WAB-21, South China Sea
General
          In December 1996, we acquired a petroleum contract with China National Offshore Oil Corporation (“CNOOC”) for the WAB-21 area. The WAB-21 petroleum contract covers 6.2 million acres in the South China Sea, with an option for an additional 1.25 million acres under certain circumstances, and lies within an area which is the subject of a border dispute between China and Socialist Republic of Vietnam (“Vietnam”). Vietnam has executed an agreement on a portion of the same offshore acreage with another company. The border dispute has lasted for many years, and there has been limited exploration and no development activity in the WAB-21 area due to the dispute. Although it is uncertain when or how this dispute will be resolved and under what terms the various countries and parties to the agreements may participate in the resolution, there has been a small increase in exploration activity in the area starting in 2009.
Location and Geology
          The WAB-21 contract area is located in the West Wan’ an Bei Basin (Nam Con Son) of the South China Sea. Its western edge lies approximately 20 miles to the east of significant producing natural gas fields, Lan Tay and Lan Do, which are reported to contain two trillion cubic feet (“Tcf”) of natural gas and commenced production in November 2002. Also located to the west of WAB-21 are the Dua and Chim Sao (formerly Blackbird)

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discoveries and the discovery in 2009 of Ca’ Rong. The Chim Sao oil field has recently received development approval. The WAB-21 contract area covers a large unexplored area of the Wan’ an Bei Basin where the same successful Lower Miocene through to Upper Miocene plays to the west are present. Exploration success in the basin to date has resulted in discoveries estimated to total in excess of 500 MBl of oil and 7.5 Tcf of natural gas. Several similar structural trends and geological formations, each with significant potential for hydrocarbon reserves in traps with multiple pay zones similar to the known fields and discoveries to the west are present within WAB-21.
Drilling and Development Activity
          Due to the border dispute between China and Vietnam, we have been unable to pursue an exploration program during Phase One of the contract. As a result, we have obtained license extensions, with the current extension in effect until May 31, 2011. We are in the process of obtaining a new license extension and believe that it will be granted. While no assurance can be given, we believe we will continue to receive contract extensions so long as the border disputes persist.
          In 2009, Vietnam, along with the company that is the party to the agreement with Vietnam, announced plans for exploration drilling during 2010. In the first quarter of 2010, the planned 2010 exploration drilling was postponed due to internal funding constraints. Vietnam has also stated that seismic was shot during 2010 and additional seismic may be shot in 2011. While no assurance can be given, we believe these activities may provide some resolution with the border disputes, although we do not know in what manner any resolution might appear.