16.

CRUDE OIL AND NATURAL GAS PROPERTY INFORMATION (Unaudited)

Results of Operations from Oil and Gas Producing Activities

The following table sets forth the results of the Company’s operations from oil producing activities from the Company’s Sawn Lake oil sands properties located in Alberta, Canada, for the year ended September 30, 2015 and 2014:

	September 30, 2015			September 30, 2014
Oil sales after royalties	$	516,407		$	47,116

Production (Operating) expenses		(516,407	)		(47,116	)
Depreciation, accretion and depletion		(79,659	)		(97,646	)
Oil sales less expenses		(79,659	)		(97,646	)

Income tax expenses		–			–
Results of operations from producing activities	$	(79,659	)	$	(97,646	)

For the years ended September 30, 2015 and September 30, 2014, the Company booked oil revenue in the amount of $516,407 and $47,116, respectively, after deduction of royalties. For the years ended September 30, 2015 and September 30, 2014, the volumes of oil delivered were booked to be 25,737 barrels and 819 barrels, respectively, net to the Company, before royalties, with an average oil sales price of $23.68 and $61.77 per barrel for the years ended September 30, 2015 and September 30, 2014. Operating expenses are zero since at this time they were paid for under the Farmout Agreement. Transportation costs are included in these operating costs. The total share of the material costs and operating expenses of the Company’s joint Steam Assisted Gravity Drainage Demonstration project (“SAGD Project”), has been funded in accordance with the Farmout Agreement, at a net cost to the Company of $Nil. As required by the Farmout Agreement, the Farmee has since reimbursed the Company and/or paid the operator in total approximately $17.8 million (Cdn $23.9 million) for the Farmee’s share and the Company’s share of the capital costs and operating expenses of the SAGD Project up to September 30, 2015. These costs include the capital costs of the drilling of the SAGD well pair; the purchase and transportation of equipment; installation and construction of the steam plant facility; testing and commissioning; the purchase of the water source and disposal wells and expenditures to connect these water wells with pipelines to the steam plant facility along with a fuel source tie-in pipeline; equipment for processing and treating the bitumen production at the SAGD facility site; replacement of the electrical submersible pump; Phase 2 front end costs relating to the purchase of long lead items such as pipe; and the operating expenses associated with the steaming and production of the SAGD well pair up to September 30, 2015.

Steam Assisted Gravity Drainage Demonstration Project

On July 30, 2013, the Company entered into a SAGD Project to jointly participate in an AER approved SAGD Project on one section of land where the Company had a 25% working interest (after the execution of the Farmout Agreement as defined below). The SAGD Project is located on section 30-91-12W5 of the Company’s Peace River oil sands properties located in North Central Alberta, Canada (also known as the Sawn Lake heavy oil reservoir).

SAGD Project Phase 1 - The SAGD Project started with the first phase (“Phase 1”) which consisted of the drilling and completion of one SAGD well pair, the construction of a facility for steam generation, water handling and oil treating, plus water source and disposal facilities, construction of and pipelines to connect the source wells and fuel tie-in to the SAGD facility. This first phase included start-up steam operations of the SAGD facility with production commencing on September 16, 2014. The estimated capital costs to complete the SAGD Project steam plant facility with one SAGD well pair has been estimated by the operator to be approximately $24.5 million (Cdn $32.9 million) on a 100% working interest basis, of which the Company’s share is covered under the Farmout Agreement (does not include any of the Phase 2 costs for the SAGD Project).

SAGD Project Outlook - The demonstration of the SAGD Project has successfully completed its goal to be able to show the capability of the Bluesky reservoir to produce using steam, the Company’s joint venture partners decided to suspend the SAGD Project operations at the end of February 2016. The SAGD Project has successfully captured the key data associated with the objectives of the demonstration project. The demonstration project has:

●

demonstrated that the SAGD process works in the Bluesky formation at Sawn Lake,

●

established characteristics of ramp up through stabilization of SAGD performance,

●

indicated the productive capability and steam-oil ratio (“SOR’), of the reservoir and

●

provided critical information required for well and facility design associated with future commercial development.

The Sawn Lake Demonstration Project reached a steady state production level in January and February of 2016 with an average of 615 barrels of oil per day (“bopd”), on a 100% basis (154 bopd net to the Company), with an average SOR of 2.1 from the one SAGD well pair. It is expected that a reactivation of the SAGD Project facility and well pair will be part of a potential commercial expansion of the project. The SAGD Project has provided the Company with the data and insight to now make the application to expand the SAGD Project at Sawn Lake. An expansion is dependent on regulatory approval, completion of detailed engineering and a higher commodity price environment to support project economics and financing. This decision considers the expectation that extremely low bitumen prices may continue for some time and the estimated time required for approval of the 3,200 bopd expansion application at the SAGD Project site. The expansion application was submitted in early May of 2016 and approval, if granted, is expected to take up to approximately a year and a half.

Capitalized Costs Relating Specifically to the SAGD Project

The Company entered into a Farmout Agreement dated July 31, 2013, whereby the Company’s operating costs of the SAGD Project are paid in full by the Farmee in accordance with the Farmout Agreement; therefore the Company has not capitalized any of the capital costs and operating expenses paid by the Farmee to the operator of the SAGD Project. See Note 4 herein “Capitalization of Costs Incurred in Oil and Gas Activities”.

Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development

See Note 5 herein “Exploration Activities”.