Page 9 - PennProject

RISK FACTORS

Oil and gas exploration and development activities are inherently dangerous and involve
significant risks of losses and liabilities to third parties. In addition to encountering these risks,
purchasers will encounter other significant risks peculiar to ownership of Units. Investment in
Units are suitable only for those persons who fully understand and can afford to bear such risks
and who have no need for liquidity from such investments, i.e. accredited investors. Prospective
Purchasers are urged to analyze the risk factors discussed below as well as other risks factors
attendant to investments in Units and to consult with their own legal, tax and financial advisors
concerning these matters prior to purchasing units. You are also encouraged to ask questions of
the Operator.

There is no assurance that the proposed activities herein will be successful or even if they are that
it will be in sufficient quantities to enable purchasers to recoup a part or all of their investments.

Drilling or developing activities may be curtailed or delayed as a result of delivery delays, weather
and shortages of drilling rigs, equipment, materials and supplies. There is no assurance that delays
or shortages will not be encountered in the program.

Prospective Purchasers must recognize that the Units have neither been, nor will they be, registered
under the securities act of 1933, as amended, or any states’ securities laws. Therefore, no
regulatory authority has reviewed the terms of this offering and thus purchasers do not necessarily
have any of the protection afforded by applicable federal and state securities laws.

There is no market for the Units and none is likely to develop; accordingly no Purchaser should
expect to be able to readily liquidate his/her investment in case of emergency.

The Operator expects to own and acquire other oil, gas and mineral prospect and interests therein
and contemplates developing these interests for its own account and/or jointly with others.
Purchasers will acquire no interest in these prospects or tracts or any minerals other than those
found in the prospect by virtue of purchasing Units offered hereby. The Operator will devote only
so much of its time to the activities of the program as in its judgment is reasonably required.

It should be noted by Prospective Purchasers that significant risks exist that could prevent an oil
and gas operator from successfully completing a particular well even though test results would
unquestionably compel a prudent operator to attempt to complete such well. The physical acts of
completing and equipping a well for the production of hydrocarbons, and the treatment and
stimulation of subsurface geologic formations are complex, and often require techniques at the
frontiers of applicable science and technology. The mere fact that the Operator may call for a
completion attempt after analyzing the results of drilling and testing the program well should not
be construed as a representation that the well will be a commercial success.

There is no guarantee the prices received for any oil or gas in the future or at the time of
completion will render the well(s) commercial. Furthermore, there is no guarantee the state or
federal government will not institute further price controls or regulations on the wells.