Management of Calvalley targeted three core areas for improvement in 2008: reserve growth, production throughput and the development of an exploration strategy to realize both the full upside potential of Block 9 in Yemen and to enter into new projects in the Middle East and North Africa.

The management team is pleased to report success in all these areas as described below.

The Company's working interest Proven and Probable reserves grew to 24.6 million barrels representing a 50% (net of production) increase over the previous year. These increases were accomplished by:

• the drilling and completion of five horizontal production wells in the Hiswah Saar-Naifa field resulting in reserves reclassification;
• the ongoing testing of previously drilled horizontal wells and completion of the simulation study, resulting in an improved recovery factor;
• increased oil-in-place volume at the Al Roidhat Field contributed by a new core study and revised mapping based on newly processed seismic.

The processing capacity of Block 9 has been expanded with the successful commissioning of the Central Processing Facility (CPF) in late 2008. The recently completed reservoir simulation study of the Hiswah field by Schlumberger has established a field development plan to increase production from this pool which can be accommodated by the current capacity of the CPF.

Two exploration wells were drilled during 2008, one on the Qarn Qaymah structure and one on the Malik structure. The Qarn Qaymah well resulted in a Kohlan sand and fractured Basement discovery, which is undergoing production testing to fully understand the reserve's potential. Based on the results of this well, Calvalley is encouraged to pursue other fractured Basement prospects on the block. The Malik well encountered hydrocarbons in the Qishn and Saar formations, but unfortunately the reserve potential did not meet economic hurdles for development at current oil prices. Future assessment of this play will include plans to drill a structurally higher part of the play which underlies the plateau.

In addition to quantifying the upside exploration potential of Block 9 from a detailed mapping initiative in 2008, Calvalley successfully negotiated a Production Sharing Contract (PSC) for the exploration for hydrocarbons in Ethiopia. This represents the initial phase for Calvalley of building a diverse portfolio of exploration opportunities - focusing in countries throughout the Middle East and North Africa.

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Figure 4-Calvalley's Working Interest Reserves Table

Reserve Highlights

The year 2008 was successful for the Company in terms of reserves growth and capital efficiency. As at December 31, 2008, McDaniel and Associates ("McDaniel") estimates Calvalley's working interest Proved plus Probable reserves to be 24.6 mmbbl, representing an increase of 50% (55% including produced reserves in 2008) over the quantities estimated by McDaniel at December 31, 2007, and a reserves replacement ratio of 1064%.

Capital efficiency for the new reserves is in the top decile of the industry. Finding and Development ("F&D") costs (including future development costs) for the full year were $3.76 per barrel on Proved basis and $0.46 per barrel on Proved plus Probable basis. Average F&D costs (including future development costs) over the past three years, was $12.89 per barrel on Proved basis and $5.37 per barrel on a Proved plus Probable basis.

The new reserve additions were largely the result of pool extensions and improved recovery factors at both the Hiswah and Al Roidhat fields. Natural gas and associated liquids were not included in the reserves for previous years. In addition, the Qarn Qaymah discovery (wells 1 and 2) were not included in 2008 reserves due to the early stage of the discovery and insufficient production data. Despite the slower than expected pace of work at Qarn Qaymah, Calvalley is optimistic about the prospectivity of the discovery. Therefore, the necessary completion and testing equipment has been mobilized to fully appraise the Qarn Qaymah wells in both the fractured granitic Basement and the Kohlan sands.

Key Reserves Highlights

Reserve Addition

• 42% increase (53% increase including produced reserves in 2008) in Proved oil reserves to 11.5 mmbbl;
• 50% increase (55% increase including produced reserves in 2008) in Proved plus Probable oil reserves to 24.6 mmbbl;
• 51% increase (55% increase including produced reserves in 2008) in Proved plus Probable plus possible oil reserves to 35.4 mmbbl.

Capital Efficiency

• Year 2008, F&D cost per barrel (including development costs) was $3.76(1P), $0.46(2P) and $0.05(3P);
• Three year average, F&D cost per barrel (including future development costs) was $12.89 (1P), $5.37(2P) and $0.46(3P);
• 1064% reserve replacement ratio and 29 year reserve life Index (2P).

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Figure 5-Reserves and Net present Value (after tax) table

A summary of the Reserves Report is provided in the table above. Details of the Reserves Report are included in the Annual Information Form ("AIF") which is available through the Investor Relations section of this website and through www.sedar.com. Unless otherwise indicated, the reserves estimates in this report are based on McDaniel's January 2009 forecast prices and costs.

Exploration and Appraisal Highlights

• Drilled Qarn Qaymah 2 (QQ-2) exploration well on the Qarn Qaymah structure resulting in two discoveries: gas and associated liquids in the Kohlan sand (12 meters) and gas, gas-associated liquids and oil in the fractured Basement (380 meters). The fractured Basement zone flowed hydrocarbons, but was unable to reach stable flow conditions due to mechanical problems resulting in an inconclusive test. As a result, further evaluation of this zone will commence in the first half of 2009 upon the arrival of specialized equipment. Perforation and testing of the Kohlan sand will follow the completion and testing of the fractured Basement. Calvalley did not book reserves from these discoveries in 2008.
• Based on both the newly acquired and reprocessed seismic data, Calvalley undertook an in-depth review of the exploration potential of Block 9. During 2008, over 42 leads and prospects were identified from this seismic data, which have been prioritized for future activity.
• Successfully negotiated and signed two exploration blocks; Metema (26,013 km²) and Gimbi (20,457 km²) in Ethiopia and commenced a study program to evaluate their exploration potential.

Development Highlights

• The Schlumberger simulation study of the Hiswah Saar-Naifa reservoir was completed in late 2008. The purpose of this study was to formulate an optimal development plan for the reservoir. One of the primary findings was that reserve recovery can be improved through pressure maintenance using water and gas injection with additional infill drilling.
• At Hiswah, there were four production wells drilled (H23, H24, H27 and H28) and two water injection wells drilled. Combined stabilized test rates for three wells (H24, H27, and H28) through the Central Production Facility were 822 bopd with less than 1% water cut. The two water injector wells drilled in the northwest part of the pool (H25 and H26) are expected to begin injection when the injection facilities are completed by the third quarter of 2009.
• The Al Roidhat field has eight vertical wells. Four of the wells are equipped for production and four require completion and equipping.
• Remapped Hiswah based on newly processed 3D seismic and new development wells, resulting in a better defined oil-in-place volume and the identification of future drilling locations. New core studies and remapping of the Al Roidhat field based on reprocessed seismic data yielded a higher oil-in-place volume.

Figure 6-Yemen, Left and Bue Nile Gorge, Ethiopia, Right