LETTER TO SHAREHOLDERS

To Our Shareholders

On behalf of the employees of the Basic Earth, I am proud to announce to our invested partners the results of our latest fiscal year (which ended March 31, 2008). It has been a year of ups and downs; a year of patience and organizational change. Our new staff has been tested and tempered in a forge of accounting adversity; and came out all the stronger. All-in-all, it has been a good year, one of which the staff and I are honored to present.

Growth Outlook

First, we have drilled 18 successful wells this year out of 18 attempts; sixteen of these in Colorado’s DJ Basin. This Colorado drilling campaign was the largest, continuous drilling effort in Basic’s history and included the largest deployment of company capital, ever, on a specific project. During the process of placing these wells on production, we rebuilt the old production facilities (which processed gas from 16 existing wells) and were able to completely replace and expand our facilities with upgraded technology. This action required us to shut in all of the sixteen original producers on this property in order to facilitate this upgrade. This caused a drop in year over year production. Going forward, however, the positive results from our new wells, along with the improvements to production facilities, have given us a surge of production during peak summer prices. We expect this new production and associated revenue to more than make up for last year’s down period. We are now working with the operator of this project, Anadarko (Kerr-McGee Oil and Gas, Onshore, L.P.) to finalize the administrative part of this effort, i.e. Communitization Agreements, Operating Agreements and production allocation methodologies. As a result, our revenue and cost estimates for this effort are still subject to review, audit, and adjustment. However, as we finalize both our revenue and reserve estimates, we believe looking back a few years from now, we will identify this venture as having the largest impact on Basic in the last decade.

Certainly one of the hottest exploration plays in the country today is the Bakken formation in central North Dakota. With Conoco Phillips and Continental Resources drilling within a few miles of our acreage, we are in the heart of it! However, we owned our 13,000 gross acres with other partners and many of them were adverse to the risk they perceived. And, those of us who were interested in drilling were not interested in paying the drilling costs of others and giving them a free look. We were at a stalemate.

This last summer we finalized a “farmout agreement” with Panther Energy Company, LLC. (Panther) whereby Panther agreed to drill two “free” horizontal Bakken wells and we, along with our partners, agreed to reduce our interest to a fraction (32.5%) of our original interest of 20% on the lands comprising the two “free” wells. On all subsequent wells, we will have a 6.5% (32.5% of 20%) interest on our original leases. While not a particularly lucrative deal, it broke the stalemate and is allowing the development of these lands to move forward.

As of the writing of this letter, Panther is drilling its first well. This is the good news. Like most new entrants to the Williston Basin, they are facing a difficult learning curve. Our observation is that the “learning” part is especially difficult for them. This seems to be the norm for most companies from outside of the area on their first well. The current benchmark for drilling a horizontal well is 24 days. At the time of this writing, Panther is on Day 62, at $6 million, and has yet to effectively leave the vertical wellbore; much less begin the horizontal portion of the well. While ominous, we are not overly concerned. We are not paying for this one, or the next. We cannot predict Panther’s continued involvement or ours. It is conceivable, though not probable, that Panther would abandon this venture and we would regain our initial ownership. At the other extreme, it is conceivable that we will not elect to participate in Panther’s third well. Until these decision points are reached and the numerous variables involved reveal themselves, Panther’s continued interest or our timing to “jump-in” and participate remains undetermined.

Last year, we had planned to drill on our Flat Lake Prospect in Sheridan County, Montana. It is the first internal generated wildcat exploration well to be conceived by Basic Earth in two decades. As a wildcat exploration well, it is a high risk/high reward venture. Efforts to commence drilling last fall were initially hampered by the Bakken boom in North Dakota and the resulting lack of available drilling rigs. While rig availability still remains scarce, the market for tubular casing is even scarcer. There simply is no pipe in the grades and weights that we require on the spot market. We have purchased casing that is expected to be delivered in late February. However, the slowdown in drilling activity this fall (of 2008), is such that we expect we will have found a source of pipe before the printing of this letter. Rigs are loosening up also and we hope to drill this prospect this winter. We have a permit to drill and the location is built. We can move-in a drilling rig on a moments notice. We remain excited about this prospect and it is a priority of Basic Earth to drill this well as soon as possible.

Fiscal Responsibility

As the stewards of the Company’s resources, we have focused on developing the company within its free cash flow metrics. The last significant pull back in crude prices struck in 1998. Since then Basic Earth has lowered its debt levels from 50% of its reserves, to none today. Unlike others whose model is to continuously dilute existing shareholders with new equity offerings (to fund, in some cases, outrageous administrative expenses), we have structured the company to pay for our expansion projects from the free cash flow generated by production. While some may bemoan our slow pace, our shareholders still have substantially the same “piece” of Basic Earth that they had a decade and a half ago.

'The company has built up a significant cash cushion to help it weather the coming economic conditions. We have zero company debt, and have an available credit line nearly equal to our market cap as of the writing of this letter. We continue to stay unhedged to market prices, as we focus on finding new reserves and producing greater levels of production.

At March 31, 2008, Basic Earth had recoverable reserves of 1.26 million barrels of equivalent oil. At March 31st prices, the present value of the total projected cash flow, discounted at 10%, was estimated to be worth $33.2 million, pre-tax, while the projected cash flow from production for this fiscal year was estimated to be $6.9 million.

Certainly, engineering estimates of future recoverable reserves are just that – estimates; subject to a whole range of assumptions. Some of those assumptions are engineering or experience based; some of them are dictated by the SEC. I am certain that for the average person disclosures of reserves in place, recoverable reserves and standardized measure of oil and gas reserves are confusing. The very nature of reserves is almost as much an art, as a science. Regardless, at today’s prices these previously reported estimates are not only optimistic, they are now obsolete. Yet, even at today’s prices – and this is critical -- we have enough cash and cash flow to fund our own and our partnered projects.

Strategic Opportunism

We believe that current economic conditions and lower commodity prices (if they continue to decline or remain at these levels), will have a considerable, negative impact on our cash flow and that of others within our industry. While all of us will be affected, some companies are in better financial condition to weather this than others. For the last several years, there are those in this industry that pursued projects that were less than lucrative; even at high commodity prices. Deals were made, funded and drilled based on much higher commodity price expectations. Their balance sheets are loaded with recent, historical costs that are ripe for impairment. We expect that some projects already in progress will fall apart due to the lack of financial capacity. Some deals may now be “treading water” or may already be dead.

We believe we will see a number of strategic opportunities within the next six months. We anticipate the opportunity to purchase properties at discounts to levels experienced last year and to make accretive purchases due to our relative corporate strength going into the upcoming economic conditions. We will be looking for situations where we can put our unleveraged and unmargined high cash flow based balance sheet to work expanding Basic Earth’s asset base.

People, People, People

Our people are what make this a great company. Yet, finding and recruiting exceptional people is one of the greater challenges in this industry. Since the beginning of fiscal 2008 (over the last year and a half), we have replaced over 50% of our staff. We have been fortunate to have filled these positions with exceptional talent and to “back-stop” them with some excellent consultants. From implementing Sarbanes-Oxley (SOX) Section 404 compliance testing and functionally replacing our CFO, following his resignation, to the restatement of our financials, our new staff has overcome some huge hurdles this past year and showed “what they were made of.” As a small company, with a strategy of not funding staff with dilutive equity offerings, we are always striving to accomplish more with the limited number of people and skill sets we possess. Regardless, we are always searching for talented people, especially on the exploration and operations side. In the coming year, now that our accounting team is effectively reconstituted, we intend to continue adding exceptional people to our staff; expanding our capacity to skillfully execute in this competitive industry.

In Conclusion

I’d like to thank you for the opportunity to lead our Company. The next few years will be exciting and challenging times. With continued commodity price disruptions driving strategic acquisition opportunities along with a robust drilling program, we are committed to work hard on your behalf in anticipation of not only meeting past results, but reaching the higher goals and results which we seek to achieve. Thank you again for your support!

Ray Singleton,
President