For 2008, Masters' strategy is to proceed with implementing the enhanced oil recovery project at our Little Bow property. The project will involve an alkaline surfactant polymer (“ASP”) flood complementing our existing waterflood. The oil pool has produced for a total of 33 years and has been under waterflood for 25 of those years. Based on the results of core studies and reservoir simulation work by independent consultants, an incremental 15 to 20 percent of the original oil in place is expected to be recovered by implementing an ASP flood.

The ASP flood is designed to decrease interfacial tension and improve the vertical sweep efficiency, resulting in a higher ultimate oil recovery than would be achieved with the existing waterflood. Analogous oil reservoirs have experienced incremental oil recoveries between 12 and 25 percent of original oil in place.

Based on detailed engineering design and reservoir simulation studies, Masters estimated net cost to construct the ASP facility and install the field infrastructure is approximately $30 million. We anticipate that ASP injection will start will start in the summer of 2009, approximately one year from the project commencement date. Masters anticipates funding its share of the project with internal resources. Injection of the ASP will commence subsequent to completion of construction and the net chemical cost over the six year injection period is approximately $32 million.

Approximately 85 percent of the future funds generated by operations in the next 12 to 15 months will be allocated to the enhanced oil recovery project with the remaining 15 percent allocated to maintaining and building the Company's prospect inventory by participating in Crown land sales and acquiring seismic.

As a result of construction of the enhanced oil facility in 2008 the capital budget for the year has been increased to $21.5 million from $15.5 million. It is anticipated that funding for the capital spending will be provided by funds generated from operations.

The 2003 acquisition of Little Bow provided Masters with an entry into southern Alberta. At the time of the acquisition, the Little Bow property was producing approximately 450 boe/d. The Terraquest acquisition in February 2004 strategically enhanced Masters' operations in southern Alberta with interests in producing properties at Little Bow, Long Coulee, Grand Forks, Hector and Badger. The Terraquest acquisition also provided 22,000 net acres of undeveloped lands for future drilling.

During 2005, Masters drilled 16 exploration and development wells resulting in six oil wells and six natural gas wells for an overall success rate of 75 percent. At Little Bow, we drilled a total of 10 wells including six infill wells in the main producing pool. We expanded the battery and water handling facility during 2005 and drilled a water injection well into the existing pool. In 2005 and early 2006, Masters completed several 3D seismic surveys on exploratory lands which has resulted in several future drilling locations. We will pursue additional exploration concepts on, or in reasonable proximity to, existing Masters' lands. For 2008, we expect to allocate approximately 75 percent of capital spending to southern Alberta focusing on the implementation of the Little Bow enhanced oil recovery facility. Masters' southern area provides approximately 75 percent of total production.

In 2005, $7.8 million for acquisitions of North Peace River Arch properties created a second core producing area for Masters. These acquisitions provided 160 boe/d of production, 10,600 net undeveloped acres, ownership in several strategic field facilities and a large seismic database associated with the properties. In addition to the initial acquisitions, Masters spent $7.5 million to drill six wells (four were natural gas wells), acquire more than 10,000 net undeveloped acres, expand existing production facilities and complete several large 3D seismic programs.

At the end of 2005 and in early 2006, Masters shot approximately 94 square miles of 3D seismic. Generally, the drilling prospects are multi-zone to depths of 1,300 meters, targeting the Montney, Gething, Bluesky, Cadotte, Cadomin, Paddy and Spirit River.