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UPDATED 22/1/07

Valuation of Chaco Resources : 'Rule of Thumb' based on 550m shares and using 10% DCF on oil at $60/barrel is 1p on the sp for every 1m barrels (CHP's share) that is proved. Until oil reserves are proven the 1p/1m barrels will be discounted by the market.

Chaco Resources now has three exploration blocks in Colombia and three areas in Paraguay. The next year should see a steady news flow as it establishes the companys transformation from being an exploration company only to also becoming a significant oil production company. Set out below are some of the milestones which should produce announcements and have a positive effect on the share price. All reserves are quoted in recoverable oil assets.



Alea, Colombia :

25% interest in a field currently assessed at holding 38.1m barrels of light sweet crude oil. Drilling of the field by the operating partner, Ecopetrol, was programmed for 2006 to provide early cash flow, but a shortage of drilling rigs, then the rainy season and increased environmental requirements have caused a re-think and it is now expected that this block will be drilled in first half 2007.The proposal to drill a step out well as part of that drilling programme will also provide the opportunity to establish if the estimate of recoverable oil should be increased. (Some estimates suggest the field contains as much as 70m barrels.)

RNS : Updated w/c 30/4//07. Drilling contract should be imminent but actual drilling unlikely to take place second half 2007.



Puerto Lopez, Colombia :

54% Interest in a field containing light sweet crude oil.On 3.10.06 CHP announced that the original TEA area had been extended by the ANH to include further territory which it is expected will greatly increase the potential to find and exploit a structure which may contain as much oil as there is believed to be in Primavera, where Hardman and Co estimate that there is a potential value of 120p per CHP share.

RNS :Updated 22/1/07. Further seismic now obtained and decision not to proceed made because closures too small to be economic and drilling funds earmarked for this project now being retained for use on a more prospective block yet to be announced



Primavera west, Colombia :

55% interest. Two shallow drills in April turned out to be dry. Areas adjacent to this block contain oil (Cana Limon, also in the Mirador basin, the largest oilfield so far, 1.8b barrels) Chaco believe that the area in their block contains the thicker end of a wedge shaped oil-bearing sandstone structure; the area to the east in the neighbouring block has been estimated as containing 400m barrels and the El Miedo oilfield, 8 kms.away has 325m barrels. ANH Contract signed w/c 8/5/06 (1 week sooner than forecast). GED are drilling their neighbouring block in February 2007; two of their targets may contain oil deriving from Chaco's area so some earlier cash flow may result.

RNS : The drilling programme has now been completed but the company has yet to say whether the block will be explored further or abandonned.

New block announced in April known as Tigra in the Magdelana Basin. CHP has a 48.75% interest. Believed to be very promising but company is doing 3-d seismic over the next 18 months with drilling projected in the following 16 months. (Timescales seem to be set to allow a lot of room for delays or speeding up if progress is easier than anticipated)



Curupayty Block, Paraguay :

1.39m hectares in north, close to Bolivia. Two wells previously drilled and both showed oil.

RNS : Expect partnership with larger producer.



San Pedro Block, Paraguay :

1m hectares in south-east. Previous drilling showed oil.

RNS : Expect partnership with larger producer.



Parana Basin, Paraguay :

Canindeyu block covering 1,789,000 hectares. Bordering Brazil. Oil field on Brazilian side already drilled. Chaco also expect to find oil and, at a deeper level, considerable quantities of gas. Chaco has obtained valuable historic seismic for re-evaluation.

RNS : Presidential Decree received 2/11/06.. Petrobras has announced its intention to increase substantially its effort to exploit Paraguay's hydrocarbons and has announced a farm-in on CDS's adjacent block. Possibility that they or another major will do likewise with CHP



Corporate Activity :

CHP obtained an independent evaluation of their exploration assets by Hardman and Co., during July 2006.This is updated monthly. As Chaco Resources line up their assets ready for production they may attract a bid. There are also other actions that the mgt. could take to increase the Chaco's asset share subject to negotiation since the position of the Colombian state oil company, Ecopetrol, is believed to be under review. Other actions could be taken which would have the attraction in bringing more resources to bear on a quicker timeframe plus help streamline the management of their assets. De-merging the Colombian and Paraguayan assets at an appropriate time might hold out some advantages to shareholders at some stage.
Last Placing announced at 15.1p per share on 18/5/06.
Chairman and FD bought shares 8/06 and the Chairman recently exercised his option on further shares which would suggest that he regards the share price to be going north from here on.
Updated 22/1/07.




Here are some dates for your diary courtesy of KJKelly, who posts on ADVFN

1. Curupayty - complete reprocessing of seismic by end July 06
2. Curupayty - complete interpretation of seismic by end August 06
3. Curupayty - decide whether to proceed to drilling or proceed with a farmout campaign - end September 06
4. Platanillo - commence re-entry of Alea 1 early in 1st quarter 2007
5. Primavera - two structural targets will be selected from 10 potential targets for drilling commencing Feb. 2007.
6.Hardman updates should now happen monthly.

silvermede.- got this posted on advfn.if nothing else its an education in oil language.
maybe helpful to you chp holders next year when drilling commences.

hydrocarbon bearing sands zones.

gross= total amount of sand
net= sand that contains hydrocarbons

usually 50% or so, maybe down to 10% or as high as 80%.

vog totalled 55ft net pay in three zones.(his verdict good)
so put that into goo.
drilling results confirmed two hydrocarbon bearing sands zones in the palaeozoic and verdun reservoirs of 250ft and 315ft gross (565ft gross hydrocarbon sands zones), so if you take the low case scenario of 10%.

565ft gross:10%= 56.5ft net pay. anything over this excellent.

goo due to start production testing in a few weeks so could be interesting.

Lizard, thanks. If we then put net pay alongside the % of hydrocarbon saturation and the zones porosity we should then be able to make some judgement over whether good or not, when news comes.

Good article in the Independent today -reported on the other BB.

From today's 'Independent'

http://news.independent.co.uk/business/analysis_and_features/article1876763.ece

Small Talk: South American oil minnow Chaco is worth exploring
By Michael Jivkov
Published: 16 October 2006

The South American oil and gas explorer Chaco Resources may well be worth keeping an eye on in the weeks ahead. Recent news from the AIM group has focused on its operations in Colombia, but word has it that an important announcement is on the way regarding its interests in Paraguay.

Chaco is said to be close to a deal with the government of the landlocked South American country which would double the size of its acreage there. News of the coup for the company could come as early as this week. The bloc Chaco hopes to win sits on a geological structure that runs into Brazil, where it is already producing oil. Given this fact, it is very likely that the Paraguayan side will also prove to be a success for explorers.

Following the acquisition of two companies in September 2004, the group is thought to currently control about 10 per cent of Paraguay's hydrocarbon bearing areas. Chaco has since been in talks with the government to extend this. Although Paraguay does not produce any oil or gas at present, Petrobras, Brazil's state oil company, has recently intensified its activities in the country in the belief that it is resource rich.

Earlier this month, Chaco received an extension of the boundaries to its Puerto Lopez Oeste block in Colombia from the government. It plans to conduct additional seismic studies on the site later this month in order to be able to start drilling there in early 2007. Shares in the group closed at 13p on Friday. They hit an all-time high of 18p earlier this year.

Sharesure,

What's the situation re the availability of drilling rigs in Paraguay?

Blackdown, Apparently it's getting easier but I am fairly sure that once CHP has this third block it will negotiate with a major to do the work since the areas and costs will be huge..... as will be the potential.

CHP clearly does not have the clout to progress very far on its own with the drilling licences it seems to be acquiring ...... perhaps i am stupid (no perhaps about it really!), but i would hope that these licences make the company more interesting to a predator, though i would not even hazard a guess at what a predaor would deem these licences (nowhere near being oil!) to be worth.

Cynic, Petrobras' farm-in on the neighbouring CDS block (announced last week) will provide early indications which will then give some basis for a valuation of what CHP can expect in the south-east of Paraguay. The Canindeyu block is virtually certain to produce gas/oil since the same structure is in Brazil. The formal announcement that that block has been secured will be very significant for CHP.

cynic - by acquiring highly prospective licences and then farming out to cash-rich operators, they can retain a free-carry where the cost risk is ~zero and the upside is a life-time share of oil produced. SEY are doing very well with this method. So being swallowed up too young by a predator is by no means the only way of realising their value for shareholders.

my comment was more of a rhetorical question really ...... in truth, it is all very well having lots of exciting prospects, but for all that, i should imagine the strike rate for a commercial find is probably no better than 25% at best ..... ELP is a good example of that and the impact on sp!

on the other hand, while the "big boys" will have no better strike rate, an E&P company with good potential licences already on board certainly has a value, almost certainly in excess of its prevailing sp.

cynic - I think someone above on here demonstrated the maths for that probability.

Over 5 prospects, say, the chances of NOT finding oil are 0.75 X 0.75 X 0.75 X 0.75 X 0.75 = 23.73%. In other words the channce of at least one strike are 76.27%. Any one major strike would value the co much higher than its current SP. Upside seems greater than downside by a factor of many. Risk v. reward on a speculative (non-trading/non-profitable) stock seems justified imho.

sd

don't get me entirely wrong, for i hold CHP ...... am also no statistician .... however, are not the chances of throwing a double 6 with dice exactly the same for each throw?

cynic

yes they are, but if you have 5 throws the odds are less that you will hit double 6, only on the 5th throw are they the same odds as if you only had one throw.

cynic

Stockdog has used that principle-0.75 eachtime. For combined independent events you multiply the probabilities.

i'll believe you ....but then i believe everythig i read on this bb ..... lol!!

ncfl .... so if "no chance" = one of those probabilites, then all probabilities = "no chance"? .... i am sure that can't be right either ... lol!

probabilty of NOT finding oil = 'no chance' ? Lets hope so.

I think you are a bit confused.

er, the probability of finding oil is about 100 per cent in the case of Alea. And it is likely to be an oilfield of "considerable significance", according the the Chaco annual report.

bigwavedave - if Alea is 100% then amongst the next 4 wells - using 25% chance of oil in any oine well - there is a probability of 68% that we will strike more oil. Upside even greater for a better than evens risk.

Of course, you all have to work out the probability I'm talking bollocks!

sd

Yep,a nice starter!

A little snippet to make of as you wish - 'during the first migratory phase(Late Oligocene/Miocene), the Viletta Formation source rocks reached peak of oil generation. Oils and gases expelled in this phase migrated over 80km, filling pre-Andean structures both in the foothills and the foreland areas.' DYOR.