Hammerhead Lease Prospect

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Marybeth Manning
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1 Hammerhead Lease Prospect

2 CORPORATE OVERVIEW Reliance Oil and Gas, Inc. is an oil and gas drilling, operating and exploration company, incorporated under the laws of the State of Texas on July 1, The company has in excess of $0,000,000 in proven oil and gas reserves. The company is a fully licensed and bonded oil and gas driller and operator in the State of Texas. The company is a full service drilling and operating company,with two drilling rigs and two work over rigs in its fleet, along with all the ancillary oilfield servicing equipment necessary to be a full service driller and operator.the Company will conduct its drilling, production, acquisition, development and exploration activities in areas in which it is experienced and knowledgeable in the particular geological basins and use that experience and knowledge to create strategic alliances with qualified industry partners. The Company s strategy will be to increase its reserves and cash flow through drilling, production, exploration and exploitation of its existing properties with proven reserves in South Texas. The Company emphasizes the use of 2-D and 3-D seismic, horizontal radial fracturing techniques, horizontal drilling techniques and computer-aided exploration technology, together with geological and engineering studies of its proposed properties to evaluate and prioritize - drilling prospects and production efforts. The Company will focus production and drilling activities on its properties in a relatively concentrated area to permit the Company to utilize its base of geological and engineering experience in the region to maximize drilling success and to minimize development costs. The Company plans to continue to selectively pursue acquisitions of majority working interests and operating rights in properties that offer developmental potential as well as provide operating synergies with existing properties. 1 RELIANCE OIL & GAS

3 RELIANCE OIL & GAS HISTORY OF GUADALUPE COUNTY Guadalupe County is ninety miles inland from the Gulf of Mexico in south central Texas and is bounded by Comal, Hays, Caldwell, Gonzales, Wilson, and Bexar counties. Cibolo Creek forms the border between Guadalupe and Bexar counties, and the San Marcos River separates Guadalupe and Caldwell counties. Seguin, the county seat and largest town, is on Interstate Highway and U.S. Highway, twenty-five miles southwest of Austin and eighteen miles northeast of San Antonio.The county's center lies near Seguin at approximately 29 35' north latitude and 97 57' west longitude.the county covers 713 square miles of flat to rolling terrain with local depressions and escarpments, and its elevation ranges from 450 to 800 feet above sea level.the northwestern section, near the border with Comal and Hays counties, is part of the Blackland Prairie; the rest of the county lies in the Upper Coastal Plain. Soil types vary from dark, calcareous clay in the northwest to fine, sandy loam in the southeast.vegetation consists primarily of mesquite, scrub brush, and grasses in drier areas of the county, while water-tolerant hardwoods and conifers flourish near creeks. The area has a mild subtropical climate, with temperatures ranging from an average high of 96 in July and an average low of 42 in January. The annual rainfall in the county averages 33 inches, and the growing season averages 275 days. The Guadalupe River was developed in the late 1920s and early 1930s as a source of hydroelectric power. A series of privately owned dams channelled water through generating plants, providing electricity for the surrounding area. Lakes Dunlap and McQueeney, as well as several smaller lakes, were formed by the dams and have become popular recreational sites. Oil was discovered by H. H. Weinertqv in eastern Guadalupe County in the early 1920s (in the Darst Creek oilfield), and although the new industry in no way rivalled agriculture in its importance to the county's economy, it did provide some diversity. The Luling, Dunlap, Darst, and La Vernia fields were still active in the 1980s. In 1982 wells in the county produced 1,693,730 barrels of crude oil and 976,823 cubic feet of gas. Although no war supply contracts or facility projects were assigned to Guadalupe County in the 1940s, the area did take part in the economic prosperity generated by World War II. Manufacturing establishments in the county more than doubled the number of their employees between 1940 and The per capita wage doubled as well. The county's proximity to San Antonio encouraged many residents to commute. In agriculture, emphasis continued to shift from cotton to grains and livestock as a part of the war effort. 2

4 In the 1980s as much as 80 percent of the land in Guadalupe County was used for farming and ranching. Among the primary crops were sorghum, hay, oats, wheat, and corn; watermelon and peaches were also popular, and the county's pecan production was sixth in the state. Over 70 percent of the county's agricultural receipts in 1982 came from livestock and livestock products, mainly cattle, hogs, poultry, and milk. Although - agriculture continued to be a important aspect of the economy, farm receipts represented only 12 percent of the county's annual income in Professional and related services, manufacturing, and wholesale and retail trade involved nearly 60 percent of the work force in Mineral resources, including ceramic clay, industrial sand, oil, gas, and lignite coal, gave residents the opportunity to diversify their interests. In recent years many people have moved to Guadalupe County from San Antonio, choosing to live in Guadalupe County and work in Bexar. In percent of the work force was employed outside the county. Between 1960 and 1980 the population of Guadalupe County rose nearly 40 percent, from 29,017 to 46,708; in 19 the population was 64,873. Local attractions include Lake McQueeney, touted as the "water ski capitol of Texas" and numerous historic homes and buildings. Guadalupe County Annual Totals, Jan Apr 2007 Date Oil (BBL) Casinghead (MCF) ,272, , ,262, , ,374, , ,262, , ,098, , ,326, , , , , , , , ,968 6, ,003,282 96, ,054,514 94, ,489,421 89, ,416,1 97, ,731 13,696 Total 16,569,700 2,978,581 Dunlap Field, Guadalupe County Annual Totals, Jan Apr 2007 Date Oil (BBL) Casinghead (MCF) ,1 148, , , , , , , ,6 142, , , ,978 6, ,202 85, ,186 76, ,688 63, ,546 54, ,275 52, ,850 53, ,095 53, ,520 7,912 Total 963,498 1,340,046 3 RELIANCE OIL & GAS

5 Hammerhead Prospect Guadalupe County, Texas Locator Map Guadalupe County LULING Perfetto Lease Prospect Nelson Lease Prospect 4

6 Hammerhead Prospect Guadalupe County, Texas Dunlap Field Production History Historically the average well in the Dunlap field has had an IP of 50 BOPD. Dunlap Flat Field Map D. Tilley #3 IP 60 BOPD Perfetto Lease Prospect Nelson Lease Prospect D. Tilley #1 IP 47 BOPD D. Tilley #5 IP 52 BOPD *Based on reports from field personel This diagram is for illustration purposes only and is not to scale 5 KEY Oil Well Gas Well Dry Hole Abandoned Oil Well Abandoned Gas Well IP = Initial Production BOPD = Barrels of Oil Per Day

7 Hammerhead Prospect Guadalupe County, Texas Lease Map D. Tilley #3 IP 60 BOPD Nelson Lease Prospect D. Tilley #1 IP 47 BOPD Perfetto Lease Prospect D. Tilley #5 IP 52 BOPD KEY Oil Well Gas Well Dry Hole Abandoned Oil Well Abandoned Gas Well IP = Initial Production BOPD = Barrels of Oil Per Day 6 This diagram is for illustration purposes only and is not to scale

8 D. Tilley #5 IP 52 BOPD D. Tilley #3 IP 60 BOPD Nelson Lease Proposed Location D. Tilley #1 IP 47 BOPD This diagram is for illustration purposes only and is not to scale 7 Hammerhead Prospect Guadalupe County, Texas Well Log Cross Section Map

9 Hammerhead Prospect Guadalupe County, Texas 3-D Schematic Proposed Location This diagram is for illustration purposes only and is not to scale 8

10 THE ADVANTAGES OF HORIZONTAL DRILLING Horizontal wells have a higher productivity and pay contact per well than vertical wells, thereby reducing the number of wells required to drain the reservoir. Horizontal wells allow operators to take advantage of highly heterogeneous or layered reservoirs, reservoirs with fractures, or water or gas coning problems. Horizontal wells are a controlled, directional completion technique for exploiting un-recovered mobile hydrocarbons in existing fields. These reserves usually remain because the reservoir s heterogeneity has prevented efficient development using vertical wells. The primary screening tool is recovery efficiency as measured by the percentage recovered of original oil-in-place (OOIP) or original gas-in-place (OGIP). Screening is carried out by reservoir characterization, followed by reservoir stimulation. The advantages of horizontal wells include higher productivity and a larger drainage area per well. In Texas and Louisiana, horizontal wells in the Austin Chalk have become attractive because of the relatively rapid payout from good initial production rates. The best technique currently available utilizes coiledtubing drilling, since it minimizes problems. As a result, some drilling costs may ultimately be reduced. The average estimated ultimate oil and gas recovery of horizontal wells in the Austin Chalk, based on the normalized profiles range from a low of 40,000 BOE per well to 300,000 BOE. Paul Gerlach, Kansas Geological Survey University of Kansas Energy Research Center Horizontal radial jet completion technology can horizontally drill a well bore in a wheel and spoke like fashion and penetrate up to feet with each spoke. The technology has the ability to horizontally drill up to eight spokes in one well in only two days, as opposed to a conventionally drilled horizontal well bore going the same distance but taking up to four weeks. Reliance Oil and Gas, inc. believes by using the new horizontal radial jet completion technology verses conventional vertical drilling to exploit their proven oil reserves on the Hammerhead Prospect they should see a substantial increase in not only the daily oil production but the total recoverable oil in the reservoir as well. 9 RELIANCE OIL & GAS

11 Turning OIL & GAS FLOW into CASH FLOW 1873 N. Magnolia St. Luling, Tx Tel: Fax: Toll Free OIL-WELL { } GAS-WELL { }

SECTION 2 CALDWELLL COUNTY CHARACTERISTICS

SECTION 2 CALDWELLL COUNTY CHARACTERISTICS 2.1 City Limits and ETJ Boundaries The name Caldwell was given to the county in recognition of an Indian Fighter named Matthew Caldwell, who led a group of militia