The year 2007 was marked by the achievement of major milestones and significant progress towards our vision of becoming the leading in situ and mining producer of oil in onshore Madagascar.

During the first quarter of 2007, we moved headquarters from London to Houston, where we have been able to attract a strong and highly experienced team.   In March, we closed an $85 million credit facility with Credit Suisse, which has given us the financial resources to continue appraising our significant oil discoveries and performing additional exploration work.    

The Tsimiroro project achieved first oil from cold production in early 4^th quarter, and all steam injection equipment has now been commissioned to start injection during the first quarter of 2008.  Four wells were drilled and completed for that purpose. 

In addition, exploration and delineation coring activities continued in the Tsimiroro block to further define the area’s potential.  A total of seven fully saturated delineation core holes were drilled at step-out locations in the main Tsimiroro pilot area.   Four adjacent prospects also were cored. These activities will help us better understand the structural and reservoir configuration of the discovered opportunity, as well as the exploration potential of the Tsimiroro block. 

We also completed a regional study of the basins contained within our blocks, which points to significant potential for conventional hydrocarbons.

In the Bemolanga deposit coring operations have continued and have further confirmed and defined contingent resources.  To date, we have drilled a total of 15 cores in different areas of Bemolanga, and are undertaking two studies in Canada to assess different aspects of bitumen extraction under water-based and retort processes.  We expect to drill a total of 45 additional cores during 2008, with a program that will start in May, after the rains subside. 

Additionally, significant technical and engineering studies were performed during 2007.  Norwest Corporation from Canada performed an assessment of oil in place and recoverable resources at Bemolanga based on water-based extraction process.  In addition to this study, Norwest undertook a full-cycle cost study, providing initial estimates of capital and operating costs for the development of a 120,000 barrels per day mine operation.  Further technical studies and core analysis are currently being performed in Canada. 

We also hired Kellogg Brown and Root to assess export infrastructure and upgrading options for the Bemolanga bitumen.  A set of different alternatives to produce dilbit (bitumen and diluent blend) and three qualities of synthetic crude were identified.  Capital and operating costs for the facilities, as well as the necessary infrastructure were estimated as part of the study.  Purvin and Gertz was contracted to provide an assessment of optimum marketing alternatives for both the Bemolanga and Tsimiroro crudes and synthetic oil.

As a whole, the engineering and marketing studies presented a highly encouraging picture to further develop our resources in Madagascar.

On the corporate side, we were able to attract two industry leaders in the Canadian Oil Sands to the Board of Directors.  Robert (Bob) Rooney, who serves on numerous boards including as Chairman of Engineered Drilling Solutions was named as Non-Executive Chairman of the Company in June of 2007.  We are also pleased that Brian Lemke, Chairman of Laricina Energy and Cordero Energy also joined the Board.

Sadly, the year was marked by the untimely and sudden death of our colleague, COO George Nilsen.  George was instrumental in getting the company positioned for success. He will be missed.

As we look forward, we have many challenges ahead of us. But I remain confident that with our team, our assets, and our board, we will continue making progress toward our vision for Madagascar Oil.

Alex Archila
Chief Executive Officer
Madagascar Oil Ltd.