Company’s operating and capital needs from time to time.