North Sea: Silverstone Energy Limited

North Sea2006 marked the first full year of operations for Silverstone Energy Limited. Silverstone made considerable progress in building an acreage position, developing an attractive prospect inventory and becoming established as a credible active operator with the drilling of three wells, each funded 100% by Silverstone. We fully intend to build on this by initiating our first commercial gas development of the Victoria discovery and continuing with our exploration program focused on our core area in the Southern North Sea (SNS), establishing exploration momentum on a second project and ensuring the capital is available to complete this aggressive program. Our objective is to develop Silverstone as a successful North Sea producer with demonstrated capabilities to profitably generate, develop and exploit exploration and acquisition opportunities available in the basin as it matures. We expect to achieve this through the efforts of a dedicated combination of an expanding Aberdeen based Silverstone staff, fully engaged Exploration and Production professionals seconded from Storm Ventures International Inc., and a talented slate of North Sea focused consultancies that provide both specialized expertise, experience and the expanded personnel we require to be active in a tight market.

The Company's 100% owned subsidiary, Silverstone SNS Limited, successfully completed two wells in 2006, Vanquish in Block 49/16, a commitment well required under the terms of the V Fields farm-in agreement with ConocoPhillips and BP, and Vulcan East in Block 49/21 an optional well, but covered by the farm-in agreement terms. These were classified as gas discoveries with an estimated Original Gas in Place (OGIP) of 160bcf. The third well on the Conoco framin, 49/17-14, resulted in the Victoria gas discovery that is estimated to contain approximately 160bcf of 3p reserves and is scheduled to be brought into production in late 2008.

All three wells were drilled at a 100% interest with Silverstone as operator working closely with our key well design group at Peak Well Management. Although increasing design complexity, competitive cost escalation and weather related delays caused per well costs to increase in each well, we are pleased that all three operations were completed in line with the pre drill estimates and most importantly, were completed safely with no accidents, incidents or hydrocarbon releases.

In parallel with demonstrating the ability to discover new reserves, developing a prospect inventory capable of supporting growth for a minimum three to five years is the key attribute in defining the SNS as our initial core area. We increased our prospect generation capabilities with key staff additions in Aberdeen and we are beginning to see the positive results with and increasing prospect inventory. We have identified 10 drillable prospects on the V Field farm-in block (200,000 acres) and we are obligated to drill at least one well per year to keep our exclusive option to access these locations, and additional opportunities as they are developed, on these lands. We have an additional five 100% blocks on which we have identified four prospects. Helix has provided key subsurface support, has assisted in the selection of our first three successful locations and has performed an Independent Reserve Assessment of the Gas in Place (GIP) on the 11 most advanced of these prospects. A P50 estimate of the gross GIP exceeds 1tcf. The technical experience and expertise we are gaining with our initial well operations and first development will help us high grade from this list, refine our cost efficiencies and eventually lower the reserve threshold required to justify even smaller field development.

Our efforts to expand our base to include a second project are beginning to take shape but are still in the very early stages. We were successful in continuing our large 22nd round block (120,000 acres) in the Mariner- Gryphon area with a well commitment being made by Statoil Hydro to drill a well on our block prior to the end of 2008. Silverstone will pay 10% of the well costs and will maintain a 30% interest. Industry focus on the Quad 9 heavy oil trend is increasing after a four year hiatus as we expect to see four wells drilled offsetting our acreage in the next year and we may also see the sanctioning of the 14 degree API Mariner discovery, which is often cited as the largest undeveloped oil accumulation in the North Sea. We are also continuing with the evaluation of two 23rd Round blocks and an additional four 24th Round blocks we have acquired in the CNS Gannet area. Under these promote licenses we must reach a drilling commitment stage within two years or relinquish the block. Silverstone would normally look to farm-down or swap a portion of its interest in drillable promote licenses but would participate for a meaningful interest and operate whenever possible.

V Field Project