Major Properties

During this current low commodity price environment, Zargon will focus primarily on following up the 2008 exploration successes with oil exploitation wells at Highvale and gas development wells at Kakut on the Peace River Arch. Additional sustaining capital will also be spent on each of the three West Central Alberta key properties:

Greater Highvale

Zargon’s 32 thousand net acres of undeveloped land in the Greater Highvale property is located approximately 70 kilometres west of the city of Edmonton. Zargon owns and operates natural gas production infrastructure in the area and has historically pursued seismically defined structural and stratigraphic prospects at medium depths. With the addition of the Morinville property from the Rival acquisition and the St. Anne property from the Newpact acquisition, further opportunities exist for oil exploitation in this area. In 2008, Zargon drilled two net oil wells in this area. Production for the Greater Highvale area was essentially unchanged from 2007 and averaged 2.45 million cubic feet per day of natural gas and 89 barrels per day of oil and liquids.

Although a quiet year in terms of drilling, the year was highlighted by the acquisition of oil exploitation properties at St. Anne and Morinville, and by a significant Banff gassy-oil exploration success at Highvale. The Highvale success will be followed up by two net step-out locations in 2009, which could lead to a multi-well oil development program in 2010.

Peace River Arch

In the Peace River Arch exploration area, Zargon is pursuing multi-zone gas exploration prospects at drilling depths ranging up to 2,100 metres. The Peace River Arch exploration strategy is more “grassroots” than in other areas as the Trust posts land, shoots seismic and drills high-graded prospects. Zargon has 63 thousand net acres of undeveloped land inventory that is generally characterized by year round surface access and mostly sweet natural gas multi-zone prospects.

In 2008, the Trust drilled 4.7 net wells in the Peace River Arch area that resulted in 3.7 net natural gas wells and one net abandonment. Based on the tie-in activities relating to prior year successes, Zargon’s Peace River Arch production increased by 23 percent in the year to 4.13 million cubic feet per day of natural gas and 65 barrels per day of oil and liquids. In 2009, Zargon is budgeting a reduced capital program of three net wells, relating primarily to 2008 successful exploration activities at the Kakut, Rycroft and Spirit River properties. In particular, we are pleased with the Kakut Doig sand natural gas discovery as further delineation drilling in 2009 may lead to a number of development wells in 2010.

Pembina Shallow Gas

Historically, Zargon has been pursuing the exploration and development of shallow under-pressured Scollard and Horseshoe Canyon natural gas sands in the Pembina area at depths up to 900 metres. Zargon has an inventory of 50 thousand net acres of undeveloped land on this prospect. For 2008, the property provided 2.54 million cubic feet per day of natural gas and 65 barrels per day of oil and liquids production to Zargon’s interest, an 11 percent decrease from the prior year levels. Zargon did not drill any wells at Pembina in 2008, but did undertake a small property acquisition, two recompletions and the tie-in of three net wells.

Zargon is planning a quiet year in 2009 at the Pembina property with only one net well budgeted. Additional sustaining capital will be allocated to tie-ins, completions, facility modifications and land acquisitions. These expenditures will be focused on improving the long term viability of this property, which continues to hold considerable resource potential in a higher commodity price environment.

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