COLOMBIA : MATAMBO ASSOCIATION CONTRACT

The Matambo contract covers the Gigante field and surrounding area in the Upper Magdalena Valley.

Following a discovery, Ecopetrol has the right to participate in the development of the discovery with a 50% working interest and Emerald has the right to recover reimbursable costs from a share of production

Two exploration wells have been drilled in the contract area; the Gigante No.1 well with a later deepening and sidetrack, Gigante No.1A. The Gigante No.1 well was drilled to approximately 13,400 feet in 1991, testing oil in the Tobo limestone which was considered to be non-commercial. In 1998, the Gigante No.1 well was deepened and sidetracked in the Gigante No.1A well, drilled to approximately 15,800 feet and resulting in the discovery of the Gigante field.

Emerald retains exclusive exploration and production rights outside the Gigante field area without any additional work obligation.

Gigante field

The Gigante field was discovered by the Gigante No.1A well in 1998. In 2002, Ecopetrol elected not to exercise its 50% back-in right in the Gigante field and Emerald elected for sole-risk field exploitation status. Emerald paid 100% of costs and had the right to benefit from 100% of production until the sole-risk reimbursable costs were recovered. In 2006 Ecopetrol exercised its right to elect for joint operations in the Gigante field. From mid 2007, costs and production have been shared with Ecopetrol on a 50:50 basis.

The Gigante sole risk exploitation area was initially defined by Ecopetrol as a drainage area around Gigante No.1A well with a radius of 733 metres. In October 2007 the drainage area was enlarged to a radius of 1,038 metres based on updated reservoir and production information.

During 2006 Gigante No.1A well was worked over to replace the production tubing and was re-completed with an electrical submersible pump (ESP), replacing the previous hydraulic jet pump system and resulting in an increase in well production. Routine chemical treatments to inhibit the precipitation of asphaltene particles within the producing reservoir and to remove any emulsion blocks are carried out from time to time in order to improve oil production.

A 3D seismic acquisition programme was completed in 2006 across the Gigante field to assess the potential for further development drilling including Gigante No.2.

The Gigante No.2 well, planned primarily as a development well in the currently producing Tetuan reservoir, commenced drilling in December 2008 and was drilled to a total depth of 15,630 feet.  The tops of the Tetuan and Caballos formations were encountered approximately 378 feet and 338 feet structurally higher, respectively, than in the Gigante No.1A well.  A preliminary analysis of well data indicated a potentially oil bearing sandstone interval of approximately 32 feet (gross and net) in the Tetuan formation with an average porosity of approximately 10%,  and in the Caballos formation a 163 feet gross (107 feet net) sandstone interval with an average porosity of approximately 9%.

The Caballos formation was flow tested 32 degree API oil, under natural flow, at a rate of approximately 185 barrels per day with a water cut of approximately 3.5%.  During a further flow test using an electrical submersible pump, oil flowed to surface at a rate of 745 barrels per day with a water cut of less than 1%. The Company is evaluating methods to reduce the formation damage and further enhance production rates.  Following flow testing operations in the Caballos formation, the Company plans to conduct flow testing operations in the Tetuan formation prior to preparing the well for production.

A "Play Schematic" showing the principal parameters involved in the generation and entrapment of oil at the Gigante field is shown below.

Exploration

The Caballos formation, approximately 120 feet below the producing Tetuan reservoir, is an exploration target in the Gigante No.2 well.  In the event of success, Ecopetrol has the right, under the Association Contract, to participate at a 50% interest in development of the Caballos formation by reimbursing a 50% share of exploration costs.