SOUTH AFRICA On 8th May 2007, Highland Exploration and Production (Pty) Limited (“Highland”), then a 50/50 JV company owned by Molopo and Foree International, was granted Exploration Rights over lease areas totalling approximately 250,000 hectares in Free State Province and 88,000 hectares in Mpumalanga Province. In June, 2007 Molopo acquired Foree’s interests and now owns 100% of Highland. These Exploration Rights were among the very first petroleum rights granted in South Africa and represent the outcome of several years of persistent effort. Free State (Virginia – 100%) The Virginia project, located in the Free State, is some 250km southwest of Johannesburg. The Exploration Right covers a vast area where gas emitting boreholes have been identified from mineral exploration activities. Some of these boreholes are flowing gas at high rates and have been doing so for decades. Figure I South Africa The initial six month Phase I work programme commenced with the cataloguing and sampling of gas-emitting boreholes, a soilgas geochemistry survey, magnetometer traverses, and structural mapping. The gas “blowers” were drilled by mining companies to explore for gold in Witwatersrand formations which underlie the coal-bearing Karoo and Ventersdorp lavas. Some flowing wells were capped because of what was regarded as dangerously high gas emission rates. The soilgas survey by Geochemical Exploration Services (“GES”) which commenced in mid-June was completed during the financial year and demonstrated the viability of this methodology in delineating gas-prone areas. The lease areas are structurally complex, with interesting crustal fracture zones, trending approximately north-south and east-west, intruded by dolerite dykes and diamond-bearing kimberlites, respectively. The highest gas flow rates from old mineral bores correspond with the fracture zones, and the soilgas anomalies tend to be distributed along these structural lineaments. Highland also conducted hand-held magnetometer traverses across these gas-prone trends to map the shape, thickness and inclination of the intrusions, which appear to influence gas migration. Gas is known to be present in deep underground gold mines 2,000m or more in depth. Published data indicates that much of this deep gas is of microbial origin, generated by primitive bacteria that inhabit water-bearing fissures. Additional gas may be generated within the coal-bearing Karoo strata down to depths of 200-500m. Preparations are being made for the collection of gas samples for isotopic analysis for direct comparison with samples analysed from the underground gold mines. A pilot group of ten wells emitting gas at various rates was selected for continuous monitoring over an extended period. From November through until August these wells demonstrated a relatively stable combined average flow rate of 1,050,000 scf/d. A selection of the wells was also production logged with gas flow into the wellbores demonstrated at approximately 450-600m. Initial preparations are underway for the drilling of a number of cored exploration wells to delineate the characteristics of the gas producing intervals. Initial reserves certification was received for approximately 50% of the Virginia area based on the pilot flow monitoring, soils samples and existing borehole datasets that were collated from the minerals companies active in the area. Category Developed (Bscf) Undeveloped (Bscf) Total (Bscf) 2P Reserves 5 30.5 35.5 3P Reserves 5 107 112 Contingent Resource n/a 815.3 815.3 The potential commercialisation options include power generation, compressed natural gas (CNG) and small-scale LNG production. An MOU was signed for the potential supply of gas as either CNG or LNG. In addition, significant expressions of interest have been received for the supply of gas for power generation on a small and intermediate scale given the shortage of secure power supply in South Africa. It is possible that carbon credits will be available for combusting this methane which will form an important part of the commercialisation plans. At 20 Euro per tonne of CO2 equivalent, the carbon credits are likely to generate three times the revenue than the gas itself. A feasibility study is underway and will include a detailed assessment of the carbon credit applicability. Evander In the Evander lease area, approximately 70km south east of Johannesburg, numerous boreholes with very high rates of reported gas emissions have been identified, though few holes are actively flowing today. Gas was reported in 25% of 470 gold exploration holes drilled between 1952 and 1965, with one hole on the farm, Watervalshoek, flowing at more than 2,000,000 scf/d. Almost the entire Evander lease area is covered by dolerite. A thick sill is present at surface but is locally eroded to reveal Ecca sandstone and shales. Another thick sill is present below these sediments. These intrusive sheets are traditionally regarded as the seal for Evander gas, but a review of logs shows that the major gas flows documented in the 1950s and 1960s came from an interval of Karoo sandstones and shales well below the dolerites. A basic data gathering campaign will commence for the Evander lease later this year.  Top Gas "blower" from old gold exploration hole