Tidelands Oil & Gas Corporation (TIDE)

[wowsa]

Just a recap of the yearend progress report on the storage

We are currently awaiting a subsequent permit award for our proposed underground natural gas storage facility, which was filed for on August 5, 2005 and accepted for full review by the CRE on October 14, 2005. Since the CRE has contracted outside advice to evaluate the storage permit, we expect those consultants to complete the technical review of the permit by the beginning of 2007. We also expect the Mexican authorities to firmly engage in making decisions on the permit for the use of the depleted reservoir, now that the presidential election is over and the new administration has been established.

It is clear in our discussions with the CRE Commissioners that the final form for legal use of the reservoir will be determined via input and approval from several Mexican agencies. In light of the fact that the new Chief of Staff and President Calderon himself have meaningful energy experience within the Mexican government, management expects a very informed and well crafted response from the various agencies involved in the review and determination of final conditions for the issuance of the storage facility permit. Management now expects the storage permit application will be presented for decision after consideration by the various agencies and the CRE Commissioners between July and November of 2007.

We have been actively discussing the commercial aspects of the storage and pipeline with a group of the largest industrial consumers of natural gas in the Monterrey metro area, as well as with the LDCs and electricity utilities in the area. We expect that the institutional change to the Calderon administration -- with its stated emphasis on infrastructure building -- will likely assist in the convergence of these two tracks we have engaged: getting the necessary permits from the corresponding agencies and attaining the commercial viability of the project through capacity reservation from interested parties.

In regard to capacity reservation, we have already received two commitments and expect to receive additional confidential Letters of Intent from industrial users and LDC's which will further assist the development of the Company's project in two ways. The first way is through the refining of project capacity needs and capex requirements and the second way is through the demonstration of need as a part of the agency permit and commercial negotiations that are underway. Our project has been openly championed by the CAINTRA of Nuevo Leon which is active in the representation of the Monterrey industrial users. We have also engaged the CFE (the Comision Federal de Electricidad) to get its dispatch information in order to determine the load profiles for their Rio Bravo and Monterrey area combined cycle power plants. We should then be able to demonstrate how our pipeline and storage facilities will allow the CFE to cope with their swing requirements and thereby develop with them an appropriate level of capacity reservation on our pipeline and storage facilities.

When the indicated demand for storage and pipeline throughput reservation is more accurately determined and the status of permitting is further advanced, negotiations with financial and industry partners can be finalized. While these activities are continuing, some of these parties may wish to participate in a limited manner with the Company via the use of joint development agreements which will allow investment by them in the near term, with flexible future participation rights and obligations with respect to the final project configuration.

Currently, the Company has negotiations underway with these potential project partners, including a U.S. based master limited partnership, a commodity oriented private equity fund, a private equity fund with a Latin America focus in energy projects, and a European financial institution with private equity, commodity and debt financing capabilities.

In July of 2005, we engaged HSBC Securities (USA) Inc. to act in a financial advisory role for Tidelands' by providing independent financial structuring and consulting in connection with the development of our Burgos Hub Export/Import Project ("Project"), which will feature an extensive pipeline infrastructure, underground natural gas storage facility and proposed offshore LNG regasification terminal to be located in the Gulf of Mexico. Our engagement with HSBC Securities still remains intact as does our engagement with Mayer Brown Rowe & Maw, LLP, one of the preeminent project finance law firms in the world.