QUARTERLY REPORT FOR THE QUARTER ENDED 30 SEPTEMBER 2004 Californian Joint Venture Drilling activities commenced during the quarter with the drilling of Jack Hamar #1. With testing currently progressing on Jack Hamar #1, 1,000 gross feet of prospective hydrocarbon section have been encountered in the Monterey Shale and Etchegoin formations with six separate Monterey zones identified. Jack Hamar #1 is the Company’s first well in California and the first well drilled since the change of the board and management team earlier this year. The discovery exceeded expectations. Jack Hamar #1 could transform into a significant development at South East Lost Hills. Such results have translated into enthusiasm in the Joint Venture to get on with the drilling of the Jack Hamar #2 appraisal well before the end of this year. A successful well then will tell us how far the potential in Jack Hamar extends and will allow us to start to give indications of the size of a Monterey Oil Field in South East Lost Hills. This is exciting territory in the context of the large Monterey Fields to our immediate north (Lost Hills) and to our west (Belridge). Further, and quite apart from our primary target (the Monterey), the shallow gas in the Etchegoin Formation adds substantial value to the Jack Hamar #1 discovery. It is important to note that in this market the high prices and low delivery costs for natural gas mean that the return on gas produced can be as high as the return on oil. Previously this zone was not considered a material target but the gas indications in the log analysis have encouraged the joint venture. We are now developing a program to appraise this gas play and then develop the gas field with multiple wells (between 6 and 10 currently estimated) in an extensive drilling program to start in the first quarter of next year.
Nuenco has a 25% participating interest in Jack Hamar #1 and Orchard Petroleum Limited has a 25% interest. Neg and Matris each have a 25% interest covered under NEG-Matris farm-in agreement. Approximately $1,000,000 of exploration expenditure has been incurred on the Californian Joint Venture farm-in during the quarter. Utopia Joint Venture In Queensland, the Company’s 40% joint venture Utopia oil field has also commenced to produce break even to positive cash flows and we look forward to developing this investment during the forthcoming year. Looking Forward These are exciting times for Nuenco. Oil and gas exploration is a high risk business and for any company to make a discovery with its first well is a significant achievement which provides strong encouragement to us that we are on the right track in a very prospective exploration area. In this environment of record high oil and gas prices we are looking to develop this potential as quickly as we can and therefore our program from here is: • Testing 6 Monterey Zones in Jack Hamar #1 as soon as a service rig becomes available; • Drilling Jack Hamar#2 before the end of the year to define a new Monterey oil field in South East Lost Hills and test another high risk Stevens Sands target; and • Testing multiple gas zones with appraisal wells and approvals in place to immediately develop a multi well gas field in the first half of next year. We look forward to reporting on our progress. Yours faithfully ANTHONY KAIN Managing Director
regards
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