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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.

dibbles, it's what I am told the company want in Paraguay because of the scale of the asset and the investment which would be needed. They were approached in the middle of last year to see if they were prepared to do something different in Paraguay but deferred progressing it until they were better established. There would be major production companies in both Argentina, or more likely Brazil, which would like to get in early and control any gas assets in Paraguay because the region is short of gas at the current time.
The answer to your question is, I think, that news on a jv is more likely to happen before any drilling takes place, particularly as CDS had good gas shows on an adjacent area, and CHP would not necessarily wish to spare any investment funds for Paraguay whilst Colombian blocks are being drilled.

KJ Kelly kindly prepared this analysis and posted it on ADVFN today,28.3.06

***VALUATION OF CHACO WITH PRIMAVERA***

The current share price is 15p and my realistic valuation per share, discounted to present day values is 264p, based on 350m bls for Primavera. However, I believe this is highly conservative for reasons that I will explain below.

This valuation increases to a share price of 301p once Colombia introduces the reduced rate of corporation tax at 28.5%.

Im using the same approach as previously, based on Chacos own figures as included in their AGM Presentation (see Updated AGM Columbia Presentation http://www.chacoplc.com/index.html ) and provided at the AGM.

Shares in issue - at 31.3.05 390m, plus shares issued re Paraguay 19m, placing 85m, placing on 17th Feb 13.6m and options 13m. TOTAL 521M shares in isuue.

Oil price assumed $65 at an exchange rate of US$/ of 1.75.

Net assets:
1. Per balance sheet 31.3.05 - 1.3m
2. Cash from 17th Feb placing - 1.5m
3. Future cash from exercise of options - 0.5m
4. Columbia, Alea, net present value end 2006 $100m - 57m
5. Columbia, Puerto Lopez, 2006 NPV could be worth $63m - 36m
6. Paraguay, my estimated value of Chaco in Paraguay - 18m.

Therefore, the current 2006 net present value of Chaco's current assets is 114m.

The value per share of Chaco's assets is therefore 114m divided by 521m shares, giving 22p.

Primavera:

Chaco has a 55% stake
Resource assumption 350m barrels
Oil price is currently around $65
vs $ rate is currently around 1.75
Future values are discounted at 10% pa.

Puerto Lopez has a Net Present Value of $63m for a 55% share based on a 10m resource estimate at $65 per barrel.

By multiplying the Puerto Lopez value of $63m by 35 we can get an estimate of the potential of the Primavera field. This value of Primavera is $2205m or 1260m in our money. This equates to a net present value share price of 242p for Primavera alone.

Chaco has to drill 2 shallow holes to test Mirador to validate their resource assumptions. However, past holes have all showed oil and one flowed oil. All of these were drilled substantially off structure. Modern seismic also indicates a number of untested structural closures, some of which are very large in areal extent.

Adding Primavera, to the other assets gives a net present value per share of 22p (other assets) plus 242p (Primavera based on 350m bls) giving 264p.

The 350m bls comes from Chacos management who have always acted with caution and integrity. I regard the 350m bls as the minimum level. My view is that we can discard the 1.8m bls mentioned by someone as this was a figure relating to an adjacent field. I would not be surprised to see an eventual figure nearer to 1bn bls as the upper scenario.

All of the above is based on a corporation tax rate of 38.5% in Colombia. The government there is proposing to reduce it to 28.5%, which would increase the valuation per share to 301p.

The current share price is 15p!

Tomorrow I will show the effect of making different assumptions and their effect on Chacos valuation.

Any comments, questions or challenges all most welcome. Sorry but I will only be able to respond twice daily at present.

Yeserday, I believed that today Chaco might suffer today and so far it has. But I think the above valuation of Chaco's assets indicates a very favourable risk/reward ratio. A downside of maybe 25% and an upside of 500%/600% in the short term, ie 12 months.

Any intending investor, including institutions, will expose themselves to huge regret IMO if they wait for another 1p or 2p before buying. This share could easily jump 5p or 10p in a day once sellers have left and sentiment changes.

Regards,
KJ

OK Sharesure, thanks again...

Is KJ's 350mbls est. from the company an up to date est. for the new area?

Also is it the whole amount or 55% of the total amount?

Sorry about all the questions but I've been busy house moving and DIY'ing.

Thanks for the informative new thread Sharesure.

Re KJK's post

The trouble with these very substantial valuations - being so far North of the current share price - is that they don't appear to incorporate risk factors in relation to a) the chances of finding the predicted amount of oil in the ground and b) the % that can be extracted and sold. I believe that the huge difference between the current sp and the calculated values is very hard for many investors to grasp. Hence the baling out we have seen today.

Are a) and b) the 'assumptions' that will be revealed tomorrow?

Dibbles, As far as I am aware there are no published estimates for the likely reserves in Primavera west block. Based on what has been found to the east and north there is local comment from someone who has reviewed the seismic that you could "immediately put your arms around 300m barrels" Of that Chaco would have 55%. The drilling of the two shallow wells will likely confirm that and hopefully much more; after all, the whole basin which includes Mirador (1.8b barrels) and Chaco's block are all part of the same formation which stretches from Guyana in the north down the spine of the Andes into Colombia.

Sharesure,

I note you value the oil at a price of $65 which is surely the current spot price.

Surely the price at the wellhead is lower than spot, or am I just ignorant of the oil market, which would not surprise me.

Thanks for all the work you put in on research and postings, I really do appreciate it, but just wondered about the oil valuation

Predateur

Predateur,
The figures were copied from a post by KJ Kelly who has been very knowledgeable about how to value oil assets. I know that Chaco's mgt. use $50/barrel in their DCF valuations. However, I would rather leave KJK to respond to your particular query which I am sure he will.

I think that the company is as mystified as we are at the sp reaction to their successful Primavera west application. I expect the company to bring forward its PR and broker presentation programme since it is able to speak more openly to them about what the Primavera prospect could mean. Of the two wells to be drilled first there is one which it is believed might identify a field of 300m barrels.That would be followed by a re-interpretation of the 2d seismic before the second well is drilled.If that was successful it could mean a much more extensive field has formed over their area.

Chaco Resources PLC
28 March 2006


Chaco Resources plc ('the Company')

Holdings in Company

Chaco Resources Plc was notified on 24 March 2006 that, following the disposal
of 4,188,900 ordinary shares, Fidelity International Limited and FMR Corp no
longer hold notifiable interests in the Company.

News article on Oilbarrel re primavera. www.oilbarrel.com.

Strawbs.

bhunt, would be interesting to know who bought their shares.

Why would they sell before news of primavera ? unless they thought it was already priced in, what price do you think they got for them.

The fact that they sold prior to news is unconcerning, it could be any number of reasons. What is encouraging is that there is a large buyer who is scooping up any large batches of stock that may come up for sale.

No idea why they decided to sell. The price went from 15.5 to a peak of 17.5 on Thursday and Friday. I guess they would've got around 15 for them. Impossible to say, but the MM's would've wanted to sell them for more than they paid. Best way to do that is to create some demand. I wonder if we'll see any RNS's saying someone picked up stock this week. Jusy my opinion.

Strawbs

I have approx 50% of my portfolio in chp[approx 1200] but with the sp dropping it looks too good an opportunity to miss out on extra shares as I have long term faith with this co. In anyones humble opinion am i mad to top up or mad to let it pass?

my portfolio is made from funds i CAN afford to lose as it is just a hobby [ but obviously i dont want to lose all my money!]

robertalexander, read the fwd. newsflow at the top of this thread which you should expect over the next few months. Knowing the company well I would focus in particular on the last item in that list - Corporate activity - I thought no moves would come for a while, and in most ways I hope they do not, at least until more of the assets have been properly explored, but I have a suspicion that Chaco's mgt. believe they can make faster progress with a major partnering them. While that may bring more cash and rigs to their areas and a quicker rise in the sp, itwill mean that the longer term full potential will be shared with others.

It's only my opinion. But if you're confident in your research, and holding for the long term, then I think this could be a buying oppertunity. It might be worth holding on a little longer as the price could sink further before bouncing. I'd be holding out for maybe 15 or 15.25, although it could go lower. Technically speaking though, you shouldn't have more than about 30% in one investment. It's obviously very very risky if things go badly wrong. Again. I stress this is only my opinion. Only you know your personal circumstances. Good luck with your investment.

Strawbs.

ss,
so reading between the lines: if i want a small quick buck buy now, sell shortly afterwards and if i want a big long term profit hold and hope that mgt don't partner up so profit ends up diluted.[everything i have read says that chp will make its shareholders a profit at some stage, its just the amount that is in question]
Alex

strawbs,
i know i am top heavy with chp but it seems such a good investment [and i am playing with a small amount of money i can afford to lose, though obviously that is not the aim] I was thinking of topping up if it got to the 14.5-15.0 mark but would start bailing out if it gets too close to 12.39 mark when i bought in. My crystal ball is a little fuzzy at the moment so will sit on my hands and watch[ and try not to do anything rash i may regret later]

Alex