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RELIANCE OIL & GASRELIANCE OIL & GAS

Hammerhead Lease Prospect

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CORPORATE OVERVIEW

Reliance Oil and Gas, Inc. is an oil and gas drilling, operating and explora-

tion company, incorporated under the laws of the State of Texas on July 1,

1985. The company has in excess of $100,000,000 in proven oil and gas

reserves. The company is a fully licensed and bonded oil and gas driller

and operator in the State of Texas. The company is a full service drilling

and operating company,with two drilling rigs and two work over rigs in its

fleet, along with all the ancillary oilfield servicing equipment necessary to

be a full service driller and operator.The Company will conduct its drilling,

production, acquisition, development and exploration activities in areas

in which it is experienced and knowledgeable in the particular geological

basins and use that experience and knowledge to create strategic

alliances with qualified industry partners. The Company’s strategy will be

to increase its reserves and cash flow through drilling, production, explo-

ration and exploitation of its existing properties with proven reserves in

South Texas. The Company emphasizes the use of 2-D and 3-D seismic,

horizontal radial fracturing techniques, horizontal drilling techniques and

computer-aided exploration technology, together with geological and

engineering studies of its proposed properties to evaluate and prioritize

drilling prospects and production efforts. The Company will focus

production and drilling activities on its properties in a relatively concen-

trated area to permit the Company to utilize its base of geological and

engineering experience in the region to maximize drilling success and to

minimize development costs. The Company plans to continue to selec-

tively pursue acquisitions of majority working interests and operating

rights in properties that offer developmental potential as well as provide

operating synergies with existing properties.

RELIANCERELIANCEOIL & GOIL & GAASS

Guadalupe County is ninety miles inland from the Gulf of Mexico in south central Texas

and is bounded by Comal, Hays, Caldwell, Gonzales, Wilson, and Bexar counties. Cibolo

Creek forms the border between Guadalupe and Bexar counties, and the San Marcos

River separates Guadalupe and Caldwell counties. Seguin, the county seat and largest

town, is on Interstate Highway 10 and U.S. Highway 90, twenty-five miles southwest of

Austin and eighteen miles northeast of San Antonio.The county's center lies near Seguin

at approximately 29°35' north latitude and 97°57' west longitude.The county covers 713

square miles of flat to rolling terrain with local depressions and escarpments, and its

elevation ranges from 450 to 800 feet above sea level.The northwestern section, near the

border with Comal and Hays counties, is part of the Blackland Prairie; the rest of the

county lies in the Upper Coastal Plain. Soil types vary from dark, calcareous clay in the

northwest to fine,sandy loam in the southeast.Vegetation consists primarily of mesquite,

scrub brush, and grasses in drier areas of the county, while water-tolerant hardwoods

and conifers flourish near creeks. The area has a mild subtropical climate, with tempera-

tures ranging from an average high of 96° in July and an average low of 42° in January.

The annual rainfall in the county averages 33 inches, and the growing season averages

275 days.

The Guadalupe River was developed in the late 1920s and early 1930s as a source of

hydroelectric power. A series of privately owned dams channelled water through gener-

ating plants, providing electricity for the surrounding area. Lakes Dunlap and McQuee-

ney, as well as several smaller lakes, were formed by the dams and have become popular

recreational sites. Oil was discovered by H. H. Weinertqv in eastern Guadalupe County in

the early 1920s (in the Darst Creek oilfield), and although the new industry in no way

rivalled agriculture in its importance to the county's economy, it did provide some diver-

sity. The Luling, Dunlap, Darst, and La Vernia fields were still active in the 1980s. In 1982

wells in the county produced 1,693,730 barrels of crude oil and 976,823 cubic feet of gas.

Although no war supply contracts or facility projects were assigned to Guadalupe

County in the 1940s, the area did take part in the economic prosperity generated by

World War II. Manufacturing establishments in the county more than doubled the

number of their employees between 1940 and 1947. The per capita wage doubled as

well. The county's proximity to San Antonio encouraged many residents to commute. In

agriculture, emphasis continued to shift from cotton to grains and livestock as a part of

the war effort.

HISTORY OF

GUADALUPE COUNTY

RELIANCEOIL & GAS

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In the 1980s as much as 80 percent of the land in Guadalupe County was used

for farming and ranching. Among the primary crops were sorghum, hay, oats,

wheat, and corn; watermelon and peaches were also popular, and the county's

pecan production was sixth in the state. Over 70 percent of the county's agri-

cultural receipts in 1982 came from livestock and livestock products, mainly

cattle, hogs, poultry, and milk. Although agriculture continued to be a impor-

tant aspect of the economy, farm receipts represented only 12 percent of the

county's annual income in 1985. Professional and related services, manufactur-

ing, and wholesale and retail trade involved nearly 60 percent of the work force

in 1982. Mineral resources, including ceramic clay, industrial sand, oil, gas, and

lignite coal, gave residents the opportunity to diversify their interests. In recent

years many people have moved to Guadalupe County from San Antonio,

choosing to live in Guadalupe County and work in Bexar. In 1982 46 percent of

the work force was employed outside the county. Between 1960 and 1980 the

population of Guadalupe County rose nearly 40 percent, from 29,017 to 46,708;

in 1990 the population was 64,873. Local attractions include Lake McQueeney,

touted as the "water ski capitol of Texas" and numerous historic homes and

buildings.

Date Oil (BBL) Casinghead (MCF)

Dunlap Field, Guadalupe CountyAnnual Totals, Jan 1993 - Apr 2007

Guadalupe CountyAnnual Totals, Jan 1993 - Apr 2007

1993 85,101 148,050

1994 68,238 124,205

1995 77,532 126,010

1996 85,769 119,230

1997 95,690 142,049

1998 75,828 125,218

1999 64,978 106,771

2000 68,202 85,650

2001 65,186 76,467

2002 59,688 63,919

2003 52,546 54,763

2004 53,275 52,926

2005 53,850 53,234

2006 50,095 53,642

2007 7,520 7,912

Total 963,498 1,340,046

Date Oil (BBL) Casinghead (MCF)

1993 1,272,241 381,523

1994 1,262,947 347,081

1995 1,374,396 341,289

1996 1,262,138 327,730

1997 1,098,215 318,838

1998 1,326,309 262,916

1999 946,974 194,479

2000 976,074 170,404

2001 992,389 136,095

2002 894,968 106,313

2003 1,003,282 96,191

2004 1,054,514 94,289

2005 1,489,421 89,769

2006 1,416,101 97,968

2007 199,731 13,696

Total 16,569,700 2,978,581

RELIANCEOIL & GAS3

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RELIANCE OIL & GASNelson Lease Prospect

RELIANCE OIL & GASPerfetto Lease Prospect

RELIANCE OIL & GASHammerhead Prospect

Guadalupe County, Texas

Locator Map

Guadalupe CountyGuadalupe County

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LULING

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Dunlap Flat Field Map

Glennwood WarnakeD. Tilley #1IP 47 BOPD



*Based on reports from field personel

This diagram is for illustration purposes only and is not to scale



Dunlap Field Production History

Historically the average well in the Dunlap field has had an IP of 50 BOPD.

Oil Well

Gas Well

Dry Hole

Abandoned Oil Well

Abandoned Gas Well

KEY

IP = Initial Production

BOPD = Barrels of Oil Per Day

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This diagram is for illustration purposes only and is not to scale

Lease Map



RELIANCE OIL & GAS




Oil Well

Gas Well

Dry Hole

Abandoned Oil Well

Abandoned Gas Well

KEY

IP = Initial Production

BOPD = Barrels of Oil Per Day

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Well Log Cross Section Map

1700’

1800’

1900’

2000’

2100’

2200’

2300’

1700’

1600’1600’

1800’

1900’

2000’

2100’

2200’

2300’

2350’2350’

1700’

1800’

1900’

2000’

2100’

2200’

2300’

1700’

1600’1600’

1800’

1900’

2000’

2100’

2200’

2300’

2350’2350’

RELIANCE OIL & GASNelson Lease

Proposed Location Glennwood WarnakeD. Tilley #1IP 47 BOPD



7This diagram is for illustration purposes only and is not to scale



3-D Schematic

RELIANCE OIL & GASProposed Location

This diagram is for illustration purposes only and is not to scale 8

9RELIANCEOIL & GAS

THE ADVANTAGES OFHORIZONTAL DRILLING

Horizontal wells have a higher productivity and pay contact per well than verti-cal wells, thereby reducing the number of wells required to drain the reservoir. Horizontal wells allow operators to take advantage of highly heterogeneous or layered reservoirs, reservoirs with fractures, or water or gas coning problems. Horizontal wells are a controlled, directional completion technique for exploit-ing un-recovered mobile hydrocarbons in existing fields. These reserves usually remain because the reservoir’s heterogeneity has prevented efficient develop-ment using vertical wells. The primary screening tool is recovery efficiency as measured by the percentage recovered of original oil-in-place (OOIP) or original gas-in-place (OGIP). Screening is carried out by reservoir characterization, followed by reservoir stimulation.

The advantages of horizontal wells include higher productivity and a larger drainage area per well. In Texas and Louisiana, horizontal wells in the Austin Chalk have become attractive because of the relatively rapid payout from good initial production rates. The best technique currently available utilizes coiled-tubing drilling, since it minimizes problems. As a result, some drilling costs may ultimately be reduced.

The average estimated ultimate oil and gas recovery of horizontal wells in the Austin Chalk, based on the normalized profiles range from a low of 40,000 BOE per well to 300,000 BOE .

Paul Gerlach, Kansas Geological SurveyUniversity of Kansas Energy Research Center

Horizontal radial jet completion technology can horizontally drill a well bore in a “wheel and spoke like fashion” and penetrate up to 90 feet with each spoke. The technology has the ability to horizontally drill up to eight spokes in one well in only two days, as opposed to a conventionally drilled horizontal well bore going the same distance but taking up to four weeks.

Reliance Oil and Gas, inc. believes by using the new horizontal radial jet completion technology verses conventional vertical drilling to exploit their proven oil reserves on the Hammerhead Prospect they should see a substantial increase in not only the daily oil production but the total recoverable oil in the reservoir as well.

RELIANCE OIL & GASRELIANCE OIL & GAS

1873 N. Magnolia St.Luling, Tx. 78648

Tel: 214-553-1608Fax: 214-553-1609

Toll Free1-866-OIL-WELL {645-9355}1-866-GAS-WELL {427-9355}

Turning OIL & GAS FLOWinto CASH FLOW

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