USA

In 2006, we incorporated a wholly owned subsidiary, Caithness Oil & Gas Inc., in Delaware, USA to drill and develop low risk acreage in the USA. The company is headquartered in Oklahoma City, Oklahoma and operates through a branch in Texas. It holds acreage in the oil window of the Barnett shale play in the Fort Worth basin of North Texas.

The Barnett shale contains substantial quantities of gas and oil, however it is impermeable. Recent technical breakthroughs in completion technology mean that wells drilled with up to 5,000 foot horizontal sections can now produce significant volumes of gas. In the northern part of the basin wells produce oil and condensate as well as gas. The shale is essentially continuous over large areas and the drilling success rate is very high.

In 2008 we formed a joint venture with a US operating partner which we bought out in 2010. Caithness now operates. We pooled our acreage with an adjoining operator and are now consolidating our acreage. We own approximately 85% interest in approximately 3,400 acres in the O’Neall area.

In 2008 we drilled a vertical well, O’Neall#1, which confirmed the existence of 250 feet of Barnett shale. A horizontal drilling programme in the same area began in the 2nd Quarter 2011 and an intensive drilling campaign is planned to develop these leases and establish significant oil and gas production.