November 21, 2008
Dear Shareholder:
In a little more than a month since our Annual Shareholder Meeting, the entire world is suddenly undergoing massive, perhaps unprecedented, changes. Obviously, Tri-Valley is affected as well.
Your management and staff continue to work daily to proceed with our projects while coping with the resulting pressures, changes and circumstances stemming from the sudden global storms in commerce and finance in general and the petroleum industry in particular.
Our plans and activities remain resolute. We are in the final stages of mobilizing a drill rig to our newly acquired Lenox Ranch Lease at Pleasant Valley to drill three new horizontal wells into the highly oil-saturated Upper Vaca formation. Our steam generator is already on site there and it is presently steaming some of the existing vertical wells drilled years ago by a prior operator. And we will soon be moving in a 25 million Btu/hour steam generator onto the Hunsucker Lease at Pleasant Valley to nearly double the steam generating capacity at the location.
Steaming the Upper Vaca Tar Sand Formation enables us to achieve unusually high recovery of this very heavy, but nevertheless precious and desirable, oil resource. Through correct planning, we are now most fortunate to have an inventory of such steam generators to refabricate to current stringent environmental standards so we can best exploit this opportunity. And we are making critical operating improvements that can materially lower our lifting costs – especially important during what we firmly believe to be temporary phases of falling oil prices.
We have just received some very positive news in regard to the SEC sanctioned updated accounting methods, which we can now use: These updated accounting rules now allow the use of the annual average price of oil and gas rather than merely the year end spot price. Furthermore, Tri-Valley has now proven horizontal drilling, completion and production technology at Pleasant Valley (conventional wisdom said it couldn’t be done) and we are now allowed to calculate reserves based on horizontal criteria rather than being confined to the old vertical criteria. These two updated accounting items alone along with higher 2008 production should enable us to depict a much stronger and more realistic reserve picture.
It is my opinion that, throughout the petroleum industry, many exploration and development projects that require higher prices to be economical, either have already been cancelled or will be cancelled due to the said lowering oil prices, capital constraints and continued inhibition by politicians and regulators. Thus, extremely valuable lead time will be egregiously wasted by government and the industry, so that as demand builds up, supply will be even less due to production declines not offset by new projects and subsequent spike up in oil prices will be even sharper and longer lasting than what we recently experienced. By then our production capacity should be up substantially and at record high levels, so that Tri-Valley, its shareholders and drilling partners should benefit greatly.
Tri-Valley will stay the course, pursuing development of its properties and identifying and arranging asset acquisitions to continue to grow the Company.
In addition to the mail copy, if you would like to be added to the Tri-Valley electronic distribution list, please e-mail Felicia Todd at ftodd@tri-valleycorp.com.
Very truly yours,
F. Lynn Blystone
President and CEO
