Page 2 of quarterly report - now pumping oilThey are doing it, took awhile but oil is flowing.
Now we have to wait for the reserve report.
wally
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TEARLACH RESOURCES LIMITED.
MANAGEMENT’S DISCUSSION and ANALYSIS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006
MAY 30, 2007
Kern Front Field
On April 21, 2006, as amended May 30, 2006 and November 14, 2006, the Company entered into an agreement (the “Kern
Agreement”) with Western States International, Inc. and Gas & Oil Technologies, Inc. (“G&O”), both of Monrovia,
California and their principal shareholders (the “Vendors”) to purchase a 60% working interest in an oil and gas property
known as the Kern Front Field (the “Property”) in consideration for $1 in cash and the issuance of 7,500,000 common shares
of the Company with a fair value of $0.1575 per share totalling $1,181,250 (the “Vend-In Shares”) and 30,000,000 special
warrants with a fair value of $0.1575 per special warrant totalling $4,725,000 (the “Special Warrants”), each of which may
be converted into one common share of the Company at no additional cost, subject to certain limitations if as a result of such
conversion the special warrant holder would own 10% or more of the shares of the Company, for a total fair value of
$5,906,251. Closing of the Kern Agreement was subject to the Company obtaining TSX-V approval. Approval was
received on December 5, 2006 and closing was completed on December 12, 2006.
The Property is located approximately 12 miles northwest of Bakersfield, California in the historic Kern County oil
production field with 180 wells, 110 of which have been capped and abandoned. Of the remaining 70 wells capable of
production, 14 are currently equipped and tested for production. Reserves of oil on the property have been calculated by
Petrotech Engineering Inc., independent petroleum geologists. Modelling studies for enhanced recovery have been ongoing
for over 9 months and are now essentially completed. A return to regular commercial production is expected in the near
future.
During the three and six months ended March 31, 2007 the Company incurred development costs of $36,432 (2006 -nil) with
respect to the Kern Front Field Property.
During the three and six months ended March 31, 2007 the Company accrued $50,490 in oil and gas revenue (2006 -nil) with
respect to the Kern Front Field Property which resulted from the sale of oil produced incidental to development activities.
Chapman and Cariboo Properties
On March 15, 2007 the Company entered into a memorandum of understanding with Gas & Oil Technology Services, Inc. of
Encino, California, for the acquisition of a sixty percent (60.0%) ownership in two additional parcels of approximately 45
acres each contiguous to the portions of the Kern Front Oil Field in which the Company recently acquired a 60% ownership
interest.
Consideration for the acquisition will comprise one million four hundred thousand (1,400,000) fully paid and non assessable
common shares of the Company at a nominal value of Eighty cents Canadian funds ($CAD 0.80) per share. The MOU is
subject to approval of the TSX Venture Exchange.
Market Trends
In the view of management of the Company, the improved prices for nickel, platinum and palladium are indicative of
continued production shortfalls in these commodities against rising market consumption, particularly from China and India.
Management expects nickel and platinum pricing to remain strong for the next three to five years, which may have a positive
effect on the Company’s share price. In addition to the Foy-Hess properties, other properties the Company may acquire may
contain gold, silver and cobalt mineralization.
Production revenues from the sale of heavy oil in California to commenced in 2007. Continued strong demand, limited
surplus supply capacity and on-going potential supply disruptions in unstable areas of the world are contributing to strong oil
prices. The futures market for light oil implies that prices will remain strong. The Nymex light oil prices for 2007 and 2008
are approximately US$59 per barrel and US$60 per barrel, respectively. Heavy oil will receive a lower price than light oil
due to increased refining costs to process each barrel. Bakersfield crude is sold on a local spot basis.
Why is it taking so long to get approval ?
As an update they did not state of the deal with UPEC to act as a distributor of the 'technology' world wide.
TEARLACH