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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.

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

Hi Stockdog,
Thanks for the reply yesterday. It looks like we are both in the same boat - my original holdings were bought between 7 and 12p, and at one point I was 100% up, but the decline in share price and some badly timed top ups on monday and tuesday soon ruined that! I thought I was getting better at timing my share buying - I believed getting in at 15.5 -16p was good because there would be a strong bounce at 15p, it seems I have alot more to learn, LOL! I'm feeling very confident for the long term prospects of this share, I just wish I hadn't rushed into buying and also would have liked to see it close this week at a much better share price - but I'm sure everyone on this bb was hoping for that.

Sharesure, I'm normally a lurker rather than a poster on these bbs, but as I'm posting at the moment I'd just like to say, thanks for plugging this share so many times on the SEO bb, it got so annoying I finally thought I'd take a look at this bb. After doing some research and umming and arring for a while, I bought an initial stake last september and I'm very glad I did. Thanks for bringing Chaco to my attention. Right, back to lurking now....

Frampton

KJ

Great post.

One other thing that has been bothering, and annoying the hell out of me recently. The share price is not truth. It is not God.

For how long did the stock market get Baltimore, Enron or Worldvision's share prices wrong?

Someone on another board said that Chaco were now 'damaged goods'!

How? Their share price has fallen but the company has never let anyone down. Further, I am sick of people ringing me up asking, "Should I sell?"

Why? Because the share price has gone down?

I say, "Listen to the company for news; not the share price, and for God's sake turn your computer off."

Alfred

alfred - hear, hear!

Sharesure,

I like the heading to this thread. We have all been talking valuation figures and as we know it all depends upon oil being discovered as certifiable reserves. Your points at the top of this thread are all monitoring points for Chaco that we need to look out for.

Do you think that it would be helpful if we attached the financial consequences of success for each point, if practicable?

For example the valuation for the company and per share of discovering 38.1m bls of certifiable reserves in Alea. We could use managements own assumptions and figures for this.

If you think its a good idea let me know and I will email the financial details to you.

Regards,
KJ

Short term we are in a definate downtrend with a series of lower highs and lower lows,even the most ardent chartist cannot argue with these facts. Having posted in the previous couple of days the next support level is there for all to see at 12p nothing has changed my mind to date. I would guess that there would be several if not many buy orders at the 12-12.5p level myself included and as i and other posters have mentioned would expect the price to bounce back to 15-16p levels within days.Personally i think the market reaction has been overdone so the next few days should be interesting especially for day traders if the bottom gets hit ( i dont meen literally) some nice money could be made if the spread isn`t too wide. Good luck for the coming weeks and months ahead certainly exciting times for all holders.

KJK, With Alea the reserves at 38m barrels are 'certified', it is the possibility to confirm there are between 70-80m barrels which is the additional downstream news. I agree that putting financial details in the header would be a very useful addition so any figures you have done would be appreciated. The company is also going to provide figures during April.
In spite of what chartists may say about the next couple of days I am expecting the company to announce an independent view of the value of their assets soon, prior to announcing either moves to, or an agreement for, a tie-up with a major South American oil producer to move very fast to explore Primavera as a priority. This will then be followed by the already announced visit of their Colombian directors to the UK to do the rounds of the institutions. I don't expect the current bear squeeze to last long; interested in others thoughts.

Sharesure,

I agree. What we are seeing is the combination of an end of fiscal year/unrealistic short term expectations sell off by PIs.

Sharesure
With the end of the tax year approaching I hope we may see a steady rise
during this week. Thanks for your update above.

Good to see a sound supply of buyers seeing value at 15p today.

bodeng, also corporation tax financial year ended on friday. Institutions re-shuffling their affairs probably didn't help the price.

Well we are at the end of the financial year finally...yippee

Slowly but surely.
2517

2517... 3% a day for the next five days, with a good two way trade, although those investors waiting to get in at sub 12, 13, and 14, might have missed the boat.

I have edited the header to this thread with some later news - under the corporate activity section at the end of the content. This activity is likely to give significant impetus to the sp over the next few weeks in my view.

Sharesure.. this is the one they are expecting within two weeks... ? looks like investors will pile back in