salty water and placement update

Things are not looking too flash at the moment, even though this is not our main play (over the next 12 months).

It looks like core North American investors have bauked at paying 11 cents, so they have been permitted to invest at 9 cents, otherwise I expect they would have walked away.

The SGY release on April 29 reported "Drilling completed at Guijarral Hills. Hyrdrocarbon indications showing in all zones. Preliminary analysis of wireline data showed anomalies with the main resevoir targets in the Allison, Leda, Lower Avenal and Lower Gatchell sandstones. Such porosities are believed to be consistent with productive intersections. Potential for 135 feet of hydrocarbon pay."

We now know from the July 1 release that the Lower Gatchell sandstone contained only salty water.

We were also informed that testing of the next level would be completed by approximately June 4, it is now June 15, a week and a half later, and we have not been informed of any results - not good, given the release today regarding the north american investors.

I am assuming that the above investors have been informed of the results of level 2 testing, and hence they decided not to invest at 11 cents.

I think we can assume then, that the Avenal sandstone will also contain salty water, and a release should be imminent. I hope the news is more positive but I am not that optimistic at the moment.

We drilled to the right of the fault in the western lease block. It is interesting that the same distance to the left of the fault has an oil field. It was a fair punt but it looks like it may not pay off this time.

As a result of this current drill, the location of the Neon lease boundaries looks interesting, and perhaps problematic.

When you get salty water like this, the pressure goes on with the next drill, because 2 "salties" would not be good for the company, or any of us here.

It will be interesting now to see in which of the 4 lease areas at Guijarral the next well is attempted. I think I would be inclined to move away from the fault for now, and go for the southern most boundary of the north eastern lease block, because it falls within a known oil field. Lets get 1 run on the board.

What will happen now to the potential 10 follow up well locations (if the first drill was commercially successful) which were going to be drilled in this western lease block that had the fault running through the middle of it?

We have been waiting a week now for the results from the Avenal level, everything seems quiet though, and delays are usually not good news. If this is also salty water, and they decide to abandon testing the third level, then down we go for a while. In combination with end of financial year tax loss selling we could find ourselves back at 6.5 cents or thereabouts, good buying opportunities for the true believers.

I would certainly buy more, but will sit and hold for the moment. The first well in the Kreyenhagen leases is becoming critically more important by the day.

Gw