Stonefire’s operating strategy is based on controlling each element of the exploration and production cycle in order to maximize success rates, control costs and maximize operating netbacks. Stonefire operates all three of its current properties, where it had an average working interest of 68 percent as of year-end 2007. Stonefire has operated all wells it drilled in 2007. It also owns and operates the newly constructed 10-28 Gas Plant near Edson.

Going forward Stonefire intends to operate 100 percent of its capital spending projects and continue seeking opportunities to control facilities and processing. The Company relies on strong in-house operational experience to control costs and extract maximum value from its assets.

Despite price weakness in most of 2007, Stonefire foresees the supply-and-demand dynamic in North America driving higher natural gas prices. Natural gas is the lowest-carbon fossil fuel at a time when curbing greenhouse gas emissions is top-of-mind for many government and industry leaders. Security of supply is also a major driver for increasing consumption of natural gas in North America. The vast majority of natural gas consumed in North America is produced in Canada and the United States with imports of gas in the form of liquefied natural gas (LNG) being relatively small.

Stonefire expects natural gas to become the fuel of choice for heating homes, generating electricity and increasingly for transportation in Canada and the U.S., while Canadian deliverability is expected to fall off significantly over the course of 2008 due to a lack of natural gas drilling. Although U.S. natural gas drilling remains strong in Q1 2008, U.S. basins are maturing and production declines are becoming steeper. The increased U.S. production expected in 2008 is unlikely to offset lower Canadian production, leading to an expected sharp rise in natural gas prices.

In addition, worldwide demand for liquefied natural gas (LNG) is expected to remain strong throughout 2008, leading to reduced LNG landings in North America. As of January 2008, North American natural gas storage withdrawals are outpacing withdrawals of the previous two winters, which many consider a leading indicator of stronger pricing. As of January 2008, the Nymex forward strip was up over the same time last year.

Stonefire’s 100 percent owned and operated Edson 10-28 Gas Plant is an example of Stonefire’s strategy to maintain control of its gas gathering and processing infrastructure in action. The facility was commissioned in September 2007, with an initial natural gas processing design capacity of 5.5 mmcf per day. The gas plant allows Stonefire to control the timing of development of its land base and, importantly, to tie-in wells and get production on-stream quickly in a region known for processing capacity constraints. This will also help to ensure timely cash flow and enable Stonefire to commence follow-up development activities.

Controlling its own natural gas processing is also expected to lower Stonefire’s operating costs by up to 50 percent per unit of production compared to third-party processing, and to maximize natural gas liquids recovery. Additional natural gas liquids recovery has the potential to generate higher netbacks.