significantly increases california position, page-3

re: significantly increases california position/fu Suite B 150 Hay Street Subiaco Western Australia 6008 Australia
T +61 8 9388 8431 F +61 8 9388 8450 ABN 22 009 171 046
1 November 2005
Companies Announcement Office
Australian Stock Exchange Limited
20 Bond Street
SYDNEY NSW 2000
By E-Lodgement
NUENCO SIGNIFICANTLY EXPANDS IT’S CALIFORNIAN POSITION
• Increases working interest in the South East Lost Hills project to 50%
• Increases acreage position around the Lost Hills field by more than 50%
• Farms in with Ivanhoe Energy
• Secures $4.88 million in funding from significant hydrocarbon fund
• Adds experienced oil and gas field development engineer to the Board
Nuenco (ASX: NEO) is pleased to announce that it has substantially strengthened it’s position in the lucrative Californian oil and gas market. Under this initiative in conjunction with its partner Orchard Petroleum (OPL), Nuenco has increased it’s working interest to 50% in the gas development at Jack Hamar as well as a significantly enlarging its acreage position around the major Lost Hills Oil and Gas Field.
Nuenco also announces that it has secured the funding for this acquisition and its program going forward through a $4.88 million convertible note financing with Aton Select Fund Limited – a European Investment group with significant exposure to the hydrocarbon sector. This comes in conjunction with the appointment of Mr Greg Lee – a highly experienced engineer with 27 years experience in oil and gas development, engineering and drilling operations - to the Nuenco Board.
HIGHLIGHTS:
• This transaction adds material upside to the Nuenco Californian portfolio as it can now leverage off its 100% drilling success rate into an adjoining and significantly expanded acreage position chasing similar exploration play types.
• Nuenco will now have a 50% working interest in the gas development at Southeast Lost Hills covering over 5,000 acres under lease from Aera. This includes the Jack Hamar 1-13, 2-13, 3-13, 2-1, and 1-12 wells where OPL will take over as operator of the project. This increased interest in the shallow rights was acquired from Nahabedian Exploration Group, LLC (NEG) by both Nuenco and OPL in equal shares.
• Nuenco and OPL will also acquire an additional 1,280 acres of “new acreage” adjoining the current lease position to the Northwest and East of the Aera lease as part of acquiring NEG’s position in the area.
• An agreement with Ivanhoe Energy to farm-in to more than 2,200 acres to the immediate north and east of our current acreage position and where similar play types to the Jack Hamar discoveries have been identified. This farmin agreement calls for the drilling of wells on a promoted basis to earn a 25% working interest position in the new acreage.
• The acquisition from Orchard of a 15% working interest in the shallow rights to a new prospect to the east of South East Lost Hills called South Buttonwillow and the option of a 15% working interest in the deep rights where a possible Stevens Sands play has been mapped but never drilled.
• Nuenco will pay the following consideration for the above acquisitions:
o US$1.6m in cash in 2 payments (one made, one 18 November 2005);
o 10,000,000 ordinary fully paid shares to Nahabedian Exploration Group, LLC (or assigns);
o a production royalty starting after Orchard and Nuenco have received gross revenues of US$30 million attributable to the 25% interest in the joint venture acquired from NEG. The production royalty will then be 2.3% of the gross value of production attributable to NEG’s former 25% interest; and
o a 2% overriding royalty on the new acreage acquired from NEG.
Comments
This is an important acquisition for Nuenco as acquiring interests in oil and gas exploration properties in the USA and California has become very competitive. The ability to increase its exposure in its current development project, as well as significantly expand its acreage position in its core area of focus represents an exciting opportunity. The Board believes the price paid is low considering the proven geological basin, existing well success rate and the prospectivity of the area.
Orchard will assume the Operating role in the Jack Hamar gas development project which will result in a slight delay due to the hand over from NEG. Nuenco believes Orchard will be in a better position to maximise the project’s value due to its financial capabilities and recent operating experience in the immediate area. Orchard will bring its experienced operating team (who are having good success at South Belridge) into the development of both the deep Monterey oil and shallow gas potential at Southeast Lost Hills.
The additional acreage at Southeast Lost Hills provides several new opportunities closer to the large Lost Hills oil field that both Orchard and Nuenco believe will enhance the overall project’s results. Nuenco will add numerous exploration drilling opportunities to its portfolio and in a new joint venture with two larger companies in Ivanhoe Energy and Orchard Petroleum and the $4.88 million convertible loan facility will allow NEO to complete the acquisition and further develop its business.
Southeast Lost Hills
In more detail the acquisition above results in:
- Nuenco holding rights, title and interest to 50% of the leasehold interest in Aera Block A lease covering 2,650 acres to the top of the Monterey Formation (including the San Joaquin, Etchegoin and Reef Ridge Formations).where the current deep rights agreement takes over.
- Nuenco holding rights title and interest to 50% of the leasehold interest in Aera Block B covering 2,650 acres from the surface to the stratigraphic equivalent of the base of the Calitroleum Sand.
- Nuenco holding rights title and interest to 50% of the leasehold interest in lands leased from the Federal Government by NEG covering approximately 1280 acres from the surface to the top of the Monterey Formation.
- Nuenco holding rights title and interest to 50% of the leasehold interest in a lease called Theta covering 480 acres from the surface to the stratigraphic equivalent of the base of the Monterey Formation.
- Nuenco having the right to earn a 25% working interest in Ivanhoe acreage covering approximately 2,200 acres. The agreement calls for Nuenco to participate in the drilling of three wells in order to earn a 25% working interest across the various lease blocks to various depths in the Etchegoin Formation as well as the Monterey Formation in at least one section (the other partners being OPL 25% and Ivanhoe 50%).
Most importantly Nuenco interests will increase to 50% in the 5 shallow gas wells drilled to date (Jack Hamar 1-13, 2-13, 3-13, 2-1 and 1-12) and all equipment purchased plus NEG’s position in the gas sales pipeline.
Orchard is to be operator of the identified areas and continues to be operator of the deep Monterey rights in lease Block A.
South Buttonwillow
This acreage located southeast of the Lost Hills field is interesting being in an area where there has been some success with shallow gas development and where deeper oil potential in possible Stevens Sands has been mapped but not yet drilled.
Nuenco has acquired a 15% working interest in this new prospect for the shallow prospects and an option to participate at a 15% working level in the deeper Stevens potential. This acquisition reduces OPL’s working interest in this acreage to 35%. .
Additional acreage is currently being evaluated to go along with the positions acquired to date.
Convertible Note Financing
As noted above, the Company has secured a $4.88m convertible note financing facility with Aton Select Fund Limited, a European investment group with significant exposure to the hydrocarbon sector. The convertible note facility is subject to shareholder approval with full details set out in the Company’s Notice of Annual General Meeting which is being despatched to shareholders. The main terms of the convertible note are as follows:
a) The funding is as follows with draw down triggers varied by mutual agreement:
i. $1,300,000 upon signing of the purchase agreement to acquire the 12.5% interest in the Project;
ii. $1,200,000 upon attainment of revenue production in excess of 2 million cubic feet of gas per day by the Project; and
iii. $2,380,000 upon attainment of revenue production in excess of 4 million cubic feet of gas per day by the Project.
b) 12 month term and 10% interest rate payable quarterly in arrears.
c) The conversion price for each Convertible Note will be the lower of $0.038 or 80% of the average market price of the Shares over the last 5 days on ASX. One free attaching Option ($0.06, 31 December2007) will be issued for each Share that is issued as a result of conversion.
d) If Shareholder approval is not obtained by 31 December 2005 for the conversion of the Convertible Notes into Shares, the outstanding amounts at that time will be repayable by the Company within 60 days; and
e) The loan will be secured against the Company’s 12.5% interest in the Project.
New Director
The Company is also pleased to announce the appointment of Mr Greg Lee to the Board. Mr Lee is a highly experienced petroleum engineer with 27 years experience in oil and gas field development and management, petroleum/production engineering and drilling operations. Mr Lee became a chartered professional engineer in 1987 and is a member of the Institute of Engineers (Australia) and a member of the Society of Petroleum Engineers.
He has been an independent consultant petroleum engineer to major oil and gas companies since July 1991. Major clients include Chevron, Apache Energy, WAPET (JV between Chevron, Texaco, Shell and Ampol), Empire Oil and Gas, Western Mining Corporation (Petroleum Division), Western Resources NL (Indonesia), Horizon Mining, Phoenix Energy, Oilserv Australia and Amadeus Petroleum.
Mr Lee was manager and then managing director of AIM listed Regal Petroleum Plc from late 2001 till early 2003 and had active participation in the fund raising and subsequent listing of another AIM listed oil and gas company.
Current Working interest positions across South East Lost Hills:
New Acreage
OP Inc (Operator) 50%
Nuenco NL 50%
Ivanhoe Farm-in Acreage (after promote)
OP Inc 25%
Nuenco NL 25%
Ivanhoe 50%
Shallow Rights Area Block A & B
OP Inc (Operator) 37.5% to 50.0%
Nuenco NL 37.5% to 50.0%
Nahabedian Exploration Group 25.0% to 0%
Deep Rights Area Block A (unchanged)
OP Inc (Operator) 62.5%
Nuenco NL 37.5%
Deep Rights Area Block B (unchanged)
OP Inc 37.5%
Nuenco NL 37.5%
Nahabedian Exploration Group 25.0%
Yours faithfully
ANTHONY KAIN
Managing Director
Please address any queries you have to Nuenco on +61 (0)8 9388 8431 and they will address these to Anthony Kain so he may either contact you or come back with his comments. Further, please go to www.nuenco.com for materials on our activities and recent investor presentations.