GEOTERM

Geoterm is an 80% operating subsidiary of the Group and has its offices in Makhachkala in the Dagestan Republic of Russia. Its principal assets are the Sulak No 4 and Izberbash No 2 exploration licences located in two shallow water areas of the Caspian Sea basin.

The region has well established oil infrastructure. The Azerbaijan - Northern Caucasian – Novorossiysk branch of the Transneft pipeline passes along the shore next to the Izberbash No 2 Block. Both blocks are situated in close proximity to Makhachkala, the capital of Dagestan Republic, which has its own marine oil terminal. Rail infrastructure also passes alongshore the nearby the Sulak No 4 and Izberbash No 2 blocks.

At least nine prospective leads have been identified on the Izberbash Block No 2 totalling 500 MMbbls of oil potential, undiscounted for risk (source: Miller and Lents, CPR, June 2006).

In 2007 Russian independent consultant Neftegazconsult has provided further interpretation of seismic data of Izberbash Block No 2 and evaluated its resources applying risk factors. The final CPR including prospect risk assessments is expected to be provided by Miller and Lents later this year. This additional seismic data should allow the Company to proceed with a full exploration and development strategy for this licence.

The seismic programme on Sulak Block No 4 is progressing as planned with the current aim to collect 650 kms of 2D seismic data. The data will be evaluated with the intention of developing a portfolio of prospects on Sulak Block No 4 by the end of 2007.