The East Slopes Project

This page updated 06/05/13

The East Slopes Project is located in the southeastern part of the San Joaquin Basin near Bakersfield, California. Daybreak owns a 3-D seismic survey that encompasses 20,000acres over 32 square miles with approximately 13,000 acres under lease in the San Joaquin Valley of California.

During the year ended February 28, 2013, we had production from 11 wells. In the first quarter of the 2013 – 2014 fiscalyear, we have successfully drilled an additional five development wells that are in the process of being put on production. Drilling targets are porous and permeable sandstone reservoirs, which exist at depths of 1,200 feet to 4,500 feet. In addition to the current field development, there are several other exploratory oil prospects that have been identified from seismic data, which we plan to drill in the future.

Producing Properties

Sunday Property

In November 2008, we made our initial oil discovery drilling the Sunday #1 well. The well was put on production in January 2009. Production is from the Vedder sand at approximately 2,000 feet. During 2009, we drilled three development wells, including one horizontal well. The Sunday reservoir is estimated to be approximately 35 acres in size with the potential for at least three more development wells to be drilled in the future. We have a 37.5% working interest with a 26.1% net revenue interest (“NRI”) in the Sunday #1 well. For both the Sunday #2 and Sunday #3 wells, we have a 33.8% working interest with a 24.3% NRI. We also have a 33.8% working interest with a 27.1% net revenue interest in the Sunday #4H well. Two additional wells, the Sunday #5 and Sunday #6, have been drilled on this property during the first quarter of the 2013 – 2014 fiscal year and are in the process of being put on production.

Bear Property

In February 2009, we made our second oil discovery drilling the Bear #1 well, which is approximately one mile northwest of our Sunday discovery. The well was put on production in May 2009. Production is from the Vedder sand at approximately 2,200 feet. In December 2009, we began a development program by drilling and completing the Bear #2 well. In April 2010, we successfully drilled and completed the Bear #3 and the Bear #4 wells. The Bear reservoir is estimated to be approximately 62 acres in size with the potential for at least six more development wells to be drilled in the future. We have a 37.5% working interest with a 26.1% NRI in each of the Bear wells in this property. Effective June 19, 2012, the royalty owner agreed to a reduced royalty interest on future wells for this property to encourage more drilling. Our new NRI for the next four wells drilled on this property will increase to 31.3%. Two additional wells, the Bear #5 and Bear #6, have been drilled on this property during the first quarter of the current fiscal year and have been put on production and are in the process of being tested. We expect to drill at least four more development wells on this property during the 2013 – 2014 fiscal year.

Black Property

Our third oil discovery, which was on the Black property, was acquired through a farm-in arrangement with a local operator. The Black property is just south of the Bear property on the same fault system. The Black #1 well was completed and put on production in January 2010. Production is from the Vedder sand at 2,150 feet. The Black reservoir is estimated to be approximately 13 acres in size with the potential for up to two more development wells. We have a 33.8% working interest with a 26.8% NRI in this property. One additional well, the Black #2, has been drilled on this property during the first quarter of the 2013 – 2014 fiscal year and is in the process of being put on production.

Sunday Central Processing and Storage Facility

The oil produced from our acreage is considered heavy oil. The oil ranges from 14° to 16° API (American Petroleum Institute) gravity. All of our oil from the Sunday, Bear and Black properties is processed, stored and sold from the Sunday Central Processing and Storage Facility. The oil must be heated to separate and remove water to prepare it to be sold. We constructed these facilities during the summer and fall of 2009 and at the same time established electrical service for our field by constructing three miles of power lines.

Ball Property

The Ball #1-11 well was put on production in late October 2010. Our 3-D seismic data indicates a reservoir approximately 38 acres in size. Oil production from the Ball #1-11 well is being processed at the Dyer Creek production facility. In January 2012, we farmed out to a third party, 50% of our working interest covering the Ball and Dyer Creek Fields. In return, the third party will pay Daybreak’s share of the completed well cost on the next Ball well to be drilled. We have a 37.5% working interest with a 31.2% NRI in the Ball #1-11 well. For other wells on the Ball property, excluding the Ball #1-11, we will have an 18.8% working interest with a 15.6% net revenue interest in this property. We expect to drill at least two additional development wells on this property during the 2013 – 2014 fiscal year.

Dyer Creek Property

The Dyer Creek #67X-11 (“DC67X”) well was also put on production in late October 2010. This oil well is producing from the Vedder sand and is located to the north of the Bear property on the same trapping fault. The Dyer Creek property has the potential for at least one development well in the future. Production from the DC67X well is also being processed at the Dyer Creek production facility. We have a 37.5% working interest with a 31.2% NRI in the DC67X well. For other wells on the Dyer Creek property, excluding the DC67X, we will have an 18.8% working interest with a 15.6% NRI.

Dyer Creek Processing and Storage Facility

The Dyer Creek Processing and Storage Facility serves the Ball and Dyer Creek properties and includes previously abandoned infrastructure that we have refurbished. The oil produced into this facility has a similar API gravity to the oil at the Sunday production facility and the oil must also be heated to separate and remove water in preparation for sale.

Centralized Oil Processing and Storage Facilities

By utilizing the Sunday and Dyer Creek centralized production facilities our average operating costs have been reduced from over $40 per barrel to under $14 per barrel of oil for the year ended February 28, 2013, partially due to certain credits that we received. Without these credits, our average operating costs were approximately $17 per barrel for the year ended February 28, 2013. With these centralized facilities and having permanent electrical power available, we are ensuring that our operating expenses are kept to a minimum.

Exploration Properties

Bull Run Prospect

This prospect is located in the southern portion of our acreage position. The drilling targets are the Etchegoin and Santa Margarita sands located between 800 and 1,200 feet deep. We drilled an exploratory well on this prospect in December 2011 that was determined to be not viable for commercial production and the well was plugged and abandoned. Utilizing the data received from the first Bull Run well, we expect to drill another exploratory well on this prospect after receiving the necessary regulatory approvals. We estimate this prospect is 70 acres in size with a gross recoverable reserve potential of 873,000 barrels of oil. The Bull Run wells will require a pilot steam flood and additional production facilities. We have a 37.5% working interest in this prospect.

Glide-Kendall Prospect

This prospect is also located in the southern portion of our acreage position. The drilling targets are the Olcese and Eocene sands between 1,000 and 2,000 feet deep. We estimate the Glide Kendall prospect is 200 acres in size with a gross recoverable reserve potential of 1.8 million barrels of oil. We plan to drill an exploratory well on this prospect during the 2013 – 2014 fiscal year. We have a 37.5% working interest in this prospect.

Sherman Prospect

This prospect is located in the southern portion of our acreage position. The drilling targets are the Olcese and Etchegoin sands between 1,000 and 2,000 feet deep. We estimate the Sherman prospect is 100 acres in size with a gross recoverable reserve potential of 300,000 barrels of oil. We plan to drill an exploratory well on this prospect during the 2014 – 2015 fiscal year. We have a 37.5% working interest in this prospect.

Tobias Prospect

This prospect is located in the central portion of our acreage position. The drilling targets are the Vedder and Eocene sands between 2,500 and 4,500 feet deep. We estimate the Tobias prospect is 60 acres in size with a gross recoverable reserve potential of 700,000 barrels of oil. We plan to drill an exploratory well on this prospect during the 2014 – 2015 fiscal year. We have a 37.5% working interest in this prospect.

Forward-Looking Statements: This Web site contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, expectations, beliefs, plans and objectives regarding production and exploration activities. Any matters that are not historical facts are forward-looking and, accordingly, involve estimates, assumptions, risks and uncertainties. Such forward-looking statements include, but are not limited to, statements about our expectations regarding our future operating results, our future capital expenditures, our expansion and growth of operations and our future investments in and acquisitions of oil and natural gas properties. We have based these forward-looking statements on assumptions and analyses made in light of our experience and our perception of historical trends, current conditions, and expected future developments. However, you should be aware that these forward-looking statements are only our predictions and we cannot guarantee any such outcomes. Future events and actual results may differ materially from the results set forth in or implied in the forward-looking statements. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in the forward-looking statements. Such factors that may affect future results are contained in our filings with the Securities and Exchange Commission (“SEC”) and are available at the SEC’s web site http://www.sec.gov. We assume no duty to publicly update or revise these forward-looking statements as of any future date.

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