Reserves and Sources of Reserves Growth

In Emerald Energy's most recent reserves statement (http://www.emeraldenergy.com/OnP-Reserves.htm) it reported a total of 56.7mmbo of 2P reserves on a working interest basis. 21.4mmbo were from Colombia and the balance of 35.3mmbo came from Syria.

There are strong reasons to believe that reserves have significant room for growth in the near future.

Colombia

Capella

The first upside is from the very material Capella discovery. The company has stated that they believe the field extends to some 89km2. The ~13.3mmbo attributed 2P reserves (remember Emerald holds 90% of the block, not 100%) arise from only a very small area surrounding the first 4 or 5 wells drilled. These reserves arose from an assumed recovery rate of approximately 10-11% - a good rate for cold flow in a heavy oil field.

In their results presentation (http://www.emeraldenergy.com/documents/EEN2008Results.pdf), Emerald also indicated that on a P10 basis, the field could hold 1.1bn barrels in place. Since then the C-6 well has been drilled and the upper horizon was found to be ~4x thicker than the other five wells drilled, and ahead of expectations. It may be reasonable to assume that as a result of this finding, the oil-in-place (OIP) will rise. Moreover, there is a drilling campaign planned later this year on the NE section of the block, and it is also planned to test cyclic steam injection. Everyone must use their own judgement to see what this means, but it does seem reasonable to assume that as more of the field is drilled, P50 oil in place will rise and thermal recovery ought to significantly increase the recovery factor and thus 2P reserves ought to rise very significantly.

Gigante

The results so far for G-2 are encouraging, but not yet conclusive. The pre-drill prognosis was to develop 4mmbo at the Tetuan horizon and discover ~15mmbo in the Caballos horizon. Further results of flow testing the Caballos horizon must be due soon. If successful, then this could result in a significant reserves increase. It is unclear whether the reserves targeted in the Tetuan are already in the reserves statement, but at the very least the company ought to achieve a significant production boost from the Tetuan. G-1 flowed at rates as high as 4,000bopd before the blow-out. If G-2 flowed at this rate, the WI production would be ~2,000bopd, or roughly a 50% increase on current Colombian WI production.

Mirto

The Mirto well on the Maranta block is the first well on this block and is targeting ~10mmbo of reserves across two horizons. Results are due soon.

Syria

Khurbet East - Kurrachine Dolomite and Butmah

The original KHE-1 well only tested the Triassic K-Dolomite horizon and produced at a rate of 478bopd, even thought the flow test was hampered by poor downhole conditions and only a small part of the logged pay was tested. This results demonstrates oil is there and can flow at rates that are probably commercial over a mapped closure of 15km2. The Butmah log results were also encouraging.

However, the decision was taken to first develop the Massive horizon as the KHE-2 results were encouraging and the wells were cheaper to drill. Despite running a 3-D seismic survey over the field since the initial discovery, no reserves have been booked for the K-Dolomite and Butmah horizons. Gulfsands have indicated that a "commercialisation study" for the K-Dolomite was due to take place during 2Q09. Hopefully, as a result of that, an appraisal well will be drilled soon to prove up reserves in the same ballpark as the shallower Massive horizon.

Khurbet East - Massive

The current gross 2P reserves in this field are 63.4mmbo (http://www.gulfsands.com/i/pdf/GPX_presentation_2009-06-08_analyst.pdf Slide 20). Since that reserve statement was made, the KHE-8 delineation well has been tested and flowed oil. Additionally, the subsequent wells have both reported results ahead of expectations. A further delineation well is perhaps to be expected (KHE-12?) and it could be that the current 2P reserves grow towards the current 3P number of 107mmbo (EEN 50% WI).

Yousefieh

The current gross 2P reserves for this field are 11.3mmbo (50% to EEN). However, in the statement that announced the Yousefieh reserves, Emerald stated that a contingent resource of 42mmbo OIP (http://www.emeraldenergy.com/PR20090430.htm). Using the same recovery factor as in the reserves statement (15%), then if the resource is appraised, it could result in a further 6.3mmbo gross being attributed to the field.

Exploration Potential

In 2007, the Block 26 partners carried out a 3-D seismic survey over the Naour West area. This year, they have carried out a further 850km2 3D seismic study, giving a total of 1,250km2 of contiguous 3D data. The 2009 data has yet to be fully processed, but the results so far have identified 4 Triassic prospects in the Naour West area and a further 10 Cretaceous leads in the 2009 survey area (http://www.gulfsands.com/i/pdf/GPX_presentation_2009-06-08_analyst.pdf Slide 36). One or two exploration wells are planned for later this year. Let us hope the partners get the opportunity to unlock further value in this block, before any bid for either company succeeds