Operational Advantage

As illustrated in the following map, Rallyemont’s operational advantage results from the favorable location of its heavy oil properties in west central Saskatchewan relative to that of the northern Canadian oil sands which are situated around Fort McMurray.

The benefits of Rallyemont's favorable location relative to the northern oil sands are as follows:

1. Access to a large historic geological data base:

For the early stage exploration work, Rallyemont and its technical partners data mined thousands of historic drill holes to identify Upper Mannville oil bearing channel sands. In and around the Company's current land base are approximately 150 historic drill holes that management estimates would cost tens of millions of dollars to replicate today and take years to complete. As such, Rallyemont was able to obtain a contingent resources estimate quickly and inexpensively.

2. Closer to key infrastructure and market:

Rallyemont’s lands are close to all key infrastructure needed for thermal development. The Company’s primary focus area, Prince, is less than 30 miles from the nearest oil battery at Edam, Saskatchewan and is approximately 70 miles from Husky's Lloydminster upgrader. Even better, the Prince property has rail beds running through it that tie into an existing CN rail line that is approximately 2 miles to the south.  This could provide a cost effective solution to marketing the oil compared to pipelining it.  There is also access to ample pipelines, batteries, roads, power grids, drilling rigs, well trained work force, natural gas pipelines, nature gas and plenty of quality subsurface water.  This is all a key advantage for thermal development in west central Saskatchewan. In addition, the Rallyemont lands are closer to the large US market, which should result in a higher a well head price compared to that in the northern oil sands.

3. Positive political environment in Saskatchewan:

The Government of Saskatchewan has provided a good climate for oil development in the province. In terms of EOR development, Saskatchewan has a favorable royalty regime compared to Alberta as highlighted in the following table. The Saskatchewan government has also provided timely regulatory approvals compared to Alberta, which again will improve the economics for Saskatchewan projects. The favorable political environment in Saskatchewan for EOR projects may be one of the reasons why some companies have begun to direct capital toward to the Saskatchewan side of the border.

4. Heavy oil has better oil properties than bitumen:

Petroleum industry experts know that heavy oil has a lower viscosity than bitumen found in the oil sands. In other words, heavy oil is mobile where as bitumen is not. In fact, several wells in and around Rallyemont's lands have produced oil to surface through conventional primary production methods. The same cannot be said for the bitumen found in the oil sands. The API gravity of Rallyemont's heavy oil averages around 10 degrees, whereas in the oil sands the API gravity ranges 6-8 degrees. This means that Rallyemont’s heavy oil, which is like peanut butter, should require less heat units to be produced and less diluent to become mobile in a pipeline compared to the tar-like bitumen that exists in the oil sands.

5. Good depth for cap rock containment:

The sand channels that Rallyemont is focused on in the Upper Mannville are 400 to 500 meters deep, and have sufficient cap rock containment.  Proof of this is the success of thermal development of the Upper Mannville in the Saskatchewan heavy oil area.

6. History with EOR technologies:

Saskatchewan's heavy oil resource has a history dating back to the 1970's with thermal EOR projects. Husky has two world class SAGD and CSS projects that are nearby at Celtic and Pikes Peak, and CNRL has their own world class SAGD operation at Tangle Flags. In 2009, Southern Pacific acquired Cenovus's Senlac SAGD operation that has a capacity of 5,000 barrels per day. All of these operations are approximately within 50 miles of the Prince focus area. Only two miles from the Prince focus area was the North Battleford Heavy Oil Thermal Project run by Texas Gulf and Canterra Energy that produced over a million barrels of oil from the 1970’s to the 1990’s.

7. Lower capital cost per barrel of capacity:

As mentioned above, Rallyemont's focus areas are located closer to key infrastructure and people. For EOR development, this could mean that thermal development of Rallyemont's properties could have lower capital costs, because no access infrastructure (roads, airstrips, etc.) will be required to get people and supplies in and out, and less pipeline will be need to get the oil to market.

8. Higher operating netback:

A favorable operating netback should also be obtained for in-situ Saskatchewan heavy oil projects, due to lower diluent requirements, opportunity for rail transportation and the favorable royalty regime on the Saskatchewan side of the border.