Supplemental Oil and Gas Reserve Information (Unaudited)

1. Modernization of Oil and Natural Gas Reporting Requirements

The reserve estimates as of December 31, 2011 presented herein were made in accordance with oil and gas reserve estimation and disclosure authoritative accounting guidance issued by the Financial Accounting Standards Board. This guidance was issued to align the accounting oil and gas reserve estimation and disclosure requirements with the requirements in the SEC's "Modernization of Oil and Gas Reporting" rule, which was also effective for annual reports for fiscal years ending on or after December 31, 2009.

The above-mentioned rules include updated definitions of proved oil and gas reserves, proved undeveloped oil and gas reserves, oil and gas producing activities, and other terms used in estimating proved oil and gas reserves. Proved oil and gas reserves as of December 31, 2011were calculated based on the gas price of US$6.35/Mcf, (thousand standard cubic foot) in accordance with the gas sales agreement dated June 12 2010 and Chinese Government policy. The prices are based on the average price received and US dollar-RMB exchange rate on the first day of each month in 2011. This average price is also used in calculating the aggregate amount and changes in future cash inflows related to the standardized measure of discounted future cash flows. Undrilled locations can be classified as having proved undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. The authoritative guidance broadened the types of technologies that a company may use to establish reserve estimates and also broadened the definition of oil and gas producing activities to include the extraction of non-traditional resources, including bitumen extracted from oil sands as well as oil and gas extracted from shales.

2. Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

Costs incurred in the acquisition and development of oil and gas assets are presented below for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	2011		2010		2009
Property acquisition costs:
Proved	$	-	$	-	$	-
Unproved		-		-		-
Exploration		5,967		5,117		4,501
Development costs		16,878		-		-
Total costs incurred	$	22,845	$	5,117	$	4,501

3. Capitalized Oil and Gas Costs

Aggregate capitalized costs related to oil and gas production activities with applicable accumulated depreciation, depletion, amortization and impairment are presented below as of December 31, 2011 and 2010 (in thousands):

	2011			2010
Capitalized costs:
Proved properties	$	66,361		$	-
Unproved properties		1,899			50,094
Less: accumulated depreciation, depletion, amortization and impairment		(744	)		-
Net capitalized costs	$	67,516		$	50,094

Unproved properties, which are not subject to amortization, are not individually significant and consist primarily of lease acquisition costs. The evaluation process associated with these properties has not been completed and therefore, the Company is unable to estimate when these costs will be included in the amortization calculation.

4. Proved Oil and Gas Reserves

An analysis of the change in estimated quantities of oil and gas reserves, all of which are located within China, for the years ended December 31, 2011, is as follows:

	Year Ended December 31, 2011
	Gas (MMcf)			Oil (MBbls)		NGL (MBbls)		Total (MMcfE)

Proved developed and undeveloped reserves:
Beginning of year		-			-		-		-
Revisions of previous estimates		-			-		-		-
Extensions, discoveries and other additions		54,868			-		-		54,868
Divestitures of reserves		-			-		-		-
Purchases of minerals in place		-			-		-		-
Production		(269	)		-		-		(269	)
End of year		54,599			-		-		54,599

Proved developed reserves:
Beginning of year		-			-		-		-
End of year		13,505			-		-		13,505
Proved undeveloped reserves:
Beginning of year		-			-		-		-
End of year		41,094			-		-		41,094

For the year ended December 31, 2011, the Company added 54.9 MMcf through extensions, discoveries and additions of wells in the Shouyang Block in Shanxi Province. It was determined for year ended December 31, 2010 that we were not able to predict exactly when we would recognize significant revenues and pending assessments to determine whether sufficient quantities of economically recoverable proved reserves would be found. The gas price used is US$6.35/Mcf, (thousand standard cubic foot) in accordance with the gas sales agreement dated June 12, 2010 and Chinese Government policy. The prices are based on the average price received and US dollar-RMB exchange rate on the first day of each month in 2011.

5. Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows does not purport to be, nor should it be interpreted to present, the fair value of the oil and natural gas reserves of the property. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.

The estimates of future cash flows and future production and development costs as of December 31, 2011 are based on average price received and US dollar-RMB exchange rate on the first day of each month in 2011. Estimated future production of proved reserves and estimated future production and development costs of proved reserves are based on current costs and economic conditions. Future income tax expenses are computed using the appropriate year-end statutory tax rates applied to the future pretax net cash flows from proved oil and natural gas reserves, less the tax basis of the Company. All wellhead prices are held flat over the forecast period for all reserve categories. The estimated future net cash flows are then discounted at a rate of 10%.

It is not intended that the FASB's standardized measure of discounted future net cash flows represent the fair market value of the Company's proved reserves. The Company cautions that the disclosures shown are based on estimates of proved reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10% discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to probable or possible reserves. Estimates of economically recoverable oil and natural gas reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree subjective and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations and other matters. Actual quantities of oil and natural gas may differ materially from the amounts estimated.

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is as follows at December 31, 2011(in thousands):

	2011			2010		2009

Future cash inflows	$	384,279		$	-	$	-
Future production costs		(114,868	)		-		-
Future development costs		(76,844	)		-		-
Future income tax expenses		(10,024	)		-		-
Future net cash flows		182,543			-		-
10% discount for estimated timing of cash flows		(119,979	)		-		-
Standardized measure of discounted future net cash flows	$	62,564		$	-	$	-

Standardized measure of discounted future net cash flows, beginning of year	$	-			-		-
Changes in the year resulting from:
Sales, less production costs		3,295			-		-
Revisions of previous quantity estimates		-			-		-
Extensions, discoveries and other additions		65,407			-		-
Net change in prices and production costs		-			-		-
Changes in estimated future development costs		-			-		-
Previously estimated development costs incurred during the period		-			-		-
Purchases of minerals in place		-			-		-
Accretion of discount		-			-		-
Divestiture of Reserves		-			-		-
Net change in income taxes		(2,843	)		-		-
Timing differences and other		(3,295	)		-		-
Standardized measure of discounted future net cash flows, end of year	$	62,564		$	-	$	-