Oil Shale

Oil Shale Julia Creek, Queensland, Australia

Xtract’s wholly owned subsidiary, XOL, is focused on the development of the Company’s oil shale resources in Australia and the technology for oil extraction from oil shale resources. Xtract has oil shale exploration rights over mining tenements in the Julia Creek area of Queensland. Using the JORC standard, total indicated and inferred resources in place are 2.12 billion bbls. In addition to evaluating third party technologies, XOL has been developing proprietary technology for the commercial extraction of liquid hydrocarbon products from oil shale.

In August 2008, the Queensland Premier announced a 20-year moratorium on a proposed oil shale development in the Whitsunday coastal region, and a 2-year review period for oil shale developments throughout the state during which no new mining activity would be permitted. Although the mineral rights of Xtract’s 100% subsidiary Xtract Oil Ltd ("XOL") in Queensland were not affected, the review created uncertainty over the extraction of the underlying oil shale.

In December 2008, XOL held a meeting with representatives of the Queensland government to present the progress of XOL’s technology and to understand the proposed review process. The response to the technical progress was encouraging but the government representatives were not able to give much further information about the review process or its likely impact. Under these circumstances, Xtract took the decision to scale back significantly its projected investment in the development of oil shale technology.

Prior to scaling back Julia Creek activities, laboratory testing had provided indicative temperature and pressure conditions for generation of oil using natural gas as a source of both hydrogen and heat. A scoping study, which was based on the results of tests completed before the Government announced its policy review, indicated that a commercial project based on XOL’s technology could be feasible.

XOL continues to maintain mineral rights over its 2.12 billion barrels of indicated and inferred resources at Julia Creek. By maintaining the mineral rights at limited cash expense, Xtract retains the option to exploit the resource when investment conditions are more supportive.

Tarfaya, Morocco and Nevis Valley, New Zealand

Xtract Energy (Oil Shale) Morocco SA (XOSM) is a joint venture with Alraed Limited Investment Holding Company WLL, a company controlled by His Highness, Prince Bandar Bin Mohd. Bin Abdulrahman Al-Saud of Saudi Arabia. XOSM has signed a Memorandum of Understanding with the Office National des Hydrocarbures et des Mines for the purposes of evaluation and possible development of an oil shale deposit near Tarfaya, in the south west part of Morocco. Xtract currently holds 70% of the joint venture.

In September 2008, the company announced the creation of a joint venture in Morocco with Alraed Limited Investment Holding Company WLL, a company controlled by His Highness, Prince Bandar Bin Mohd. Bin Abdulrahman Al-Saud of Saudi Arabia. This was the culmination of discussions that had lasted several months. The joint venture company, Xtract Energy (Oil Shale) Morocco SA, went on to sign a Memorandum of Understanding with the Moroccan Office National des Hydrocarbures et des Mines ("ONHYM") for the purposes of evaluation and possible development of an oil shale deposit near Tarfaya, in the south west part of Morocco. Xtract holds 70% of the joint venture.

Following the decision in December to hibernate work on Xtract’s proprietary technology in Australia and in light of market turmoil and falling oil prices, no significant work was done by the joint venture during the reporting period. A decision as to whether to conduct an initial pre-feasibility study is pending. Since July 2009, investment conditions have started to improve and it is hoped that work can begin during the current financial year.

The Company’s oil shale tenements in the Nevis Valley in New Zealand were relinquished.