OIL AND GAS PROPERTIES
The Morgan Highpoint Joint Venture Project, Tennessee
In 2006, Montello entered into a Farm-out Agreement with Austin Developments Ltd. Austin advanced US$2,400,000 to drill and complete the John Bowen #2 Test Well to earn an undivided Net 40% Working Interest ("W.I."). On February 23, 2007 Montello announced the signing of an agreement with TennAlta Petroleum, a Nevada Corporation, to invest a minimum of US$600,000; in a subsequent event, the parties did not proceed with the transaction and it was terminated on April 21, 2007. On August 9, 2007, prior to the commencement of drilling on August 15, 2007, Montello announced Great Northern Oilsands Inc. as an additional JV Partner at Morgan Highpoint whereby Great Northern agreed to pay 10% of the AFE'd costs to earn an undivided 5% Working Interest in the project lands.

Initially, a late January spud date had been planned, however it was subsequently determined that a larger drill rig was required precipitating the need for extending the time required for the pre-drill phase as Engineering and Operations personnel reviewed logistics including a greater need for specialized drilling technology and equipment, meticulous site preparation and additional recruitment of more qualified personnel for Morgan Highpoint than was originally anticipated.

Montello Management believes that extending the pre-drill period / delay in the spud date until August 15, 2007, was prudent due to the technically challenging nature of this test well. In the interim, Montello was successful in negotiating equipment and more importantly, additional land agreements in the immediate area as well as tidy up overall planning so that drilling could begin in August, 2007, with the contracting of Houston-based Nabors Drilling USA, one of the largest contract drillers in the lower 48 states.

On October 10, 2006, during the First Quarter of Fiscal 2007, Montello announced the signing of a mineral lease on a 253 acre property in Morgan County adjacent to the Tex Flora property in conjunction with joint venture partner Austin Developments Ltd. (“Austin”). This joint ventured property initially referred to as "The Blowout Property", was renamed and became part of the “Morgan Highpoint Project” Lands.

Negotiations for the 253 acres commenced during the latter stages of a work-over of the Tex Flora-John Bowen # 1Well in late June-early July 2006. Both it and the John Bowen Lease border the well known former Pryor Oil Company property, the Elmer Howard-White Unit #1, Permit 9893, which blew out in July of 2002. The acquisition took longer than expected and as a result, the John Bowen #1 well was shut in for further re-completion and economic evaluation and remains shut-in at the time of writing. It is anticipated to undergo re-evaluation simultaneously with the evaluation of the recently cased John Bowen #2 Well.

[Note: In Fiscal 2006, the Company owned 100% interest in the John Bowen #1 Well, the Brooks Property and various shallow oil and gas wells in Tennessee (i.e. Scott, Morgan Counties). The Company entered an agreement with Austin whereby these became owned on a 50/50 participating interest basis in each well and associated contiguous land package (i.e. Tex Flora/John Bowen # 1 & the Brooks Property) wherein Austin earned their 50% participating interest by reimbursing Montello for 100 per cent of all costs involved in the acquisition, drilling, completion, stimulation, and equipping to production stage of each well. During the year the Company spent $610,169 on these properties. In the previous year $1,172,955 was spent. The Company received from Austin $842,432. Montello’s focus then became the John Bowen Land. The other wells, previously purchased in 2005 or before, given low production and operation-manpower-logistics issues, were consequently written down to nominal value in fiscal 2006. The property write-down for the Company’s US properties was $935,692 as per July 31, 2006 Year End Financial Statements.]

In the Second Quarter of 2007 commencing November 1, 2006, the Company negotiated and presented an AFE for mutual approval with Austin Developments for the pending Morgan Highpoint Project that was originally scheduled to commence in late January, 2007. A final spud date was announced on August 15, 2007. Montello’s Joint Venture Partner Austin Developments Ltd., participated on a two for one basis (80% to earn 40%) by funding US$2,400,000; Great Northern Oilsands on August 9, 2007 joined the Morgan Highpoint Project on a two for one basis (10% to earn 5%) by funding US$300,000 and an additional US$25,000. Montello’s net participating interest was (10% to earn 55%) by funding US$300,000.

On July 9, 2007, in the Fourth Quarter Fiscal, 2007, the Board of Directors announced the appointment of Phil Emrich as the Drilling Advisor /Drilling Manager to Montello Resources USA Ltd. for the kick off of the John Bowen #2 Well. Randy Marshall tendered his resignation effective August 1 and subsequently became the V.P. of Engineering for our Pincher Creek, Alberta Operator, Pennine Petroleum Corp. On July 2, it was announced that Dave Schofield, our acting US Operations Field Manager., would be on hand on August 1 for ramp-up at the John Bowen #2 Well Site. On July 23, 2007, Max Sloan, a highly respected well-site geologist came aboard finalizing the drill team for Morgan Highpoint. On July 25, approval for the Drill Permit Application was received from the Tennessee Department of Environment and Conservation, Division of Geology, Oil and Gas Program.

Scott and Morgan County et al – Shallow Well Leases
At July 31, 2007 Montello was the owner of various oil and gas wells located primarily in Morgan and Scott Counties with Austin Developments which earned a 50% participating interest in each well and associated contiguous land package by reimbursing Montello December 27, 2006 with an equalization payment for 100 per cent of all costs involved in the acquisition, drilling, completion, stimulation, and equipping of all wells.

On November 28, Austin, and November 29, Montello, formally announced the closing of an agreement whereby Montello quit claim its 50% interest and operatorship to Austin et al.
Benefits to Montello include reduction of third party royalties on the John Bowen Lands while allowing Montello to solely focus operational efforts on the Morgan Highpoint Project as well as pursue other potential “high impact deep well opportunities” in Morgan County. The Company regards high impact drilling opportunities within Morgan County as being some of the most significant drilling prospects in the Southeast Region. Other benefits included Austin earning their working interest in the “Morgan Highpoint Project” on a two for one basis (80% gross to earn net 40%).