San Joaquin - Bakersfield Area

GEOLOGICAL REPORT ON ZONE RESOURCES'S INTEREST IN THE SAN JOAQUIN PROJECT, SAN JOAQUIN BASIN, CALIFORNIA PREPARED BY RICHARD J. HAWES, P.GEOL. 6TH DECEMBER 2006

DESCRIPTION OF THE SAN JOAQUIN PROJECT

1. Project outline

Current projects in the area include:

Dyer Creek Prospect
Zone holds a 25% working interest in the Dyer Creek prospect on the crest of the Bakersfield Arch, San Joaquin Basin, southern California. Zone’s partners are Daybreak Oil And Gas Inc. of Spokane, Washington (25%) and Chevron USA (50%). 3-D seismic has been shot, processed and interpreted over the Dyer Creek prospect.

South East Edison Project
In 2007, Zone also acquired a 50% working interest in 320 acres at South East Edison, south of Bakersfield. This prospect has an old abandoned oil well that is believed to contain significant by-passed pay. Daybreak is Zone’s 50% working interest partner at South East Edison, and is now the operator.

2. Why the Bakersfield area?

The San Joaquin Basin in Central California is a prolific oil producing area with a very long history of oil production. As described below, the total production in the area immediately to the north of Bakersfield to date is approximately 2.64 billion barrels.

Four principal large oil fields, Kern Front, Mount Poso, Poso Creek and Round Mountain have between them produced 701 million barrels. The California Division of Oil, Gas and Geothermal Resources estimates that there are 84 million barrels remaining in these four fields.

3. Oil Production to Date in the Area.

The cumulative oil production volumes and estimated remaining reserves, according to the Government of the State of California, Division of Oil, Gas and Geothermal Resources, Annual Reports of the State Oil & Gas Supervisor, 2005, at the following website: http://www.consrv.ca.gov/dog/pubs_stats/annual_reports/annual_reports.htm

The cumulative oil production volumes and estimated remaining reserves are reported on a field-by-field basis in Section 6 of the above report, Production by Field (pages 89 to 114) at: ftp://ftp.consrv.ca.gov/pub/oil/annual_reports/2005/0104prod_05.pdf

4. Resource Potential

"There has been very little serious exploration in the area for a very long time. Recently, the focus has been on increasing recovery factors from the larger fields by various Enhanced Oil Recovery technologies and well patterns."

To date, 2.64 billion barrels have been produced from the area. ZNR has reason to believe that the deeper horizons remain unexplored (and basement is at a maximum depth of ~3000 feet), even in the more mature part of the basin.

"In the play as a whole, undiscovered oil is likely to have API gravities in the range 12 o API to 43 o API." No natural gas reservoirs have been discovered in the area or are expected.

"The complexity of basin-margin facies changes and faulting suggest that more, mostly small accumulations will continue to be found, and this is the focus of the ZNR's exploration program. Discoveries with resources up to several million barrels are likely; discoveries of accumulations with recoverable resources substantially greater than 10 million barrels is considered unlikely."

New discoveries are most probable in down-dip areas that have not been exhaustively drilled along the western part of the play, particularly for Vedder sands.

(http://pubs.usgs.gov/of/2004/1037/OFR2004-1037.pdf) "Oil-oil correlations to establish a basis for mapping petroleum systems, San Joaquin Basin, California," have mapped the three principal and one minor oil systems in the San Joaquin Basin. These are:

• Cretaceous Moreno (minor oil system)
• Eocene Kreyenhagen (not expected in the area)
• Eocene Tumey (potential in the area)
• Miocene Monterey (expected in the area)

Figure 2 . Map of Cretaceous Moreno oil locality in the San Joaquin Basin (Coalinga oil field)
Figure 2 shows the location of the only known Cretaceous Moreno sourced oil in the Basin, at Coalinga. ZNR does not expect to discover any Cretaceous Moreno oil in the AMI.

Figure 3 . Map of Eocene Kreyenhagen oil localities, San Joaquin Basin
Figure 3 shows the extent of Eocene Kreyenhagen-sourced oils in the Basin. ZNR does not expect to discover any Eocene Kreyenhagen oil in the AMI.

Figure 4 . Map of Eocene Tumey oil localities in the San Joaquin Basin
Figure 4 shows the extent of Eocene Tumey-sourced oils in the Basin.

According to Hunt (Petroleum Geochemistry and Geology, 1986, p. 237) "Within more permeable sequences, hydrocarbons can and probably do migrate very long distances. The Athabaska Oil Sands must be the result of fluid drainage extending over hundreds of miles. The Pleistocene production of the Gulf Coast, except for biogenic methane, almost certainly had to migrate from older and deeper beds or from the deeply buried Pleistocene bathyal facies beneath the continental slope. This could entail migration distances of 50 to 100 miles. The fact that hydrocarbons can migrate with fluids long distances through permeable beds means that geochemists must be cautious in condemning a section because it is too shallow and too cool to generate hydrocarbons. If this non-generating section is connected to a more deeply buried source rock through continuous sandstones, unconformities, fracture-fault systems, or continental facies, it can contain commercial hydrocarbons."

ZNR may potentially encounter some Eocene Tumey-source oils in its exploration program.

Figure 5 . Map of Miocene Monterey oil localities in the San Joaquin Basin, including the concentration in the AMI.
Figure 5 shows the extent of Miocene Monterey-sourced oils in the Basin. ZNR expects that all oils discovered in the AMI will be sourced from Monterey Shales, except at its northern margin where the oils could be mixed Tumey + Monterey in origin.

5. ZNR's Present Reserves and Production

ZNR presently has no oil reserves or production from its properties.

6. Oil markets in the San Joaquin Basin

Any production could be trucked to a refinery in Bakersfield, or to a terminal for pipeline transportation to refineries in Los Angeles. The three refineries in Bakersfield are:

• Big West of California LLC, 66,000 BOPD capacity
• Kern Oil and Refining Co., 25,000 BOPD capacity
• San Joaquin Refining Co. Ltd., 24,000 BOPD capacity

Certification of Qualifications

I, Richard J. Hawes, a Professional Geologist, of #407, 4510 Valiant Drive NW, Calgary, Alberta, T3A 0X9, hereby certify that:

• I am a consultant geologist of Calgary, Alberta, and I have evaluated the ZNR properties in Bakersfield, California area.
• I attended Sir John Cass College, London, England from 1968 to 1971, and graduated with an Upper Second Honours Degree in Geography and Geology (External London degree). I subsequently attended University of Calgary from 1971 to 1974, and graduated in 1977 with a Master's Degree in Geography. (I also attended University of Alberta from 1977 to 1980, passed all of the course requirements for a Ph.D. in Geology, but was injured carrying out field work and did not finish my Doctorate Degree). I attended University of Calgary from 1988 to 1990 and graduated with a Master's Degree in Business Administration, specialising in Finance.
• I have been a member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta since June 1991 (Member number M-51928), of American Association of Petroleum Geologists since 1985, and the Canadian Society of Petroleum Geologists since 1981.
• I have over 28 years experience in the practice of petroleum geology, in Western Canada, Eastern Canada onshore and offshore, the United States, the Former Soviet Union, and other overseas petroleum basins.
• I carried out a personal inspection of the properties in September 2006. I have also reviewed information provided to me by the Company's partners, and from the appropriate California state and United States Federal authorities.