analysis of last announcement

I think that the announcement should be dissected into the bullet points and a comment be made on each:

First one – swabbing complete over the 2 metres tested of the total 55 metres in the Muribeca formation carbonates. Swabbing indicates 60 barrels per day but pump testing likely to increase this. Oil produced contained some gas and drilling fluid:

• ( percentage increase at this stage unknown but 330 going from 60 -100 to 135 barrels per day, an increase of 35 to 125% at this stage on 330, maybe better on 430, explain more later ). Others suggesting that (Purd2) we could get up to 3 times this flow rate just from this one interval. I don’t want to speculate, but we could be looking at between 130 and 200 barrels per day just from this interval.

Second bullet point – Oil is cut with drilling fluid rather than water from the formation:

• The fact that the company states that no water was produced in the swabbing would suggest that this interval of 55 metres is mostly oil. What are the implications of this statement? From the research that I have done on the internet, this has implications when calculating the field size, mostly oil, hardly any water in the reservoir. Another implication is on the production side. I think that you produce more oil and when the above ground production facilities are taken into account, you end up spending less on the processing because there is less water to separate in the process. Massive upside here because we may no longer be looking at 5.7 million barrels of recoverable oil.

Third bullet point – 3 metre section of the 39 metre interval is being prepared for deep acid fracture and swabbing:

• They are most likely testing 3 metres of that 4 metre section with 20 % porosity. ( Page 14 of the August Presentation ) Bodes well for good flow rates. This section holds the most potential in flow rates based on the analysis of the oil logs.

• They are “deep acid fracturing” this section as opposed to the “acid fracturing” they did on the Muribeca formation. That is an interesting statement when you refer back to the announcement on 20th August.

• In this announcement they stated that there were no hydrocarbons in the swabbing of the basement interval and they believe that the “deep acid fracturing” was not the way to go in the basement. They are letting the formation rest and return to it’s original condition before re-testing this section. Then they go on to say that they are “acid fracturing” the lower carbonate section in the Muribeca formation as opposed to “deep acid fracturing” the interval. So they think they got the testing wrong and are trying a less aggressive method of testing the lower carbonates. We got 60 barrels per day from the swab test.

• Now in the latest announcement the company states that they are “deep acid fracturing” the upper carbonate interval in the Riachuelo formation. What has changed? In my opinion they have not optimally testing either the basement ( deep acid testing as opposed to just acid testing, or the lower carbonates section in the Muribeca formation ( acid fracturing as opposed to “deep acid fracturing” ). So now we are deep acid fracturing the upper carbonates.

• In my opinion we are going to get the true flow rate from the last interval being tested. Then the company will return to the basement, test this using a less aggressive acid fracturing method and get the oil to flow. I think they will then go back to the Muribeca formation carbonates ( second interval ) and retest this aggressively to get the flow rate up ( how much I don’t know ). They have finally worked out how to test this well to get the optimal result.

So to go on about that but I think this is very important. I don’t think the market understands the implications of what has been announced and what will become very evident over the coming weeks.

Last bullet point – directors are pleased with the result because of the implications on

• Further enhances likelihood of production from the upper zone being tested this week.

• Gavea already anticipates “production” from multiple zones.

• Well was drilled on the flank of the structure.
• Current result in only the second interval allows meaningful resource estimates and field development plans and;

• Greatly enhances prospectivity of the second well being drilled in this block.

I need to break these down also:

First bullet point: - further likelihood of production from upper interval:

• As state above, they now think that they have got the testing method perfect or at least right and they are hitting the most prospective zone according to Gavea. The two carbonate zones are the produces in the nearby Angelim field. As Snake100 so aptly puts it, Angelim does not have production from the basement. Interesting statement, that means that we have a different structure from the nearby field where they produce from the turbidite sands in the Columbi formation and the Carbonate zones. That means we could potentially have a better flow rate than Angelim because we have three potential oil producing zones.

Second Bullet Point – Production from multiple zones:

• Gavea is already talking production and multiple zones. We are a producer.

Third bullet point – flank of the structure:

• They will most likely drill the appraisal well up dip from this well. Flank of the structure. What a great statement. In my view, this means that the intervals intersected in the up dip appraisal well could be much much larger when we drill in the middle of the structure. This has many implications for us. It could mean that the oil flow could be much stronger and it also means that the size of the field could be much bigger than first anticipated. Time will tell. This also tells me we didn’t hit the structure we were first anticipating ( turbidite sands that produce in the Angelim field )

Fourth bullet point: Enables preparation of meaningful resource estimate and field development plans:

• If the development plan for 330 was anything to go by, we will likely see another aggressive development plan for 430. However we have an advantage here because we have a producing oilfield within 3 kilometres of this well. We should be able to tap into the pipeline infrastructure if it is there. If we get the second interval to between 130 and 200 barrels after retesting, get a similar or better flow from the upper carbonate zone currently being tested and we get something/anything from the basement we could potentially be looking at 260- 500 barrels per day. If we only use the 14 wells expected at 330, that means we could be looking at between 3,600 and 7,000 barrels per day in production when fully developed. The nearby Angelim field has 17 wells and the Carmopolis field 14 kilometres away has 150 wells in it. They have both been producing since the late 1960’s. I will get someone else to do the sums. Very large oilfields with very long life spans. Awesome.

Last bullet point: Enhances the prospectivity of 430b.

• Well I can’t wait for that one. Three wells to be drilled between now and 12 Jan 09 to earn their share of the blocks. They think 430b is bigger than 430.

I hope I haven’t bored you to death. I certainly have gained a lot of understanding about Brazilian oilfields and their testing and development. I know that the company has learned a lot in the last 6 weeks also.

I think that all of the above will become clearer as and when the company has done all of its analysis and released the information to the market.

I think that the flow rates, the field size and the potential development plans could be released progressively over the next few weeks and months. I think once released, the number crunchers will review their models and realise that this company was cheap in the 50 cent range and that it is an absolute steal at these prices. As Tastarga stated and is quoted below, Block 330 more than justifies a valuation in the 25-35 cent range.

“The previous discovery in 330 more than justifies a price in the 25-35 cent range. Now you are dabbling with the blue sky with lots happening over coming weeks.

Cheers,TAS


We are getting Block 430 and beyond for free.

My final comment is about where the CEO is at the moment. He is in Brazil and he is very reluctant to speak to anyone. I managed about 30 seconds on the phone. They obviously can’t talk to anyone until they have finalised what they have found. From what I can gather he isn’t leaving there anytime soon to get back to Australia. That means we are going to get all the answers we need to what many people think have been riddles.

It’s pretty clear to me. I have done my research, I know what I know. I hope this lets other people understand what I know and what I think.

I look forward to next week.

Regards

Kojasper