executive chairmans letter 17/03

http://www.asx.com.au/asxpdf/20100316/pdf/31p9gspmv0tpvw.pdf

16 March 2010

EXECUTIVE CHAIRMAN REVIEW OF OPERATIONS

The 2009 year has been a significant year for Imperial Corporation (Imperial or the Company), in terms of its development into the oil and gas industry.

Through the Companys subsidiary Empire Energy USA, LLC (Empire Energy), a significant amount of time and resources were devoted towards identifying and completing a company forming acquisition, culminating in the successful acquisition of a substantial group of slow decline, long life natural gas wells and reserves in New York and Pennsylvania, USA. The US$38 million transaction was completed on 24 December 2009, with an effective date of 1 December 2009.

As a component of the transaction the Company injected US$4 million in equity into Empire Energy and increased its shareholding to approximately 90% (prior to dilution of around 9% of warrants held by Macquarie Bank). For the first time Empire Energy will be consolidated in the accounts of the Company as at 31 December 2009.

The acquisition saw 3P Net Reserves increase from 17 Bcfe to 89 Bcfe and with prices as at 1 January 2010, the PV10 increased by 440% to US$100 million. Daily production increased by 650%, from around 1,000 Mcfepd to a forecast 6,500 Mcfepd. With no additional development drilling over 2010, and no significant decline in gas prices, Empire Energy is expected to generate a field EBITDDA of around US$8.0+ million. Approximately 75% of 2010 production has been hedged at an average price of US$6.32/Mcf.

The short term focus of the Company is to ensure the smooth integration of the recently purchased assets into existing operations. As the acquisition was large in relation to existing operations, increasing from around 150 operating wells to 1,950 operating wells and 5 pumpers and field services employees to over 30, new accounting and production management systems, geological and engineering, land management and occupation health and safety programs were developed and implemented.

Other than for the geological and engineering programs, which will be ongoing, all other systems are expected to be completed by the end of March 2010.

In total, Empire Energy has over 313,000 acres of land under lease, mostly in New York State. This acreage is likely to offer a number of multi-level gas plays that can be divided into several major target areas, including Marcellus and Utica Shales (~180,000+acres each), Theresa (~30,000+), Trenton Black River (~80,000+) , Medina (~172,000+), and Queenston (~80,000+). The Utica Shale is a very large shale basin mainly being explored in Canada. Results have been promising from the few wells drilled.

A number of additional Utica exploratory wells are due to be drilled by third parties in both Canada and New York Sate this summer.

At the same time, the directors of Empire Energy are seeking to rationalise acreage held, with the major objective of raising capital to repay the Bridging Loan of US$10 million used to purchase the above described assets. With strong demand being shown towards Marcellus Shale acreage, especially in Pennsylvania, there may be an opportunity for Empire Energy to dispose of a small tract of Marcellus acreage in the near term.

Once the recent acquisition has been consolidated, Empire Energy will seek additional acquisition opportunities, which will be either bolt on assets to the existing two operations at Mayville, New York and Hawthorne, Pennsylvania, or will be to increase Empire Energys exposure in the oil sector, either in the Appalachian Basin or elsewhere in North America. As with current operations, any future acquisition will be under the operation of Empire Energy.

The Companys direct joint venture interest in an oil well rehabilitation research and development program in the Big Sinking Oilfield, Kentucky has commenced with the rehabilitation of one well utilising new high pressure lateral drilling techniques. Results are not yet known.

The Company has, in a short period, created a substantial base from which it can grow in the oil and gas industry. The Companys development can be summarised:

 2005 entered into joint venture to develop 20 shallow natural gas wells in Pennsylvania;

 2006 formed Empire Energy, which lead to:

o 2007 acquired (US$9.4 million) now with around 17 Net Bcfe gas and 150 shallow long life, natural gas wells in central western Pennsylvania;

o 2008/09 drilled 18 wells in central western Pennsylvania and undertook detailed structural mapping leading to more successful wells (in terms of flow rates and estimated reserves);

o 2009 acquired (US$38 million) around 72 Net Bcfe gas and 1,800 shallow long life, natural gas wells in north western Pennsylvania and western New York ;

 2010 entered in joint venture to undertake rehabilitation program of oil and gas wells in Big Sinking Oilfield, Kentucky.

With Empire Energy still retaining a substantial portion of its US$100 million Macquarie Bank credit facility, a further similar sized acquisition will develop the company into a medium sized energy producer by Australian Standards.

At some time in the future stage the Company will seek to resurrect its NYSE Pink Sheets listing or alternatively seek joint listing elsewhere to ensure access to necessary capital that is more conversant with the North American oil and gas industry.


Bruce McLeod

Executive Chairman
Imperial Corporation Limited