Oil shale is a fine grained organic rich sedimentary rock containing significant amounts of kerogen from which liquid hydrocarbons can be processed. Unlike tar sands or conventional oil and gas reservoirs, where the bitumen or petroleum is impregnated in the rock pores, the kerogen in the oil shale has not yet been “cooked” into petroleum.

Kerogen is the first phase of geologic transformation from organic material to petroleum. Oil shales have not matured beyond the first phase due to their relatively shallow depth of burial, thus lower than required temperatures. However, depending on the deposit, some degree of maturation will have taken place. Kerogen generally has a rich hydrogen/carbon ratio, which is a significant factor in terms of yielding high quality fuels.

Oil shales are widely distributed around the world and vary considerably in their mineral content, chemical composition, age, type of kerogen, and depositional history and are derived from a number of different organisms.

The oil shale deposit at Pasquia Hills is the Favel Formation of the Upper Cretaceous age.. It is stratigraphically equivalent to the Second White-speckled shale of Alberta and is bedded between non-calcareous shales, the Belle Fourche shale below and the Morden shale above and as such is easily recognized in outcrop or core.

HOW ARE OIL SHALES ACCESSED?

In order to be commercially viable, under current technology, the oil shale deposit must be near surface, to allow for a strip mining operation. Generally, an overburden thickness of less than 250 feet would be considered feasible for strip mining, however, the closer to surface the better for economic viability.

In North America most of the large oil shale deposits are too deep for strip mining and much research is underway to develop in-situ techniques for recovery of the oil. So far there have been no proven commercial in-situ techniques, however some companies are attempting to access the oil shale through conventional underground mining methods.

Goldnev’s project is strategically located at or near the outcrop edge providing for the most advantageous strip mining opportunity on this deposit. The permit lands lie along the northern flank of the Pasquia Hills escarpment, adjacent to the former Sun oil property, on which about 15 core holes were drilled in 1965. Several other permits have been awarded to other companies in the immediate area.

The Favel Formation at this location has a thickness ranging over 100 feet recorded in a number of the Sun Oil core holes. The Company’s core hole on the permit land has a thickness of 89 feet of Favel Formation oil shale. Overburden depths range from only a few feet up to about 200 feet on the permit.

The Pasquia Hills oil shale deposit is located in northeast Saskatchewan partially covered by farmland and partially by light forest. The majority of the Company’s project, especially where the oil shale deposit has been identified is on farmland. There is a good road grid and very low population density.

HOW WILL THE OIL BE RECOVERED?

Extraction of the oil from the rock is accomplished through a retorting process called pyrolysis, which is the chemical decomposition of organic material by heating in the absence of oxygen or any other reagents. This process involves temperatures above 900°F, which thermally breaks down the kerogen molecule into lower weight hydrocarbon molecules. Vaporized hydrocarbons are distilled into a hydrocarbon liquid. Often the ash or by-product of the shale is utilized as a cement product.

There are numerous above ground retorting technologies, which are in use for oil shale processing around the world for oil shale processing where commercial oil shale projects exist. The oil shale is excavated (strip mined) and pretreated through a crusher for relatively uniform particle size. Usually shale would be crushed into either lump shale or particulate shale, which is used to feed different types of retort technologies.

Lump shale retorting processes in use around the world include the Fushun Generator type used for more than seventy years in China, the Kiviter retort used in Estonia and the Brazilian Petrosix technology. These all involve vertical cylindrical retort vessels.

Particulate oil shale retorting processes include the Galoter process developed in Estonia and Russia and the Alberta Taciuk Process (ATP).

WHAT IS THE PRODUCT?

The distillate product is generally quite different than crude oil in that it is limited to the middle-distillate range hydrocarbons such as kerosene, diesel or jet fuel and therefore, would not be compatible with most existing conventional refineries. However, the products do have various direct commercial applications ranging from a fuel to fire electrical generation to a direct feed stock for petrochemical refineries. Additionally, specialized refineries can be developed to take advantage of the unique properties of oil shale distillate.

WHAT IS THE STATUS OF THE GOLDNEV OIL SHALE PROJECT?

Oil shale development of Pasquia Hills will be a long term project with numerous stages. Phase I of the Company’s program has been completed with the drilling of three core holes. The objective of the initial stage was primarily to acquire an undisturbed core containing the oil shale for modern laboratory processing to determine the petroleum yield from the shale on our permit. The Company was also attempting to determine the overburden depth and proximity to the outcrop of the oil shale deposits. It is believed that the Company’s lands will encounter the outcrop edge as evidenced by two of the three wells seeming to be north of the oil shale outcrop.

In preparation for Phase II of the exploration program the Company has gathered geological data from Saskatchewan government maps, previous oil shale core hole programs, water well data and the Phase I results and have prepared preliminary maps contained herein (Fig. 2c), reflecting the estimated overburden and oil shale thickness on and around the Company’s permits.

The next step in the process will be to clearly identify the leading edge of the oil shale deposit and confirm the description of the oil shale accumulation on the Company’s permits. The Company is planning a further 10 well program in the summer of 2008 and is considering other exploration techniques and surface mapping as part of the Phase II program. We expect to process more cores samples and prepare a deeper analysis of the product generated, for further studies on product application and marketing, and to determine what percentage of the distillate product will have commercial application.

In brief, a commercial project on these permits would involve the securing of surface access, environmental baseline studies, a strip mining operation, a facility for oil shale extraction from the rock, product handling facilities, market for the product, by-product handling and utilization and environmental reclamation.