Petrolifera Petroleum

Capex

Petrolifera has announced a 69 well, $76 million capital budget for Argentina during 2008. This planned program will include extensive drilling at Puesto Morales/Rinconada, seismic and drilling on Vaca Mahuida, drilling on the Gobernador Ayala II concession and 3D seismic and drilling on the recently confirmed Puesto Guevara Concession in Rio Negro Province, Argentina.

The company's Argentinean budget will continue to be evaluated in the context of the actual outcome of exploratory drilling results and the evolving policy framework for the country. Recently announced price controls for crude oil and continuing control of natural gas prices below fair value will impact on anticipated cash flow, especially if refineries attempt to transfer imposed burdens on to producers. It is apparent that if increased deregulation was to occur, improved cash flow from operations before changes in working capital would likely result in higher levels of reinvestment in Argentina. Since Petrolifera commenced drilling operations in late 2005, the company has invested approximately $100 million in the country.

An initial 2008 capital budget of $8 million has been established for Colombia; this may be expanded depending upon results and as mentioned, developments in Argentina, although regardless the company has the wherewithal to expand its Colombian budget as warranted by opportunities that develop.

Petrolifera's 2008 Peru capital budget has been established at $56 million, to cover the cost of extensive seismic programs on both Ucayali Block 107 and on Maranon Block 106 and for the drilling of the company's first well on Block 107. These are both jungle blocks with attendant high costs of exploration, including for access and when drilling, for helicopter support.

Future Plans

Petrolifera expects robust growth in production and sales in 2008 as increased natural gas volumes are marketed at improved average prices and as new drilling and the impact of the company's recently activated pressure maintenance or waterflood program at Puesto Morales is felt. Also, the company is optimistic about the risk adjusted potential of its planned exploration program in Argentina during the current year as it continues to evaluate new Jurassic Sierras Blancas and Loma Montosa prospects at Puesto Morales as well as Cretaceous Centenario opportunities on its Puesto Morales block as well as at its Gobernador Ayala II concession, on which a 3D seismic program was recently completed. This latter block lies just east of and on trend with an area being developed by another Canadian company.

Petrolifera has announced a 69 well program for Argentina during 2008. This will include extensive drilling at Puesto Morales/Rinconada, seismic and drilling on Vaca Mahuida, drilling on the Gobernador Ayala II concession and 3D seismic and drilling on the recently confirmed Puesto Guevara Concession in Rio Negro Province, Argentina. Petrolifera now owns 493,310 net acres of oil and gas rights in Argentina, the equivalent of 21 townships in Western Canada.

The company's Argentinean budget will continue to be evaluated in the context of the actual outcome of exploratory drilling results and the evolving policy framework for the country.

Plans are advancing for early drilling in Colombia. Petrolifera has identified three prospective drillable prospects on its Sierra Nevada I License in the Lower Magdalena Basin. Discussions to secure a drilling rig for a July/August commencement of activities are continuing. A seismic program is also anticipated in 2008 on the company's Turpial Block in the Upper Magdalena Basin. Staffing is underway and an office has been established in Bogota, Colombia. Petrolifera controls over one million acres of petroleum and natural gas rights in Colombia, fast becoming one of the exploration hotspots in South America for the oil and natural gas industry.

In Peru, Petrolifera plan an extensive seismic programs on both Ucayali Block 107 and on Maranon Block 106 and for the drilling of the company's first well on Block 107. These are both jungle blocks with attendant high costs of exploration, including for access and when drilling, for helicopter support. Petrolifera's seismic program on Block 107 is proceeding very favorably, with 62 percent of lines cut at year-end 2007; 60 percent of shot holes have been drilled and 24 percent of lines have been shot. Early indications from received data are considered excellent and the company is proceeding with preparation of its Environmental Impact Assessment ("EIA") applications for a number of drilling locations. The data will be received, interpreted and reviewed for selection of the preferred prospects, which are anticipated to have considerable potential.

As with Colombia, discussions for a suitable heli-transportable rig are advancing to the contract negotiation stage, initially for a two-well commitment. Drilling is tentatively anticipated for approximately October 2008, subject to regulatory approval of the company's drilling EIA.

Production

Reserves

Petrolifera's proved reserves ("1P") of crude oil, natural gas liquids and natural gas increased 38 percent during 2007 to reach 17.8 million boe at December 31, 2007. Proved and probable reserves ("2P") improved modestly to 25.6 million boe after record production of approximately three million boe during the year. In 2007, reserves also had 3P reserves estimated for the first time since 2005, when it was undertaken by a different evaluator. A total of 13.5 million boe of possible reserves were identified, bringing 3P reserves to a total of 39 million boe. When combined with production of 2006 and 2007, Petrolifera's Puesto Morales Norte field and surrounding areas appears to be an accumulation with recoverable 3P reserves of approximately 45 million boe, a significant accomplishment in any basin, but particularly so in the Neuquén Basin, as it is considered mature by industry standards.

Petrolifera Petroleum's proved oil reserves increased 72 percent during 2006 to 10.3 million barrels, after production of approximately 1.5 million barrels through October 31, 2006. Proved natural gas reserves increased 544 percent to 18 Bcf during this same period, after production of approximately 335 mmcf of natural gas. On a barrel of oil equivalent (boe) basis, using a conversion rate of six mcf per barrel of crude oil, Petrolifera's proved reserves, after production, are estimated to have increased 106 percent during the year to 13.3 million boe.

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