basis for significant resource upgrade

I have been looking at some historical data and comments by management and linking this to Ken’s astonishing comment at the Good Oil conference and the BRR interview regarding Paloma that he is of the view there is 29.6 mmboe with possible flow rates of 11,000boe/day. I am of the view that Ken would not have sad this unless this was already in the bank.

Looking at the past reports and data I am of the thought there will be a significant upgrade of the resources based on P1 & P2 that will be closer to the net prospective resource estimate (NPRE) that was made by Neon late 2011 or early 2012. Neon did make a net prospective resource estimate (NPRE) of Paloma either earlier this year or late 2011 of 249mmboe.

Those that have the Paterson’s research report will note that Paterson have done an estimate based on a NPRE of 144mmboe with an un-risked value of $2.33 (see Fig 1.). What is notable here is that the Patterson NPRE is based on 144mmboe (73% below the NPRE as previously stated by Neon).

Fig 1.
Gross Prospective Resource Net Resource Un-risked Value
Mmbls Bcf Mmboe Mmbbls Bcf Mmboe $Au ‘ooo $Au/sh
170.0 130.7 191.8 127.5 98.0 143.8 1067.7 $2.33

Given the following information released by Neon is the basis for my assumption that supports a significant upgrade to reserves.

Neon have confirmed by releases covering P1 & P2:
1. 4 oil and gas discoveries
2. 2 oil reservoirs
3. 6 oil shows
4. 1 gas discovery (agreement signed by customer)
5. 6 or more gas shows

All of which I suspect will drive the resource upgrade very close to the NPRE calculated by Patterson that is 73% below the NPRE stated by Neon.

The qualifiers for my assumption is as follows:
• Accepted that Ken has used the High 3C as ERCR. (This is a person who has over 32 years of E&P experience and has held senior roles to wit that he has overseen projects where production was enhanced and discoveries made adding significant value)
• Paloma has an abundance of proven historical data that can be source and measured against. DOGGR and OXY have confirmed that the extraction of shale is at as much as a spread of 1 well per 10 acres and the return of the wells is about 350,000boe
• PD2 was spudded 1,000’ away from PD1 & Neon has confirmed that contingent resource is consistent with PD1
• The Monterey shale covers the 2,847 gross acres of Neon energy’s prospect at varying thicknesses
• Fruitvale and lower Stevens flowed unassisted
• Neon made a NPRE of 249 mmboe for Paloma
• Paterson NPRE based on 144mmboe (73% below the Neon NPRE)