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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.

Kim - on the other hand, no bad thing to lose the weak holders now. Don't forget for all their sells someone has or will soon buy the other side as a stronger holder.

Time to chill, and leave to the management. Market has not reacted as many thought, but with a steady newsflow, we will creep up and up and up! Dont think Primavera was priced in , i think people got excited about a quick buck, now is the time for the market to put a value on the company...

PS Keep up the posts to this great board. refrain from swearing, and insult throwing and stick to the argument.

PPS My kids are into Chaco, so keep it clean, otherwise they have the vocabulary to add colour to the thread!!!!

sd Yes, good point.

Vistauk, your kids should be into ERT, not the seedy world of oil!!
kim

Only 6 trades 100k + and they are in favour of buyers @ 650k to 470k, so mainly smaller holders off loading, my get out was 13p, but I have changed my mind and shall continue to hold, maybe pick up some more if 13 is reached. I agree with vistauk's PS. Good luck to all holders, stay firm.
2517

I've been increasing my holding and speaking to my broker looks like private investors selling out who were expecting explosive upward movement on annoucement. For us longer term holders I believe this is looking very good value. A fall of 25% on the week so far but with weekend papers round the corner.

Anyone who was around for the Alea announcement will remember a similar situation. We waited what seemed an eternity for news; lots of people, including myself, had T trades intending to sell after the 'great' news. What I learned from that experience, which cost me a lot of money, is that the MM's know how many
T trades are outstanding so make good money letting people load up before big news then close ranks after the RNS, drop the price to force people to sell at a loss.

I guess there will have been millions of shares on T trades at about 15,16,17p leading into Primavera news. If the price had rocketed to 25p+ the mm's are 10's of thousands out of pocket. Instead they are now handsomely in profit.

I learned this lesson the hard way, but learn it I did!

Once this situation clears, the bottom is found, I believe the sp will race up quicker than it came down so the mm's don't sell many at these levels.

Good luck,


cc.

spot on cc
if you can, just sit and wait...

Absolutely cc and I'm happy to be buying against the current trend because that's just what the mm's are doing!

Ive been holding chaco from 10p and will be keeping them as a long term investment, the recent decline in spread does not bother me as it is just a short term fluctuation as what some one else stated it will be good to get rid of weak holders who wanted to make a quick buck, also with it being the end of tax year,

Give it a month or so the price will be at 20p or more, just my opinion

Over the next 12 months there could be potienaly massive news flow, and i for one are totaly excited about this stock,

For example look at EME and ELP leading up to there drills the spread rocketed i thick chaco will do the same.

It wont be long before market wakes up to the potienal of this company, and we will see peope pillig in, i think this stock is going to be very lucritive.

Thanks for the reply stockdog, I've always found your comments on charts interesting, and you've seemed quite disciplined: selling when shares fall through certain key levels (BFC for example), which is why I was wondering why you didn't sell these? Was it a mental stop loss and you couldn't bring yourself to do it? (I haven't sold any of my Chaco holding and don't intend to, but the fall through 15p which I had seen as support is making me feel uncomfortable.)
Frampton

The drop has been overdone

I've been speaking with Martin Groak and (whilst there obviously can be no new comment), management are delighted with their revised block. It's always good to speak with management and I'm encouraged and consequently have been increasing my holding today. Yes, we may continue to see downward movement but I believe we'll start to see a turnaround soon. As already mentioned by others, look at the reaction on the earlier blocks.

Frampton - complex question, many answers . . .

I bought in at 6 and 10. Then I happened to have some spare funds around and broke the rules to buy in totally opportunistically at 15.75 just as all the hype around Primavera was starting, KNOWING (lol!) I would sell this last lot if the price fell through the purchase price, whilst keeping the others.

Then, such was the intensity of interest, scrutiny and debate during this week, that I have come to know the company and its prospects better, whilst also learning from practical experience that chasing fewer stocks that I know better and holding for longer probably suited my temperament, since I seem to do better at it - mainly being a lousy timer of buying and a hopeless seller.

Another rule broken - never buy in response to BB chat. However, Sharesure, Greyhound, KJ Kelly, Alfred Palfred - sorry if I've missed anyone - really seemed to be a) genuine and b) considered in their views which I found I could understand and tie back to the informnation available to me - their story seemed to fit the facts and was a good one. My day job relies entirely upon key people tellling the truth or at least being able to sustain the truth (by managing their way out of any deviation from it!) and I've become used to making fairly quick decisions about people that I trust, or trust that I can manage if they deviate.

I don't need the money I'm investing to live on now, pay the mortgage or pay my children's education - I need it when I am a fair bit older.

So here I am, having made CHP one of my core investments by a process of osmosis rather than a grand declaration of intent.

We'd better all be expletive deletive right on this one, or I shall be most upset!

sd

I'm still holding, no one ever likes to see there shares fall (look on positive side and call it a good buying oppertunity if you want but good selling oppertunities are best!) Whats left now has even less downside and more upside...Buys are greater each day.. if i sell now they will be up 8% monday evening....best wait,may take a month a so but CHP wont stay down for long...imho but also leaving my money on my opinion !

Steve

SH17 Are you drunk ? or just been smoking that wacky backey

pisces- ok!

robbiethealexander

it would be better for you to keep your portfolio split between two shares at least. It would look great if chaco goes up but then again it might go down, you can never say for sure. It's safer keeping your portfolio split because if it goes down a lot , say 50% then you need to get 100% for it to get back to what it was before.

2517GEORGE and Stockdog,

Sorry I couldn't get back to you earlier. All the figures do is to seek to identify a potential value for the company if all goes well, i.e. the drilling and fields produce what management is expecting. Therefore the figures are only a base.

To get at todays value is an impossible task bearing in mind the many factors that influence a share price.

However, at 15p, or so, the market is assuming a 97.5% chance that drilling will not succeed. Or put another way, a 100% chance that only 8.75m bls will be discovered in Primavera (that is 97.5% of 350m bls). I'm using 97.5% because that is the percentage that the current share price divided by the potetnial value if all goes well.

We can't argue with the current share price. That is what the market says. As Warren Buffet says the market merely tells us the current price of a share. Sometimes it will represent a fantastic bargain and at other times it will be too expensive. All we have to do is decide to buy when a fantastic bargain exists and ignore prices that are too expensive.

Until we get some oil in the ground or in production, these types of shares will offer potential for traders to go short and long when it suits them. Unfortunately, for longer term investors, shares do not go up in a straight line. If only!

KJ

If they did investing would be all too easy!

KJ - understood, did not mean to knock your figures which are excellent - just heavily discounting them for the risks on the road to get to them, as were you.

BTW - taking your 341p best bet valuation and today's 14p, that's a discount of 95.89% - not sure where you got 97.5%. Also the net margin obviously reduces substantially when you get down to 8m bls, so maybe to get the 14p's worth you need to bring about 20m to the surface and ship it - 5% of your best guess for Primavera alone. But who's quibbling!

Looked at another way - what is the probability that all 3 Colombian and all 3 Paraguayan prospects contain no commerically viable oil? Any one commerically viable field would probably support 14p SP in itself.

Compare CHP's current cap of 71m with EEN's recent pre-Syrian, Colombian-only cap of about 100m. EEN has P3 reserves over its 3 Colombian fields of 30.3m bls with a further prospective reserve of 4.6m bls in Southern Vigia - total 35m bls and production of about 5,000 bls per day across all current wells. So CHP need to have about 25m bls P3 + prospective reserves = about 5% of its current entirely prospective estimates.

Do you think CHP has a 1 in 20 chance of being all right, or a 1 in 10 chance of being half right, or a 1 in 5 chance of being a quarter right? Or a 1 in 3.3 chance that just 1 of its 6 fields becomes commercially producing within, say, 2 years? My money and a good number of other serious investors say yes.

Sit back and read the papers whilst your investment makes money for you.

NB not a ramp - just an invitation to DYOR or at least make use of others' research and do your own analysis.

sd