California Projects

King City

On May 25, 2009, the Company entered into a Farm-out agreement with Sunset Exploration to participate in a drilling and exploration of lands located in California, USA. The Company shall pay 66.67% pro rata share of 100% of all costs associated in the initial test well. If the test well is capable of producing hydrocarbons, then the Company shall pay its working interest pro rata share of all completion costs. The Company’s working interest is 40% of 100% in the Area of Mutual Interest.

Important Update

Delta has been a significant working interest Partner in the King City Project in California since its inception. Drilling and log data from the discovery well SBV-2–32 initially indicated potential promise for the production of commercial quantities of hydrocarbons. However, as a result of extensive and current Independent evaluations Delta and it’s working interest Partners have elected to plug and abandon the well and to curtail any further development on these lands. It has been the judgement of all of the Partners that this project is not economically viable; therefore, it was the unanimous decision of the Partners that the Head Lease will not be renewed as of May 1, 2013 thereby relieving the Partners of the substantial annual lease renewal fees and drilling commitments.

Delta is considering whether or not this oil cut justifies a further gross expenditure of some $150,000 to put the well on full test for a month. The dilemma arises from the fact that we anticipate significant water production with the oil and we are currently evaluating the economic realities of fully equipping and the water disposal issue during the course of the production testing. We do not have a salt water disposal well within acceptable range of the well bore, at this point. As a consequence, Delta and its partners are discussing the issues and moving towards a decision in regard to further testing. The alternative is to plug the well.

In order to assist in making the best possible decision Delta and its partners commissioned an Independent geophysical study of the subject lands and this was completed approximately 4 weeks ago. The study was comprehensive and indicates multiple opportunities with various degrees of risk. It was also concluded that further seismic should be shot to more clearly identify additional structures offsetting the existing well bore and re-completion opportunities within the defined lease boundaries. With anticipated water production it is essential that the SWD issue be resolved and that additional contributory well locations be established to justify the expense associated with building a field infrastructure.

The Company has called for a meeting with all of its WI Partners to make a determination on how each party wishes to proceed. Once this has been decided, over the course of the next several weeks, Delta will issue a press release setting out its decision.

California #1–1 / Lonestar Prospect

On September 1, 2010, the Company entered into an agreement for the joint exploration and development of the Lonestar Prospect located in California, USA. Delta and its partners commenced drilling the well in mid September and reached total depth of approximately 6,015 feet. Delta and partners have established that this well has intersected substantial pay in the Forbes formation at a measured depth of 5940 to 5960 feet. This has aligned with our extensive seismic reviews and demonstrates that our well has successfully penetrated a significant proven natural gas reservoir.

As anticipated, all logging clearly indicated approximately 20 feet of natural gas pay with significant reserves of natural gas. There is no indication of the presence of a water drive in the reservoir.

Delta owns a 25% gross working interest in this well. The well is producing up to 4.2 million cubic feet of gas per day. Although the well is capable of higher production rates, the Company has been forced to restrict it’s flow rates due to PG&E line pressure issues. Notwithstanding, Delta is very pleased with this well’s production profile.