Background Research Notes

Below is a link to a recent article published by Pro-Active Investors that gives useful background information on the history of the company and its major assets.

http://www.proactiveinvestors.co.uk/companies/news/4407/emerald-energy-the-transformation-continues-4407.html

Here is a summary of a recent note from joint brokers, Jefferies International


Key Points

• Preconceptions wrong. With little evidence of heavy handed security we found Damascus and Block 26 to be both safe and free. While red tape remains an issue (particularly concerning
imports) Syria is definitely open for business and progress is being made giving us confidence that full development of the Khurbet East field can be completed on time and on budget.

• Khurbet East reserve upside still possible. Failure to establish a firm oil water contact within the Khurbet East reservoir leaves open the possibility that a deeper contact could be determined materially adding to oil in place estimates. We understand plans are underway to drill an appraisal well to the south of KHE-8 to test this upside.

• Exploration activity set to accelerate in 2010. Following receipt of initial results from recent 3D seismic programme Gulfsands management is bullish that a number of interesting
leads have been identified and that exploration activity would materially increase in 2010 ahead of licence expiration in Aug 2012. While we believe this unrecognised exploration potential adds to an already attractive upside until leads are high graded to drillable prospects and a second rig is secured we believe it is premature to include this upside within our NAV.

Valuation/Risks

We have a core NAV for Emerald of 863p/sh and a risked upside of 246p/sh. Our total NAV of 1,109p/sh is made up of 557p/sh for Colombia, 485p/sh for Syria and 67p/sh of net cash and working capital. Fully de-risked our NAV rises to 1,747p/sh.

Our target price of 750p is set at a 20% discount to core NAV reflecting higher than average risk aversion and bottom of cycle oil prices.

Risks include disappointing appraisal results, unsuccessful exploration, political risk and development risk.