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 years ending September 30, 2016 and 2015:

	September 30, 2016			September 30, 2015
Oil sales after royalties	$	179,467		$	516,407

Production (Operating) expenses		(179,467	)		(516,407	)
Depreciation, accretion and depletion		(68,066	)		(79,659	)
Oil sales less expenses		(68,066	)		(79,659	)
Income tax expenses		–			–
Results of operations from producing activities	$	(68,066	)	$	(79,659	)

For the years ended September 30, 2016 and September 30, 2015, the Company booked oil revenue in the amount of $179,467 and $516,407, respectively, after deduction of royalties. For the years ended September 30, 2016 and September 30, 2015, the volumes of oil delivered were booked to be 19,156 barrels and 25,737 barrels, respectively, net to the Company, before royalties, with average oil sales prices of $7.91 and $23.68 per barrel for the years ended September 30, 2016 and September 30, 2015, respectively. 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 $20.0 million (Cdn $26.2 million) for the SAGD Project 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, 2016. These costs include 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; and the monthly operating expenses associated with the steaming and production of the SAGD well pair up to September 30, 2016. The capital costs to complete the SAGD Project steam plant facility with one SAGD well pair was approximately $26.5 million (Cdn $34.8 million) on a 100% working interest basis, of which the Company’s share was covered under the Farmout Agreement.

SAGD Project Outlook - The SAGD Project has successfully shown the capability of producing oil from the Bluesky reservoir using steam. A majority of the Company’s Joint Venture partners voted to temporarily suspend operations of the SAGD Project at the end of February 2016. The SAGD Project has:

●

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

●

established characteristics of ramp up through stabilization of SAGD performance,

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

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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 one SAGD well pair. In early May of 2016, an amended application was submitted to the AER for an expansion of the existing SAGD Project facility site which would potentially increase the operation for up to a total of eight SAGD well pairs. The amended application sought approval to expand the current SAGD Project facility site to 3,200 bopd (100% basis). It is anticipated that only five SAGD well pairs need to be operating to achieve this production level. The expanded facility will be designed to handle up to 3,200 bopd. The AER approval for the expansion of the existing SAGD Project was granted on December 14, 2017. While the joint venture has not yet approved to expand the SAGD Project, currently, the SAGD Project continues to move forward with engineering and identification of long lead time items towards potential expansion to 3,200 bopd and future development at Sawn Lake.

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”.