JOINT VENTURE WITH GEOMET, INC.

Joint Venture with GeoMet Inc. includes coal-bed methane (CBM) or Gething Formation rights on the Company’s Peace River Project.

Canada Energy is developing the Peace River CBM Project with Hudson's Hope Gas Ltd., a subsidiary of GeoMet Inc. (NASDAQ: GMET). The Peace River CBM Project covers approximately 50,188 gross (25,094 net) acres near Hudson’s Hope, British Columbia. The 2008 Development Program includes the drilling and completion of five (5) new production wells, the connection of three (3) existing wells, construction and installation of gas treating and compression facilities, a pipeline and connection to Spectra's (formerly Duke Energy's) transcontinental pipeline, and the initiation of natural gas production from eight (8) wells. The Peace River CBM Project is planned to be in commercial production later this year. The Company’s 50% share of the Peace River CBM Project’s estimated $20 million 2008 development budget is $10 million.

Hudson’s Hope Gas completed the drilling and stimulation of five (5) new production wells in the third calendar quarter of 2008. The Operator has completed the installation of the high pressure pipeline to the Spectra connection, construction of roads and the gas plant site, and the installation of all gathering lines to the eight wells to be put on production this year.

Advanced Resources International, Inc., a Houston, Texas, reservoir engineering consulting firm was engaged by the Operator and performed reservoir simulations on several of the test wells. The simulations on the wells with the best stimulation technique, based on 160-acre spacing, predicted peak production rates 3-7 years after initial production of 360-685 MCF/d, with an average predicted peak rate of 482 MCF/d and an average net methane recovery of 2.83 BCF per well. The reservoir simulations predicted up to 40 years of productive life. The average projected recovery for these simulated wells, assuming the projected recoveries were attained, would be approximately 8 times the average recovery of a Horseshoe Canyon CBM well and 2-4 times the average recovery of a Manville horizontal CBM well on a per section basis. (Comparison derived from Sproule Research Report "Evolution of CBM Resources to Reserves and Commerciality in Alberta" April 17, 2007).

Netherland Sewell & Associates, Inc. ("Netherland") and Sproule Associates Limited ("Sproule"), as reported in the Company's July 16, 2007 news release, both utilized all the test data in their Resource Reports. Netherland's possible and contingent resources, if realized, would yield an average net methane recovery of 1.72 BCF per well, on 160 acres spacing, over the whole Project. The Peace River CBM Project now has 315 potential well locations based upon 160 acre spacing.

Reservoir simulations are forward-looking estimates of future production based upon the industry's accumulated knowledge of the production histories and characteristics of existing coalbed methane fields and the application of that historical knowledge together with geological and engineering principles by computer analogue to emerging coalbed methane fields. There is no assurance that the predicted production profile will be realized due to the unique characteristics of each coalbed methane basin.

Summary of Peace River CBM Project:

Gross 2.3 TCF of “gas-in-place” (June 2007 Sproule Report)
Gross 550 BCF Possible + Contingent (June 2007 Netherland Sewell Report)
177 BCF (net to CE) Possible + Contingent net of CO2, royalties and fuel costs (Netherland Sewell Report)
$308 million (net to CE) PV10 Possible + Contingent (June 2007 Netherland Sewell Report based on $8.00/Mcf gas, 256 wells on acreage held at time of Report)

	Sproule Report Sept 2006^2,3,4	Sproule Report April 2007^2,3,4	Netherland Report Sept 2007^1,3
Possible Reserves (Bcf)	-	-	32.2
Contingent Resources* (Bcf)	-	10.5	145.6
Possible + Contingent (Bcf)	-	10.5	177.8
Discovered Resourced (Bcf)	8502	1,156.5²	536¹

Gross Licensed Lands (acres)	18,350	22,234	22,234
PV10 Possible Reserves ($mm)			$50.5
PV10 Contingent Resources* ($mm)			$257.6
PV10 Possible + Contingent ($mm)			$308.1

1. Coal only; raw gas including carbon dioxide. Netherland did not evaluate the shales
2. Sproule evaluated and attributed Discovered Resource for the coal, dirty coal, coaly shale and shales
3. Deep Rights were not evaluated
4. Both Sproule reports exclude carbon dioxide
* Amounts representing Contingent Resources are the 'best' mid-range estimated contained in the Reports compared to the low or high estimates