PRESIDENT'S MESSAGE

The first quarter was eventful to say the least.

It underscored our business plan of developing high impact projects with partner capital while building a portfolio of conventional assets.

A significant shale gas discovery on our Quebec acreage was financed by our partners Forest Oil and Gastem. Likewise, the disappointing results from the A-8 well at Beaver River were mitigated by our farm-in agreement with our partner on the project. We had excellent drilling results with our newer projects in Antler and Greater Sierra. The higher quality reserves and improved netbacks coupled with higher prices translated into record cash flow for the quarter.

Highlights

* Significant Utica shale gas discovery in the St. Lawrence Lowlands, Quebec

* Excellent results from horizontal wells in Antler, Saskatchewan

* Successfully drilled two Jean Marie wells and acquired a 46 sq mile 3-D seismic survey in Greater Sierra, northeast British Columbia

* Tested non-commercial well at Beaver River Field

* Cash flow from operations increased to $3.94 million from $3.05 million in 2007

St. Lawrence Lowlands, Quebec

The recent Utica shale discovery in Quebec substantiates our belief about the significant potential of the Lowlands and bears out our strategy to acquire large land positions early and partner with independents.

The test results from the St. Francois du Lac well announced at the beginning of April proved to be the tipping point for shale gas development in Quebec. It confirmed the key technical characteristics of the Utica shale as a potential resource play and, more importantly, the ability to be successfully fractured.We believe this recent work and data has essentially eliminated the geological risk of this play. The next stage will involve two horizontal wells with four-stage fracture stimulations to validate the engineering and economic parameters.

We are confident that our landholdings in the Lowlands will prove to be prime acreage for the Utica shale as well as the other prospective horizons - the Trenton Black-River and the Lorraine, a shallower shale sequence. Using newly acquired and reprocessed seismic, Talisman and Questerre have identified five initial prospects with potential in all these prospective zones. Subject to Talisman's commitment, we expect to participate in at least three vertical wells to test these prospects. In conjunction with the two horizontal wells to be drilled by Forest, we expect the majority of exploration work in the Lowlands in 2008 to be conducted on our acreage.

Antler, Saskatchewan

During the quarter, we began a pilot program to evaluate selective fracture stimulation on the horizontal oil wells at Antler.

Two wells were selectively fractured, one with an 8-stage and another with a 12-stage stimulation. Preliminary results indicate that horizontal wells with selective fracture stimulations will produce at approximately ten times the stabilized rate of stimulated vertical wells. With our partners we have committed to fracture stimulate four existing wells and drill and stimulate four new wells during this summer.

Greater Sierra, British Columbia

We fulfilled our commitments with EnCana this winter by drilling two horizontal Jean Marie wells and acquiring a 46 square mile 3-D seismic survey in the Greater Sierra region of northeast British Columbia.We now own a 50% interest in 52 sections including six sections with Horn River shale rights.

The initial results from the first two wells were above our expectations and they are currently producing at a combined rate of approximately 2 mmcf/d gross. Together with EnCana we are evaluating gas-fracturing techniques for future wells. With the potential to have a similar impact as the selective stimulation technology applied in Antler, we are looking forward to the 2009 winter drilling season.

Beaver River Field, British Columbia

The excitement surrounding the Utica shale discovery was preceded by the disappointment surrounding the results from the A-8 well at Beaver River.

A-8 was an exploration well that targeted an undrilled fault block identified on 3-D seismic.The drilling operation was executed according to plan with minor challenges drilling through heavily faulted sections. The well was a technical success discovering a new fault block that is not in communication with the adjacent A-5 well. Nevertheless, the sealing mechanism expected was not present and the well is currently suspended.

In light of the developments in our other projects, we have no current plans for further testing of this well.

Corporate

Cash flow for the quarter was $3.94 million approximately $2.20 million more than our forecast. While higher commodity prices contributed, the increase is primarily due to higher oil production in Antler and the resulting improvement in our operating netback to $37.08 per boe from $24.57 per boe last year.

Our credit facility is currently $11.25 million.The Board has approved an increase to $15 million which will be applied for in the third quarter.

In April we closed the acquisition of our founding shareholder,Terrenex Ltd., through the issuance of a net 8.2 million common shares.We now have a seismic database of over 5,300 km of 2-D seismic and an additional 27,000 net acres in the Lowlands.

I am particularly grateful to the shareholders who supported our focused business plan over the years.You have been a part of discovering what may yet prove to be the most valuable natural gas field in Canada.