TOP Sproule Report 2008-5-31

8/9/2019 TOP Sproule Report 2008-5-31

1/75

TECHNICAL ASSESSMENT OF THE UNDISCOVERED

HYDROCARBON RESOURCE POTENTIAL OF PEP 38348

AND 38349, ONSHORE EAST COAST BASIN, NEW ZEALAND

(As of May 31, 2008)


2/75

Copies: Trans-Orient (6 copies)Sproule International Limited (1 copy)Electronic (1)

Project No.: 3738.70483

Prepared For: Trans-Orient Petroleum Ltd.

Authors: Douglas J. Carsted, P.Geol., Project LeaderBarrie F. Jose, P.Geoph.Suryanarayana Karri, M.Sc.

Exclusivity: This report has been prepared for the exclusive use of Trans-Orient, and shallnot be reproduced, distributed, or made available to any other company orperson, regulatory body, or organization without the knowledge and writtenconsent of Sproule International Limited, and without the complete contents ofthe report being made available to that party.


3/75

Table of Contents Page 1

3738.70483.DJC.db

J:\Transorient _NZ_70483\Report Update\Final\Summary.doc

Table of Contents

Introduction

Disclaimer

Assessment Procedures

Exclusivity

Certification

Summary

Table S-1 Summary of the Unproved Properties

Table S-2a Summary of the Gross Undiscovered In-Place Oil ResourcesTable S-2b Summary of the Net Undiscovered In-Place Oil Resources

Discussion

General Overview

Geological Review

Conclusions

Tables

Within the text


4/75

Table of Contents Page 2

3738.70483.DJC.db


Figures

Figure 1 Map of New Zealand Highlighting Major Onshore and Offshore

Basins

Figure 2 Map of East Coast Basin New Zealand Highlighting PEP Blocks

38348 and 38349

Figure 3 Map of East Coast Basin Highlighting PEP 38348 and 38349

Figure 4 North Island, East Coast Basin, Well Location Map

Figure 5 Generalized Stratigraphy of East Coast Basin New Zealand

Figure 6 Generalized Stratigraphy of East Coast Basin New Zealand with

potential reservoirs, source rocks and seals

Figure 7 Summary of Petroleum systems of the East Coast of New Zealand

Figure 8 PEP 38348 - Leads with 2D Seismic Control and location of oil and

gas seeps

Figure 9 Summary of Petroleum systems of the East Coast of New ZealandFigure 10 Leads and Prospects identified on previous permit PEP38330

Figure 11 PEP 38349 - Leads with 2D Seismic Control and location of oil and

gas seeps

Figure 12 Porosity Permeability cross plot for some select outcrop samples

from the PEP Block 38348.

Figure 13 Richness and Maturity of Waipawa and Whangai Source Rocks

Figure 14 Comparison of Waipawa and Whanghai to North American

Analogues

Appendices

Appendix A Definitions

Appendix B Abbreviations

Appendix C Unproved Properties


5/75

Introduction Page 1

3738.70483.DJC.db


Introduction

This report was originally prepared during September 2007 and updated in May 2008, by

qualified evaluators and auditors of Sproule International Limited (Sproule) at the request of

Dr. David Bennett, Executive Chairman of Trans-Orient Petroleum Ltd. Trans-Orient Petroleum

Ltd. is hereinafter referred to as the Company. The effective date of this report is May 31,

2008.

The report consists of a technical assessment of the undiscovered in-place hydrocarbon

resources associated with the two onshore Petroleum Exploration Permit blocks (PEP 38348

and 38349) held 100 percent by the Company and situated in the East Coast Basin, New

Zealand (Figure 1). Figure 2 shows the outline of the two PEP blocks. The assessment was

conducted using data provided by the Company, data available in the public domain and from

the non-confidential files of Sproule.

The resource estimates for the two PEP Blocks are based on a probabilistic model of the

expected reservoir parameters of undiscovered prospective reservoirs and traps that may be

encountered within the blocks. The reservoir parameters of porosity, water saturation, pay

thickness, area and formation volume factors were selected based on the available data and are

considered to represent the range of possible values that may be encountered by future

exploration wells.

As no commercial discoveries have been made on either of the PEP blocks as of the effective

date of this report, no proved, probable or possible reserves have been assigned to the blocksat this time and the lands have been assessed as unproved properties.

As of the effective date of this report, the Company owns a 100 percent working interest in the

blocks addressed in this report. The undiscovered resources referred to in this report are

reported herein as the total 100 percent in-place volumes and as to the Companys 100 percent

working interest.

This single volume report contains an Introduction, Summary and Discussion accompanied by

pertinent Tables, Figures, and Appendices. The Introduction includes disclaimers and pertinent

author certificates, the Summary presents a high-level summary of the review, and theDiscussion includes our commentary pertaining to the assessment of the two PEP blocks.

The definitions used in this report are in accordance with those presented in the Canadian Oil

and Gas Evaluators Handbook (COGEH).


6/75

Introduction Page 2

3738.70483.DJC.db


Disclaimer

This report has been prepared by qualified evaluators and auditors of Sproule International

Limited using current geological and engineering knowledge and techniques. It has been

prepared within the Code of Ethics of the Association of Professional Engineers, Geologists and

Geophysicists of Alberta. Nevertheless, the assessment presented in this report could be

affected by the data received, and the procedures used by Sproule International Limited, as

qualified below.

1. Property descriptions, details of interests held, and well data, as obtained from the

Company, or public sources, were accepted as represented. No further investigation was

made into either the legal titles held or any operating agreements in place relating to the

subject properties.

2. In the preparation of this review, a field inspection of the holdings was not undertaken.

Certain relevant geological data were made available by the Company, or were obtained

from public sources or from the non-confidential files of Sproule.

The certificates of those evaluators involved in the preparation of this report have been

included.

Assessment Procedures

In the technical review of the unproved properties, all known pertinent factors including geologic

structures, prospective producing zones, terrain and accessibility, access to markets, risk and

the economics of exploration, development and production have been considered. No estimate

of fair market value for these lands has been included, but estimates of undiscovered resource

potential have been made.

Exclusivity

This report has been prepared for the exclusive use of Trans-Orient Petroleum Ltd. It may not

be reproduced, distributed, or made available to any other company or person, regulatory body,or organization without the knowledge and written consent of Sproule International Limited, and

without the complete contents of the report being made available to that party.


7/75

Introduction Page 3

3738.70483.DJC.db


17/06 /2008 dd/mm/yr

17/06 /2008 dd/mm/yr

17/06 /2008 dd/mm/yr

Certification

Report Preparation

The report entitled Technical Assessment of the Undiscovered Hydrocarbon Resource

Potential of PEP 38348 and 38349, Onshore East Coast Basin, New Zealand, As of May 31,

2008, was prepared by the following Sproule personnel:

Original signed by D. J. Carsted

________________________________________

Douglas J. Carsted, P.Geol.

Project Leader;

Vice-President, Geoscience

Original signed by B. F.Jose

________________________________________

Barrie F. Jose, M.Sc., P.Geoph.

Chief Geophysicist

Manager, Geoscience

Original signed by S. Karri

________________________________________

Suryanarayana Karri, M.Sc.,

Senior Petrophysical Specialist


8/75

Introduction Page 4

3738.70483.DJC.db


17 /06 /2008 dd/mm/yr

Sproule Executive Endorsement

This report has been reviewed and endorsed by the following Executive of Sproule:

Original signed by J. L. Chipperfield

________________________________________

John L. Chipperfield, P.Geol.

Senior Vice-President

Permit to Practice

Sproule International Limited is a member of the Association of Professional Engineers,

Geologists and Geophysicists of Alberta and our permit number is P6151.


9/75

Introduction Page 5

3738.70483.DJC.db


Certificate

Douglas J. Carsted, B.Sc., P.Geol.

I, Douglas J. Carsted, Vice-President, Geoscience, and Director at Sproule International

Limited, 900, 140 Fourth Ave SW, Calgary, Alberta, declare the following:

1. I hold the following degrees:

a. B.Sc. (Honours) Geology (1982) University of Manitoba, Winnipeg MB, Canada

b. B.Sc. Chemistry (1979) University of Winnipeg, Winnipeg MB, Canada

2. I am a registered professional:

a. Professional Geologist (P.Geol.) Province of Alberta, Canada

3. I am a member of the following professional organizations:

a. Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA)

b. Canadian Society of Petroleum Geologists (CSPG)

c. American Association of Petroleum Geologists (AAPG)

d. Petroleum Society of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM)

e. Canadian Well Logging Society (CWLS)

f. Indonesian Petroleum Association, Professional Division (IPA)

4. I am a qualified evaluator and auditor as defined in National Instrument 51-101.

5. My contribution to the report entitled Technical Assessment of the Undiscovered

Hydrocarbon Resource Potential of PEP 38348 and 38349, Onshore East Coast Basin, New

Zealand (As of May 31, 2008), is based on my geological knowledge and the data provided

to me by the Company, from public sources, and from the non-confidential files of Sproule

International Limited. I did not undertake a field inspection of the properties.

6. I have no interest, direct or indirect, nor do I expect to receive any interest, direct or indirect,

in the properties described in the above-named report or in the securities of Trans-Orient

Petroleum Ltd.

Original signed by D. J. Carsted

Douglas J. Carsted, P.Geol.


10/75

Introduction Page 6

3738.70483.DJC.db


Certificate

Barrie F. Jose, M.Sc., P.Geoph.

I, Barrie F. Jose, Manager, Geoscience, and Associate at Sproule International Limited, 900,

140 Fourth Ave SW, Calgary, Alberta, declare the following:


a. M.Sc. Geophysics (1979) University of British Columbia, Vancouver BC, Canada

b. B.Sc. (Honours) Geological Science with Physics (1977) Queens University, Kingston ON,

Canada


a. Professional Geophysicist (P.Geoph.) Province of Alberta, Canada


a. Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA )

b. Canadian Society of Exploration Geophysicists (CSEG)

c. Society of Exploration Geophysicists (SEG)

d. Canadian Society of Petroleum Geologists (CSPG)

e. American Association of Petroleum Geologists (AAPG)

f. Petroleum Exploration Society of Great Britain (PESGB)

g. European Association of Geoscientists and Engineers (EAGE)

4. I am a qualified reserves evaluator and reserves auditor as defined in National Instrument51-101.



Zealand (As of May 31, 2008), is based on my geophysical knowledge and the data

provided to me by the Company, from public sources, and from the non-confidential files of

Sproule International Limited. I did not undertake a field inspection of the properties.


in the properties described in the above-named report or in the securities of Trans-OrientPetroleum Ltd.

Original signed by B. F. Jose

Barrie F. Jose, P.Geoph.


11/75

Introduction Page 7

3738.70483.DJC.db


Certificate

Suryanarayana Karri, M.Sc.

I, Suryanarayana Karri, Senior Petrophysicist, at Sproule International Limited, 900, 140 Fourth

Ave SW, Calgary, Alberta, declare the following:


a. M.Sc. Engineering Physics and Instrumentation (1983), Osmania University, Hyderabad, India


a. Society of Petroleum Engineers (SPE)

b. The Society of Petrophysicists and Well Log Analysts (SPWLA)

c. Canadian Society of Petroleum Geologists (CSPG)



Zealand (As of May 31, 2008), is based on my engineering knowledge and the data

provided to me by the Company, from public sources, and from the non-confidential files of

Sproule International Limited. I did not undertake a field inspection of the properties.



Petroleum Ltd.

Original signed by S. Karri

Suryanarayana Karri, M.Sc.


12/75

Introduction Page 8

3738.70483.DJC.db


Certificate

John L. Chipperfield, B.Sc., P.Geol.

I, John L. Chipperfield, Senior Vice-President (Geoscience) and Director of Sproule Associates

Limited, 900, 140 Fourth Ave SW, Calgary, Alberta, declare the following:

1. I hold the following degree:

a. B.Sc. (Honours) Geology (1972) University of Alberta, Edmonton AB, Canada


a. Professional Geologist (P.Geol.) Province of Alberta, Canada

3. I am a member of the following professional organizations:a. Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA)

b. Canadian Society of Petroleum Geologists (CSPG)

c. American Association of Petroleum Geologists (AAPG)

d. Petroleum Society of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM)

e. Canadian Well Logging Society (CWLS)

f. Ontario Petroleum Institute (OPI)

4. I am a qualified evaluator and auditor as defined in National Instrument 51-101.

5. My contribution to the report entitled Technical Assessment of the UndiscoveredHydrocarbon Resource Potential of PEP 38348 and 38349, Onshore East Coast Basin, New

Zealand (As of May 31, 2008), is based on my geological knowledge and the data provided

to me by the Company, from public sources, and from the non-confidential files of Sproule

Associates Limited. I did not undertake a field inspection of the properties.



Petroleum Ltd.

Original signed by J. L. Chipperfield

John L. Chipperfield, P.Geol.


13/75

Summary Page 1

3738.70483.DJC.db


Summary

This assessment is based on interpreted technical data including seismic structure maps, well

logs, seismic cross-sections, and other information supplied by the Company, published

information and our personal knowledge of the geology and economics of oil and gas

exploration, development and production in these areas of New Zealand.

The Company has been granted two five-year exclusive petroleum exploration permits by the

Government of New Zealand, covering PEP blocks 38348 and 38349, effective November 8,

2006 and expiring November 7, 2011. Both permits are located in the East Coast Basin on the

North Island. The terms of both agreements are identical and are discussed later in this report.

A summary of the lands held by the Company as PEP 38348 and PEP 38349 blocks, as of May

31, 2008, is presented in Table S-1.

Table S-1Summary of Unproved Properties

PEP Blocks 38348 and 38349, New Zealand

AreaWorking

InterestGross Acres Net Acres

PEP Block 38348 100 % 530,535 530,535

PEP Block 38349 100 % 1,633,366 1,633,366

Total Unproved Properties 2,163,901 2,163,901

No proved, probable or possible reserves have been assigned to these holdings at this time and

they have been assessed as unproved properties. Based on our assessment, it is our opinion

that these permits contain Undiscovered Resources, as defined in the Canadian Oil and Gas

Evaluation (COGE) Handbook:

"Undiscovered Resources are those quantities of oil and gas resources estimated on a

given date to be contained in accumulations yet to be discovered.


14/75

Summary Page 2

3738.70483.DJC.db


Under National Instrument (NI) 51-101, companies are permitted to disclose such resources, in

addition to reserves, based on the classification criteria defined in the Canadian Oil and Gas

Evaluation Handbook (COGEH). Additional guidance concerning disclosure of resources is

provided in the Canadian Securities Administrators (CSA) Staff Notice 51-321, issued in

November 2006; in particular, this notice provides guidance concerning disclosure of

undiscovered resources and permits the disclosure of such resources as in-place volumes,

rather than recoverable volumes.

The COGEH definitions permit the subdivision of undiscovered resources into recoverable and

unrecoverable categories. The recoverable category consists of prospective resources, (which

are technically recoverable and economic) and unrecoverable resources (which are neither

technically recoverable nor economic), neither of which is applicable to the undiscovered

resources estimated to exist on these land holdings at this time.

After reviewing the geological information related to these two permits, it is our opinion thatthere is an equal chance of discovering either gas or oil within the identified prospects and

leads. To simplify the modeling and analysis, the structures were deemed to be oil-bearing, with

the volumes reported as barrels of oil equivalent (BOE). Thus, the undiscovered hydrocarbon

resources estimated to exist on the two PEP Blocks are reported as BOE in-place volumes.

A summary of the gross undiscovered in-place hydrocarbon resources estimated to exist within

the PEP 38348 and 38349 blocks, as of May 31, 2008, is presented in Table S-2a, as follows:

Table S-2a

Summary of the Gross Undiscovered In-Place Hydrocarbon Resources

PEP Block 38348 and Block 38349, New Zealand

BOE1-in-Place (MMbbls)

2

Area Low Estimate Best Estimate High Estimate

PEP 38348 615 1002 1773

PEP 38349 601 710 866

Total3

1316 1736 2513

1

Barrels of oil equivalent2 Unrisked

3The total reported is the sum of all probabilistic cases and will not equal the arithmetic sum of the individual zone or play type

due to the effects of statistical aggregation.


15/75

Summary Page 3

3738.70483.DJC.db


Table S-2bSummary of the Net1 Undiscovered In-Place Hydrocarbon Resources

PEP Block 38348 and Block 38349, New Zealand

BOE2-in-Place (MMbbls)

3

Area Low Estimate Best Estimate High Estimate

PEP 38348 615 1002 1773

PEP 38349 601 710 866

Total4

1316 1736 2513

1 Net Interest 100%

2Barrels of oil equivalent

3 Unrisked4

The total reported is the sum of all probabilistic cases and will not equal the arithmetic sum of the individual zone or play type


There is no certainty that any portion of the undiscovered resources will be discovered

and that, if discovered, it may not be economically viable or technically feasible to

produce.

In reviewing the lands, we have taken into account all known available pertinent factors, such as

lands having similar geological prospects, geological structures, prospective producing zones,

level of exploration and development activity, terrain, accessibility, access to markets, operatingstatus of the lands, and acquisition costs.

No fair market value has been assigned to these lands at this time.

Out of the Companys inventory of prospects and leads they have identified three non-

contingent drilling locations which they plan to drill in 2009. The Company is currently

negotiating a drilling contract with NRG Services to drill the initial two wells with an option to drill

one additional well per permit. A total drilling budget of USD 3.3 million has been established

and will be funded out of the Companys current working capital.

The drilling program will satisfy the work commitment requirements for each of the permits

which require one well to be drilled on each permit prior to November 2009 to maintain the

permits in good standing.


16/75

Summary Page 4

3738.70483.DJC.db


In Sproules opinion the estimated drill and complete cost of USD 1.1 million per well is

reasonable given the estimated target depths. The company is continuing to evaluate new

seismic data and plans to acquire additional seismic data over several of the target locations.


17/75

Discussion Page 1

3738.70483.DJC.db


Discussion

General Overview

Hydrocarbons are found in most New Zealand sedimentary basins (Figure 1). To date, all of

New Zealands production has been from the Taranaki Basin, located in the southwest of the

North Island. It is believed that the rest of the under-explored basins have potential for

commercial hydrocarbon discoveries.

Petroleum Exploration Permit (PEP) blocks 38348 and 38349 are situated in the East Coast

Basin, on the North Island, as shown in Figure 2. The Government of New Zealand granted

these exclusive permits on November 8, 2006. PEP 38348 covers a part of the basin north of

Gisborne and PEP 38349 covers part of the Hawke Bay area and south to Cape Turnagain. The

terms of both permits are identical with regard to the work program which must be carried out,as detailed later.

The two blocks cover a large portion of the basin, with PEP 38348 extending over 530,524

acres and PEP 38349 extending over 1,633,331 acres. Figure 3 shows the location of the two

blocks relative to other exploration permits and seismic data. Of the approximately 40 wells

drilled in the basin (Figure 4), approximately 20 have been drilled in these two blocks.

Although numerous gas and oil seeps have been documented, the East Coast Basin remains

one of the least explored areas in New Zealand. Petroleum exploration in the basin started in

the mid-1800s, however, none of the wells drilled to date have encountered commercialpetroleum accumulations.

In general terms, the permit holder must, within 12 months of the commencement date of the

permit, review the available seismic, reprocess and interpret as necessary, conduct

geochemical studies, examine structures in prospective areas and carry out petrographic tests

on reservoir and source formations. The permit holder must then make a commitment to

complete the next phase of the exploration program, which requires, within 24 months of the

commencement date of the permit, the acquisition, processing and interpretation of a minimum

of 20 kilometers of 2D seismic data, additional geological, geochemical and geophysical studies

and commitment to complete the third work program. The third phase requires the permit holderto drill one exploration well to an agreed objective or depth within 36 months of the

commencement date of the permit. At the end of this period, the permit holder must surrender

25 percent of the permit area or surrender the entire permit. If a portion of the permit is retained,

the permit holder must submit a work program proposal for the remainder of the permit term.


18/75

Discussion Page 2

3738.70483.DJC.db


With the Companys current drilling program of three prospects, outlined in the table below, the

Company will have fulfilled its work commitment for the first 36 months of the permits.

Drilling Prospects 2009

Prospect PEP Target Lithology Estimated

Depth

Boar Hill 38349 Miocene turbidite

Fractured Waipawa shale

1200 metres

Kowhai 38348 Upper-Mid Miocene Sandstone 1200 metres

Waitangi 28248 Paleocene-Cretaceous Sandstone 750 metres

The East Coast Basin has been identified as having reservoir, source rock and trap potential.

From the mid-1800s, several petroleum exploration companies conducted exploration in the

region. During this exploration phase, several companies, starting with BP, Shell and Todd in

1960s, conducted seismic profiling of this vast basin. In addition, a number of oil and gas

seeps, the majority being gas seeps, were identified by surface geological mapping all over the

basin. The most significant of the oil seeps occur at Rotokautuku (north of PEP 38348), Totangi

and Waitaning (within PEP 38348). Several exploratory wells drilled on the identified structures

and encountered numerous minor oil and gas shows, however, the wells drilled in these two

blocks did not yield commercial hydrocarbons. The lack of success has been attributed to the

lack of an adequate understanding of the structural geology of the basin.

Geological Review

The East Coast Basin of New Zealand covers an area of approximately 75,000 sq. km or

18,532,500 acres, extending from East Cape, in the northeast, to Kaikoura, in the southwest.

The region straddles the plate boundary where the Pacific Plate, to the east, is being subducted

beneath the Australian Plate to the west. The basin is a complex structural province, bounded

by the axial ranges in the west and the Hikurangi Trough in the east. From north to south, the

region is sub-divided into three main geographic areas, the Raukumara Peninsula, Hawkes Bay

and Wairarapa. These areas are large and geologically complex.

The basin fill is extremely thick, with more than 10,000 feet of sediments in some areas, and thestratigraphy is complex. A generalized stratigraphic column is shown in Figures 5 and 6. Figure

7 summarizes the petroleum systems of the East Coast Basin. It is suggested that some Late

Cretaceous units, such as the Koranga, Te wara, Waimana, Wairata etc., are promising

prospective reservoirs. Several Late Cretaceous to Paleogene units, such as the Tahora,

Wanstead, Weber and Whangai formations, are also thought to have good reservoir potential.


19/75

Discussion Page 3

3738.70483.DJC.db


Finally, the Neogene Whangara, Wescott, Takirtini, Waipitaki, and Ngatapa formations, also

have reservoir potential.

In this analysis, 56 identified leads or prospects within the two blocks were considered; with the

main target reservoir being Miocene sandstone and Pliocene limestone formations. Cretaceous

formations were also considered as secondary targets, where appropriate.

Prior to the issuance of the current permits, PEP 38348 was partially covered by PEP 38330,

operated by Indo Pacific Energy Ltd. The previously identified leads and prospects on this block

are shown in Figure 8. Figure 9 presents a map showing the leads and prospects identified

within PEP 38348, the location of the 2D seismic control (blue), and the locations of the

recorded oil (green) and gas seeps (red).

Similarly, PEP 38349 was previously partially covered by PEP 38328 and PEP 38332, both

operated by Indo Pacific Energy Ltd. The previously identified leads and prospects on thosepermits are shown in Figure 10. Figure 11 presents a map showing the leads and prospects

identified within PEP 38349, the location of the 2D seismic control (blue), and the locations of

the recorded oil (green) and gas seeps (red).

Digital well log data for three exploration wells (Hukarere-1, Kereru-1 and Whakatu-1) was

obtained from the New Zealand Ministry of Economic Development Crown Minerals website.

These wells did not encounter any hydrocarbon-bearing formations when drilled. The well log

data was primarily used to estimate the range of expected porosity values that would be used in

the probabilistic model. This information was supplemented by porosity and permeability data

measured on samples collected from outcrops within the permit area (Figure12).

The assessment of the porosity ranges, listed in the table below, was also based on reports

available on the New Zealand Ministry of Economic Development Crown Minerals website.

Because the existing exploration wells within the two blocks did not encounter hydrocarbons,

the range of water saturation values used in the model were based on water saturations found

in other known hydrocarbon pools with similar porosity values. The range of prospective areas

for the various leads was estimated from maps supplied by the Company or available from the

New Zealand Ministry of Economic Development Crown Minerals website. The net reservoir

thickness values used in the models was based on the target reservoir and ranged from 5 to 50

feet for sandstone reservoirs and 10 to 100 feet for several of the large carbonate reservoirs.The range of values used for the formation volume factor is considered reasonable to represent

crude oils with a range of solution gas ratios.


20/75


21/75

Discussion Page 5

3738.70483.DJC.db


Reservoir Potential

The following table summarizes the potential reservoir units in the East Coast Basin:

Potential Reservoir Units of the East Coast Basin, New Zealand.

Formation/ Unit Age RegionReservoir

Potential

Thickness

(m)

%Sand

Porosity

%

Permeability

mD

Limestone Plio-Pleistocene H, W Good ~100 - 90 8 90 39431 90 22 3-128

Regions: R= Raukumara Peninsula, H=Hawkes Bay, W=Wairarapa

Outcrop studies have shown that the Miocene sandstones have generally better reservoirquality. Figure 12 shows the porosity and permeability relationship color-coded by age for PEP

Block 38348, confirming that the upper Miocene sandstone formations have the best reservoir

quality compared to the other formations.

Seals

Widespread reservoir seals of both lateral and stratigraphic nature are observed in the basin but

their characteristics are not well documented. The smectitic Wanstead formation is considered

to have better sealing characteristics for entrapment of hydrocarbons from Cretaceous andPaleocene sources. Similarly, mudstones act as seals to trap hydrocarbons in the Neogene

sandstone and limestone formations.


22/75

Discussion Page 6

3738.70483.DJC.db


Traps

The tectonic setting of the East Coast Basin, on both Cretaceous and Neogene plate

boundaries, has resulted in a large number of widely distributed potential structural traps and a

complex history of closure development and reactivation. While many structures are thrust-

controlled, a strike-slip component cannot be ruled out. In addition, extensional faulting and

rifting, especially during the late Cretaceous and Paleogene, have contributed to the creation of

several sub-basins and prominent structures. The formation of several stratigraphic traps is also

attributed to the interaction of tectonics and eustacy. The identified potential structural and

stratigraphic traps in the two PEP blocks are individually described in the following section.

Overview of Prospects and Leads in PEP 38348 and 38349

Methodology

All available data was loaded into Schlumbergers Petrel3D visualization software to facilitate

integration. This data included all 2D seismic lines, well locations, cultural features such as

shorelines and lease boundaries, satellite imagery, including Landsat and digital elevation

model (DEM) data, and an inventory of geo-rectified map images including surface geology and

local and regional time structure maps. Prospect shapes, geochemical oil and gas seeps, and

regional and local fault trends were captured from the inventory of maps as polygon elements

within the Petrel project. The prospects polygons identified by the Company had been a

combination of both seismic and surface topographic anomalies, however, the horizoninterpretation was not provided and it was beyond the scope of this review to interpret the 2D

data. The seismic was used within the visualization system for comparison against the

Companies lead polygons.

The information available for review by Sproule indicates that reservoir quality rocks are present

within the two PEP blocks. Of the twenty wells drilled in the two blocks, digital well logs were

available for only three wells (Whakatu-1, Hukarere-1, and Kereru-1).

For the PEP 38348 block, fifteen prospects and leads, each with one or two prospective zones,

were considered. Similarly, for the PEP 38349 block, forty-one prospects and leads wereconsidered.


23/75

Discussion Page 7

3738.70483.DJC.db


The following tables list the prospects and leads considered for the PEP 38348 and 38349

blocks:

PEP 38348

Identified Prospects and Leads

Prospect/Lead Target Reservoir Lithology Hydrocarbon

Pauariki Prospect Lower Miocene Sandstone Oil/Gas

Matanui Lead Lower Miocene Sandstone Oil/Gas

Mid-Waiau Lead MidLower Miocene Sandstone Oil/Gas

Mangaroa Lead Mid-Lower Miocene Sandstone Oil/Gas

Kowhai Lead Upper-Mid Miocene Sandstone Oil/Gas

Arataha Lead UpperMid Miocene Sandstone Oil/GasWharekaka Lead UpperMid Miocene Sandstone Oil/Gas

Paroa Lead UpperMid Miocene Sandstone Oil/Gas

Tolaga Deep Lead MidLower Miocene Sandstone Oil/Gas

Arakihi Anticline Lead Upper Miocene Sandstone Oil/Gas

Kanakanaia Lead Lower Miocene Sandstone Oil/Gas

Waingaromia Prospect Lower Miocene Sandstone Oil/Gas

Waitangi Hill Crest Lead Paleocene-Cretaceous Sandstone Oil/Gas

Te Hau Lead Lower Miocene Sandstone Oil/Gas

Te Karaka Lead Lower Miocene Sandstone Oil/Gas


24/75

Discussion Page 8

3738.70483.DJC.db


PEP38349



Port Napier Prospect Pliocene, Miocene and/or Cretaceous Limestone/Sandstone Oil/Gas

Palomino Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Fernhill Lead Pliocene Limestone Oil/Gas

Speedy Prospect Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Boar Hill Prospect Late Cretaceous Mudstone Oil/Gas

Seafield Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Maimai Lead Miocene Sandstone Oil/Gas

Runanga Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Carrick Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Clive Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Clifton Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Brookvale Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Cessna Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Burma Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Opapa Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Tukituki Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Kahahakuri Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Tikokino east Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Salisbury Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Gala Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Okauawa Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Ongonga East Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

El Dorado Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Parson Lead Pliocene Limestone Oil/Gas

Ashcott Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Rosearl Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Hatuma Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Woburn Lead Miocene Sandstone Oil/Gas

Awanui Lead Miocene Sandstone Oil/Gas

Tourere Lead Miocene and Eocene-Paleocene Sandstone Oil/Gas

Pukerua Lead Miocene Sandstone Oil/Gas

Maunga Lead Miocene and Eocene-Paleocene Sandstone Oil/Gas

Mangatoro Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Lakeview Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas


25/75

Discussion Page 9

3738.70483.DJC.db


PEP38349



Oporae Lead Miocene Sandstone Oil/Gas

Waewaepa North Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Waewaepa South Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Waitahora Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Titree Lead Miocene and Oligocene Sandstone Oil/Gas

Mangaorapa Lead Miocene and Oligocene Sandstone Oil/Gas

Coonoor Lead Pliocene and/or Miocene Limestone/Sandstone Oil/Gas

Each of the anomalies is briefly described in the following discussion.

PEP 38348

Pauariki Prospect

This outcrop structure was formerly known as Area 32 of Taranaki Oil Ltd, where the off-

structure Waiapu-2 well was drilled in late 1927. Significant gas shows were reported during

drilling of this well. The Pauariki structure consists of NNE-trending stacked hanging wall

anticlines over low-angle WNW-dipping thrusts, with an observed minor south plunge on

seismic and a north plunge from surface geology. The target reservoirs are the Lower Miocene

sandstones and the Basal Miocene Whangara Formation. Lower Miocene shales act as seals.

Possible source rock are the PaleoceneMaastrichtian marine carbonaceous shales (Waipawa

Black Shale & Whangai Formation), and Upper Cretaceous carbonaceous shale interbeds. The

deeper stacked anticlines are best imaged on 2D seismic line ip-330-97-01 and the closure

appears weak on two lines (ip-330-98-101 & ip-330-98-101). Some gas seeps have been

identified in the local area.

Matanui Lead

This an outcrop structure referred to in 1928 by Taranaki Oil Ltd as being a potentially largefeature with an axial surface mapped NNE-trending anticline. Surface exposure at crest is mid-

Miocene mudstone. Reservoir targets include lower to basal Miocene turbidite sandstones. A

single seismic line, ip3330-97-01, shows a large, but poorly imaged, shallow anticlinal high

supporting the Companys identified lead.


26/75

Discussion Page 10

3738.70483.DJC.db


Mid-Waiau Lead

One, or possibly two, anticlines were mapped by NZGS in 1991 in the middle reaches of the

Waiau River, with axes immediately northwest of, and parallel to, the Waiau Fault Zone. Surfaceexposures are probably mid-Miocene. Reservoir targets are middle and lower Miocene

sandstones. A gas seep was recorded on the Waiau Fault Zone 3 kilometers to the southwest,

and the middle Miocene sandstones were reported to smell of oil. No seismic coverage was

provided over this feature.

Mangaroa Lead

This is a poorly imaged deeper structural complex that is only identified on 2D seismic line ip-

330-98-101-2.

Kowhai Lead

This lead is not discernible from surface geology but was delineated using seismic. The

structure is complicated and is terminated to the north by an east-west fault zone which has a

diapiric and/or faulted core, bringing Eocene formations (including the Wanstead Formation) to

surface adjacent to Upper or Mid-Miocene formations. Reservoir targets for this lead include

Upper and Mid-Miocene turbidite sandstones, and possible fractured limestones lower in the

Miocene. This lead is crossed by two orthogonal lines. While there may be some evidence forclosure on the east-west 2D profile ip-330-98-102, the north-south profile ip-330-00-205

suggests there is a risk of leakage updip to the north.

This structure is considered by the Company to be the second drilling candidate for 2009

following the drilling of the Boar Hill prospect of PEP 38349. The TD of the well is prognosed by

the Company to be 1200 metres. The estimated drilling costs are USD 750,000 for a dry-hole

with an additional USD 350,000 to complete the well if successful. The drilling costs for this well

are to be funded out of the Companys current working capital.

The Company is negotiating for this well to be drilled by the NRG Services Drilling Rig #1.

Arataha Lead


27/75

Discussion Page 11

3738.70483.DJC.db


This lead is a surface structure originally mapped by Taranaki Oil Ltd and subsequently listed as

a closed structure by Vacuum Oil Co. It has a surface culmination in Upper Miocene mudstone,

with a north plunge shown by surface dip on the uppermost Miocene Tokomaru Sandstone. Gas

seeps and oil smells were observed in the Parehaka High 13 kilometers to the ENE of Arataha

and in known source rocks across a major Pliocene depocentre and major fault. Although gas

seeps have been recorded south of the Arataha Lead, recent isotope analysis shows these to

be of shallow biogenic origin (swamp gas; Francis, 1998b). Reservoir targets are mainly Mid-

Miocene turbidite sandstones. Although this lead is covered by three seismic profiles, the

structure climbs steeply to the north (ip-330-98-104) and there appears to be a risk of leakage in

that direction.

Wharekaka and Paroa Leads

There are hints of gentle rollover in surface geology 68 kilometers NNW of Tolaga Bay, aroundthe northern margins of the wide Uawa River alluvial plains. These two leads are termed

Wharekaka and Paroa. The Wharekaka Lead is associated with the NE-trending Marau Beach

Fault (Strong 1927; Francis 1984). Surface exposures are of uppermost Miocene (Kapitean)

sandstones and sandy limestone. However, the base Tokomaru Sandstone is usually

unconformable on the underlying Mapiri Mudstone and surface dips are not necessarily

indicative of deeper structure.

Gas was reported in water bores in the Uawa River plains, and flammable gas was encountered

in two dynamite shot holes in the Tolaga Anticline to the south. There are numerous gas seeps

and oil indications further to the north, south and west. Upper Miocene Hikuwai Sandstone,having good reservoir quality, is the primary reservoir target, with poorer quality, slightly older

Kaiaua sandstone and the Mid-Miocene section as secondary targets.

The Wharekaka Lead is apparently bigger and has higher relief than does the Paroa Lead,

although this comparison is based only on dip lines for Paroa. Wharekaka is more extensively

covered by four dip lines and one strike line, while Paroa is partially covered by three dip lines.

The seismic continuity is poor and the reflection energy is broken and discontinuous. Paroa may

be more synclinal, while Wharekaka may have better developed closure on its SW flank.

Tolaga Deep Lead

This is a subsidiary footwall structure discernible immediately north of the faulted axis of the

Tolaga Anticline, updip from the Kaiaua Syncline. Rollover is inferred to be in Mid-to-Lower


28/75

Discussion Page 12

3738.70483.DJC.db


Miocene and the structure is strongly unconformable below the inferred top Mid-Miocene. A

small, stacked thrust in this area is supported by 2D seismic line ip-330-98-102.

Arakihi Lead

This structure is located on the eastern side of a major Pliocene depocentre (Waihora Syncline)

as a surface anticline exposing top Miocene to Lower Pliocene. Seismic or well control is not

available to delineate this structure. Reservoir targets include Upper and possibly Mid-Miocene

sandstones. Surface geological observations (Francis, 1998a) suggest the anticline to be a

hanging wall structure over a NW-dipping reverse fault. The structure is prognosed to be

favorably situated with regard to mature source with a good drainage area. No 2D seismic

coverage was available over this lead.

Kanakanala Lead

This structure is delineated from a surface anticline in the Waihora Valley, 8 kilometers

southeast of the Waitangi seeps and 4 kilometers west of the Waihora Syncline, a major

Pliocene depocentre. However, closure is uncertain, as it could not be confirmed from the

available seismic data. Accordingly, the size of the closure is unknown. Two lines cross this lead

(ip330-00-201 & -202) and, on both lines, this structure appears to be in a flank position and

less prospective than some of the other leads.

Waingaromia Prospect

The most successful well in the East Coast Basin is the Waingaromia-1, drilled between 1884

and 1890. The well was situated near the axis of the Waingaromia Syncline but encountered oil

and gas shows in several sandstone, limestone and conglomerate formations between 143 and

350 meters, and oil was apparently produced between 390 meters and the TD of 403 meters at

a rate of 20 to 50 barrels per day. Recent exploration by Indo-Pacific Energy in the area lead to

the drilling of the Waingaromia2 well in May 2002, close to the Waingaromia1 well and about

100 meters deeper. Although gas was present while drilling, the well was abandoned as dry.

Gas collected at 493 meters contained 44% methane, 0.25% ethane, 117-ppm propane and 18-

ppm butane. Most of the gas was believed to have come from fractures in concretions. Gasbubbles were observed in the core from 250 meters down. A strong gas kick at 348 meters,

which was flared, came from a vuggy brecciated concretionary zone with open fractures. At 339

meters, oil was observed from an open fault dipping at 40, which had strike-slip displacement.


29/75

Discussion Page 13

3738.70483.DJC.db


In summary, the Waingaromia-2 well, drilled to test the potential hydrocarbon-bearing

formations encountered in the Waingaromia-1 well, did not encounter any of the anticipated

Mid- and Lower Miocene sandstone formations (Waingaromia-2 Well Completion Report). The

2D seismic line ip330-00-301 shows the possibility of a fault-dependent trap against a major

fault in the vicinity of this lead.

Waitangi Hill Crest Lead

The Waitangi seep area was the target of exploration in the early 1900s. After drilling five

shallow wells, Gisborne Oil Company drilled two deeper wells towards the centre of Waitangi hill

and about 600 meters north of the main seeps. The area was interpreted to be a fold-dominant

structure. Gas and oil shows were encountered in several horizons in the Waitangi-1 well, with

the most significant shows recorded from a greensand associated with brown shales at about

200 meters. The greensand could be associated with the Rakauroa Member of the WhangaiFormation or, alternatively, with Waipawa Black Shale or Wanstead Formation. Surface

exposure is very patchy but these formations are present in the Waitangi Crest area. In 1912,

the oil-bearing greensand zone at 200 meters was perforated and produced about 10 bbl/day of

oil. The casing of Waitangi-1 still bubbles gas and oil. No 2D seismic coverage was provided

over this lead but nearby line ip330-00-301 shows a major fault immediately to the south and

the structure appears to be rising towards this lead at the end of this line.

This structure is considered to be the third drilling candidate by the Company in 2009. It is

proposed to be drilled following the Boar Hill prospect (PEP 38349) and the Kowhai prospect

(PEP 38348) to a total depth (TD) of approximately 750 metres. The Company may acquire

some additional seismic following a review of the first two wells, before spudding a well into this

structure. The estimated drilling cost for this well is USD 750,000 for the dry-hole case with an

additional USD 350,000 to complete the well in the event of a success. The drilling costs for the

well, are to be funded out of the Companys current working capital.

The Company is negotiating for this well to be drilled by the NRG Services Drilling Rig #1.

Te Hau Lead

Te Hau is a minor rollover structure situated immediately southwest of the Waitangi High and

seven kilometers from the main oil seeps. South-dipping Lower Miocene sandstone can be seen

in surface outcrops and the fault (or unconformity?) juxtaposing the complex high is only one

kilometer to the north. Lower Miocene sandstones and discontinuous limestones occur close to


30/75

Discussion Page 14

3738.70483.DJC.db


this contact. The prospect is small, extending about 700 meters along the rollover, but could

represent an interesting flank prospect to the exposed oil-rich Waitangi High, if closure to both

north and south could be established. No 2D seismic coverage was provided over this lead but

nearby line ip330-00-204 shows that the structure appears to be rising towards this lead at the

end of this line.

Te Karaka Lead

This is a structural high with NW-dipping Mid- to Lower Miocene and SE-dipping Lower Pliocene

formations close to the Totangi oil seeps. One shallow well was drilled to a depth of 150 meters

by O.A. Browne Company in 1957 but no data is available on the well. Surface exposures are

concealed by extensive Upper Quaternary alluvium and Lower Quaternary lakebeds. No

seismic coverage was provided for this lead.

PEP 38349

PEP 38349 largely consists of approximately 7 to 10 kilometres of prospective Mid-Cretaceous

to Quaternary section. Black and grey shales of Upper CretaceousPaleocene age are the main

marine source rocks. MioceneQuaternary reservoirs and seals are inferred to be present in the

area, with indications of late burial, hydrocarbon maturation and migration. Several oil seeps to

the south of the permit are linked to thermogenic and biogenic source rocks. The predominant

structural element is the Miocene to Late Pliocene and Quaternary basin development in a

compressive-wrench regime. The main reservoir targets are the Upper and Mid-Miocene

turbidites, shelf sandstones and fractured limestones, Pliocene coquina limestones with

possible turbidites, and possible Upper CretaceousPaleocene sandstones and fractured

shales.

Port Napier Prospect

This rollover and SW-plunging structure indicates a Late Pliocene high from surface geology.

The well Hukarere-1 was drilled on the structure in late 2001 and was abandoned as dry. The

well was drilled to a total depth of 10,598 feet to test the hydrocarbon potential of the PaniaAnticline. The well was drilled on reclaimed land in the Port of Napier. At 4,250 feet, the

Mangatoro Formation was encountered, resting conformably on the Haupori Sandstone. The

top of the Wanstead Formation was encountered at 6980 feet. The Whangai Formation was

encountered at 9,068 feet, with an unusual facies of intensively calcite-veined mudstone at


31/75

Discussion Page 15

3738.70483.DJC.db


9,220-9,522 feet, interpreted as a fault zone. The Glenburn Formation was penetrated at 10,127

feet and encountered gas up to 23%. A perforation test of the interval between 10,431 and

10,513 feet flowed only water. A second test through perforations at 10,352-10,364 feet did not

show significant pressure buildup and 22 barrels of water were swabbed to surface.

Petrophysical analysis of the Hukurere-1 well showed that the Haupori, Waitere and Glenburn

formations have better hydrocarbon potential compared to the remainder of the logged section.

The Haupori sandstone, with a gross vertical thickness of 597 feet, did not have any gas shows

while drilling. The Waitere Formation that covers the Late Miocene succession between the

Mokonui and Waitere unconformities, comprises a fining-upward sequence that grades from

sandstone to siltstone. In the first four feet of the formation, samples exhibited a weak pale

greenish-blue crushed cut and bluish-white residual ring but without any direct fluorescence. A

few other samples showed slow blooming milky white cut without any fluorescence. Minor

background gas was observed while drilling the section. Petrophysical analysis showed the

formation to have a gross vertical thickness of 1223 feet. Several thin sections from theGlenburn sandstone show poor porosity with high clay content. The interval 10,400-10,500 feet

MD had porosity of 15% and a calculated water saturation in the range of 75-85%. The 2D line

ip328-99-201 clearly shows a prospective anticlinal closure supporting this prospect.

Palomino Lead

This structure is situated to the east of Whakatu-1 and is seismically defined by a separate

rollover. The primary reservoir targets are Pliocene limestone and Miocene sandstone units.

Sproules petrophysical interpretation of the Whakatu-1 well shows that the entire loggedinterval is devoid of any hydrocarbon potential, except for the Waipuna limestone section that

shows an average porosity of 8% and an average water saturation of 50%. This zone, with an

estimated 32 feet of low-porosity net pay, is the most promising section in the well. The

geological summary from the well completion report identifies the interval as calcareous

sandstone grading to sandy limestone. Gas levels were relatively low, with C1 values of 85-285

ppm; however, the C2 levels were very high, ranging up to 35 ppm. No C3 or heavier

components were present. According to the well completion report, the anticipated Pliocene and

Miocene reservoirs were absent in the vicinity of the Whakatu structure. The 2D line g328-98-

117 shows that the deeper structure rises from quite steep flanks and flattens out on the crest of

the deep structure, and may have a rollover closure component. The shallower section does notappear to have closure.

Fernhill Lead


32/75

Discussion Page 16

3738.70483.DJC.db


This structure lies inland to the west of the Hawkes Bay area and is poorly defined on the

existing seismic lines. The Mangapanian-Nukumaruan regressive phase in this area is

dominated by carbonate lithofacies within the Te Aute sediments, which are common

throughout the Hawkes Bay area. The prospective primary reservoir target is the Mangapanian

(Late Pliocene) limestone. Good quality seismic on lines such as 97-02 show a fault-dependent

high-side closure against a major fault at depth that develops a significant rollover in the shallow

section.

Speedy Prospect

The Speedy prospect is located in the central part of the East Coast Basin, close to known

Cretaceous-Paleocene source rocks, Mid-to Late Miocene turbidite sandstones, Early and Mid-

Pliocene coquina limestone reservoirs, and Miocene-Pliocene seals. The structure is a

northeast trending seismically defined 4-way dip closure. Hydrocarbons are inferred to havemigrated from a substantial half-graben some 5 kilometers to the northwest of this structure.

One well, Speedy-1, drilled in mid-2000 to a total depth of 876 meters, was plugged and

abandoned as dry. The well failed to reach the target horizon due to mechanical difficulties

during drilling. The stratigraphic succession encountered by the well consisted of Upper

Miocene claystone formation with minor sandstones, unconfirmably overlain by Mid-Pliocene

claystone and sandstone formations. A maximum mud gas level of 2.71% was recorded at 430

meters. The Tukituki (Mangapanian) sandstone, Te Onepu limestone formations overlie the

claystone formation. Inferred porosity and permeability in this section are good to very good.

The Te Onepu limestones are part of the Te Aute Limestone group in the Hawkes Bay area.Finally, the Quaternary mudstones, oyster beds and gravel beds were encountered to the

surface.

Boar Hill Prospect

This is a reasonably well-defined seismic structure confirming the surface geological mapping.

The structure is defined by two dip seismic profiles (ip332-98-207 and ip332-99-3030 and one

strike seismic profile (ip332-99-302). Although there is evidence of a great deal of faulting, all

three of these 2D seismic profiles exhibit a general antiformal shape. This structure isconsidered as the first drilling candidate by the Company in the second quarter of 2009 to a TD

of approximately 1200 metres. It is inferred that stacked thrusts of Whangai Formation and

older in core of structure can be encountered. Reservoir targets prognosed by the Company

include both the Miocene-aged turbidite sands and potentially, the Waipawa and Whangai oil


33/75

Discussion Page 17

3738.70483.DJC.db


shales. Three 2D seismic profiles show a major subsurface structure supporting this prospect.

A major regional fault on the north and east flanks dramatically terminates the structure.

The Company has 50 km of newly acquired 2D seismic data which was not available at the timeof the Sproule review which has increased their confidence in the closure. The Company is

negotiating for this well to be drilled by the NRG Services Drilling Rig #1. The drilling costs for

the well are to be funded out of current working capita.

The estimated drilling cost for a dry-hole are USD 750,000 in the case of a dry-hole with an

additional USD 350,000 to complete the well.

Seafield Lead

The Seafield lead is a rollover structure situated northwest of Napier. A 3-way closure is defined

by seismic interpretation of Indo Pacific 1998 lines, with no closure definition to the northwest.

Late Miocene to Pliocene formations are the prospective reservoirs.

Maimai Lead

This is a poorly defined sub-unconformity rollover structure flanking the Port Napier prospect,

with Miocene formations as probable reservoir targets. The rollover feature shows an attractive

amplitude anomaly at the crest of the closure on 2D seismic profile ip328-99-202, supportingthis lead.

Runanga Lead

A small rollover is seen on dip line 89C-01 but is not adequately defined to the north or south

due to a lack of strike line control. Similar to the Fernhill lead, the primary reservoir target is

considered to be the Mangapanian (Late Pliocene) limestone.


34/75

Discussion Page 18

3738.70483.DJC.db


Carrick Lead

This structure was identified on several seismic lines. Gas bubbles were reported from a

shallow water well drilled near the structure. Similar to the Fernhill lead, the primary prospective

reservoir target is expected to be the Mangapanian (Late Pliocene) limestone. Carrick appears

to be a more subtle closure, as shown on offsetting line 97-04.

Clive Lead

Seismic lines 98-114-97-01 and g328-98-105 show this feature to be a high-side, likely fault-

dependent closure against a major down-to-basement fault. Similar to the Carrick structure, gas

was reported from a water well drilled on the northwestern flank of the structure. The primary

reservoir targets are Pliocene limestone and Miocene sandstone units.

Clifton Lead

Situated at the northern end of the extensive Elsthorpe Anticline on the coast, this structure is

identified on seismic lines 98-114-97-01 and just off g328-98-105; however, definition of the

northern and southern closures is not clear. Possible reservoir targets are the Pliocene

limestone, with secondary objectives in the Miocene sandstone units. There appears to be high-

side hanging wall rollover closure (particularly at shallower depths) against a major down-to-

basin fault.

Brookvale Lead

A minor rollover is seen on seismic line L98-115 at the end of the line. It is also seen as a high

on the southern end of lines 99-205 and 301, with possible definition on line L204. This structure

is located to the north of Havelock North town. Reservoir targets could be the Pliocene

limestones, with secondary targets in the Miocene sandstones. While 2D seismic line ip328-99-

301 rises towards this anomaly, the structure lacks direct seismic control.

Cessna Lead

This structure is characterized by a distinct surface topography feature defined by mid-Pliocene

limestone. The structure is seen as an asymmetric hanging wall rollover on a NW-dipping


35/75

Discussion Page 19

3738.70483.DJC.db


reverse fault on the available seismic lines. Shallow lower Pliocene limestones and deeper

Upper to Mid-Miocene turbidites are the main reservoir targets. No 2D seismic was available

over this lead.

Burma Lead

This structure is identified from surface geology as a 3-way rollover expressed in mid-Pliocene

limestones. The Pliocene limestones and Late Miocene sandstones are the possible reservoir

targets. No 2D seismic was available over this lead.

Opapa Lead

Surface geology indicates a 4-way closure in mid-Pliocene limestones with targets from shallowLower Pliocene limestones and, possibly, Upper and Mid-Miocene turbidites and Paleocene

sandstones. No 2D seismic was available over this lead.

Tukituki Lead

This is a surface structure to the west of the Patangata Syncline, with gentle dips in Pliocene

limestones that define rollover and a northerly plunge. No 2D seismic was available over this

lead.

Kahahakuri Lead

This is likely a steeply dipping fault-dependent closure as best illustrated on 2D line th. The

steepness hinders the liklelihood of trapping large volumes.

Tikokino East Lead

This is a steeply dipping deep fault-bounded trap discernible on line g328-98-109. It is not clear

if there is roll-over on this deep structure as the seismic character appears to be stronglyinfluenced by diffractions extending off the crest of the structure.


36/75

Discussion Page 20

3738.70483.DJC.db


Salisbury Lead

This is a small rollover on seismic line C91-04, mainly below the unconformity. It increases in

size, and closes higher to the south, on line C91-05. The structure may be en-echelon to the

Kereru structure, which is a 4-way dip closure. The area of closure at the mid-Mangapanian

level is approximately 8 square kilometers. Kereru-1 was drilled almost on the crest of the upper

gently folded sequence, and about 900 meters west of the crest of the unconformity. There were

no visual hydrocarbon shows in either cuttings or sidewall cores. Several recorded gas shows

were mostly background and predominantly methane. The highest gas values were recorded in

the Tirowhenua mudstone at 3,785 feet and between 4,000 and 4,100 feet. This well was

plugged and abandoned as dry.

In the Ohara mudstone interval, porosity values of 16% and water saturation values up to 40%

were computed in several zones; however, the results are suspect due to poor hole conditions.In the zone of highest total gas readings within the Tirowhenua mudstone, log analysis does not

indicate any hydrocarbon saturations.

In Salisbury, the reservoir targets are the Pliocene limestones and Miocene sandstones, as in

the Kereru structure. No 2D seismic was available over this lead.

Gala Lead

This is a broad, shallow rollover trending NNESSW on seismic data. It is interpreted that thislead could be contiguous with the Okauawa lead. It is inferred that Upper Miocene sandstones

are present below the Pliocene. This is an attractive feature with good areal extent that appears

to have some associated amplitude anomaly, for example, on 2D line tb.

Okauawa Lead

This structural high is seen at the east end of seismic line C91-05, with a slight rise on line 89C-

02, and evidence of structure on surface geology. Reservoir targets are the formations above

and below the mid-Pliocene unconformity. The 2D seismic (eg. line tc) is extremely poor over

this lead and does not compare favourably against other opportunities.

Ongonga East Lead

The Ongonga East structure lies south-east of the high drilled by the Ongonga-1 well. According

to the well completion report, Ongonaga-1 was drilled on a closed subsurface seismic high to


37/75

Discussion Page 21

3738.70483.DJC.db


test the hydrocarbon potential of the Pliocene carbonate that exhibits good porosity and

permeability in outcrop. The well was drilled to a total depth of 5,162 feet, with no significant

hydrocarbon indications. The Ongonga East structure is a separate down-dip fault block, having

the same objective of Pliocene limestone targets. This fault block may exhibit some fault-

independent rollover closure but additional seismic is required for validation.

El Dorado Lead

The structure is characterized by a gentle rollover at the intersection of two seismic lines

passing through the crest. Closure to the south is not well defined. The primary reservoir target

is the Mid-Pliocene coquina limestone, with a possible Pliocene and/or Miocene sandstone

target. The 2D seismic profile tp illustrates and supports this anticlinal carbonate build-up with

relatively clean seismic continuity.

Parson Lead

This lead is an unusual mound interpreted on seismic line 97-11, inferred by the Company to be

a Pliocene coquina limestone body. However, it may just be a steeply dipping fault-dependent

lead. Closure is not confirmed due to a lack of adequate strike lines. The structure may possibly

be connected to the Speedy lead to the south and a poorly imaged mound to the north. The

reservoir target is shallow and assumed to be close to outcrop.

Ashcott Lead

Ashcott is delineated as a rollover near the north end of seismic line 97-05 (near-strike), with a

suggestion of dip rollover at the extreme eastern end of the line. Surface geology indicates that

the Pliocene limestone flattens out, suggesting that the rollover is in the Miocene section.

Rosearl Lead

This structure is identified on a single dip line as a rollover and a strike line is required to confirmclosure. Mid-Pliocene coquina limestone is the primary reservoir target, with a possible

secondary objective in the deeper Miocene sandstones. A rollover feature seen on line 97-05,

which could be a possible carbonate buildup, provides some support for this interpretation.


38/75

Discussion Page 22

3738.70483.DJC.db


Hatuma Lead

This is a moderately large rollover seen on seismic line 97-05 (near-strike) below the

unconformity. The seismic quality is very good on this line and the structure appears to have

substantial relief. Western regional dip is evident from other seismic lines. More seismic lines

through the crest would better define closure to the east. The primary reservoir targets would

most probably be the Mid-Pliocene coquina limestone and, possibly, deeper Miocene

sandstones.

Woburn Lead

This is a structural high between the Hatuma and Awanui leads. It is well defined on two

reprocessed seismic lines, 97-05 and 98-204. It is a robust Miocene structure underlying a

Pliocene syncline. The top of the Miocene section was eroded during the early Pliocene.

Awanui Lead

This is a double rollover structure near the western end of lines 97-05, 332-98-204 (dip) and

332-98-205 (strike). The structure is situated close to the WaewaepaOruawharo fault. It is

inferred that the closure is probably of Miocene age.

Tourere Lead

This is a surface anticline with visible Upper Miocene outcrop exposure. The structure is

parallel to the Pukerua lead and is located 2.5 kilometers east of it. The reservoir targets are

Lower Miocene and possible Eocene-Paleocene formations. No 2D seismic was available over

this lead.

Pukerua Lead

Pukerua is delineated as a small surface anticline in the Pliocene, located 500 meters east ofthe Oruawharo fault. The east side syncline appears to show favorable plunge reversal. The

primary reservoir targets are the Upper and Lower Miocene sandstones. No 2D seismic was

available over this lead.


39/75

Discussion Page 23

3738.70483.DJC.db


Maunga Lead

This is a surface anticline, faulted against the Pliocene section to the east, and located near the

Oruawharo fault. Oil indications were reported in surface exposure of sandstones at the crest.

Reservoir targets include Lower Miocene and, possibly, Eocene-Paleocene formations. No 2D

seismic was available over this lead.

Mangatoro Lead

This structure is an inferred high, immediately east of the Waewaepa fault, comparable to the

Waewaepa leads. One seismic line was shot (98-206) but the data is very poor. Possible targets

include lower Pliocene limestone and Upper and Lower Miocene sandstones. This lead is

crossed by one 2D profile, 98-206, and appears to be in a flank position and less attractive than

many other leads.

Lakeview Lead

This structure is barely discernable as a hanging wall rollover on reprocessed seismic line 332-

98-206, toward the southeast end, and situated 4 kilometers SE of the WaewaepaOruawharo

fault. It is considered to be a relatively shallow prospect, with probable Miocene formations

under the base-Pliocene unconformity. This lead is crossed by one 2D profile, 98-206, and

appears to be an attractive high-side fault-dependent closure that may have a rollover

component.

Oporae Lead

This is a surface 4-way closure defined on the west by the mid-Pliocene limestone and, on the

east, by dip on the Upper Miocene. High local topographic relief is reported on the structure.

Possible reservoir target formations are the Upper Miocene sandstones at or near the

unconformity, with a secondary objective in Lower Miocene sandstones preserved between the

Paleocene and Upper Miocene. No 2D seismic was available over this lead.


40/75

Discussion Page 24

3738.70483.DJC.db


Waewaepa North and South Leads

Waewaepa-North is a 4-way surface closure defined in mid-Pliocene (Mangapanian) limestone.

Possible targets include lower Pliocene limestones, and Upper and, possibly, Lower Miocene

sandstones. It is characterized by a long northerly plunge, separated by a gentle saddle from

the Waewaepa South lead. Subsurface closure is not confirmed due to lack of adequate seismic

definition. The Waewaepa and Coonoor leads are to the east of Waewaepa fault. Oil and gas

seeps are observed in breached anticlines to the east of these leads. The Waewaepa South

lead has a long southerly plunge. No 2D seismic was available over these leads.

Waitahora Lead

This lead is situated along the same trend as, and to the north of, the Waewaepa leads but hasa poorer surface signature. The potential reservoir targets are Lower Pliocene limestones,

Upper and, possibly, Lower Miocene sandstones. No 2D seismic was available over this lead.

Titree Lead

This is a surface anticline with mid-Miocene outcrop exposures. Reservoir targets are possibly

Lower Miocene turbidites and top Oligocene sandstones. The Wescott oil seeps lie to the west

of this lead. No 2D seismic was available over this lead.

Mangaorapa Lead

The Mangaorapa Anticline lies across the Akitio Syncline axis from Boar Hill. Reservoir targets

are similar to the Titree North lead. No 2D seismic was available over this lead.

Coonoor Lead

This is an outcrop high to the SSW of the Waewaepa South lead. Reservoir targets are similarto the Waewaepa leads.No 2D seismic was available over this lead.


41/75

Discussion Page 25

3738.70483.DJC.db


Summary of the Resource Assessment of the identified Prospects and Leads

Based on our review of the information made available to us, it is apparent that:

reservoir quality rocks are present within the two PEP blocks,

source rocks have generated hydrocarbons in the basin and there has been migration

through the system, and

prospective structures are present on the blocks.

However, it is also apparent that:

most of the identified structures are poorly defined at this time and additional data may

invalidate them,

there is insufficient stratigraphic data to provide confident identification of prospective

reservoirs within the identified structures,

there is insufficient data to determine whether trap formation pre-dates hydrocarbonmigration,

original charged traps may not have been preserved in this active basin,

the basin is both oil- and gas-prone but small gas pools would not be economic to

produce and it would have to be determined if even large volumes of gas, if discovered,

would be economic.

Based on this review, it is our opinion that the current risks and uncertainties applicable to these

blocks are numerous and suggest that the geological risks are high. Also, at this immature stage

of basin development, we have treated the prospects as if they were independent, however, this

is not so. As additional seismic is shot and wells are drilled, the probabilities associated with theremaining undrilled prospects will change in accordance with the accumulated well results. In

our assessment, we have acknowledge geological risk and inter-dependence of the prospects

by incorporating a P99 net pay value of zero for each prospect or lead in our analysis.

It is our opinion that the basin is too immature to justify estimation of recoverable hydrocarbons,

thus we have limited our assessment to the estimation of undiscovered in-place resources.

In assessing the undiscovered resources for these PEP blocks, ranges of reservoir parameter

values for porosity, water saturation, area, net pay and shrinkage factors were estimated for

each prospect or lead, and incorporated into a probabilistic software model, using eithertriangular or lognormal distributions. The lognormal distributions were modeled using assumed

P10 and P90 end points. The model was run for 10,000 iterations, from which a distribution of

all possible outcomes was created. The totals for each prospect or lead were summed

statistically in order to estimate an aggregated expected outcome. Note that the arithmetic sum


42/75

Discussion Page 26

3738.70483.DJC.db


of individual volumes for each prospect or lead will not equal the statistical sum due to

aggregation effects.

Based on the probabilistic model built for PEP Blocks 38348 and 38349, low, best and high

estimates for the undiscovered in-place oil resources were selected, using the P90, P50 and

P10 values from the output distribution. These results are presented in Table 1a for the gross

volumes and Table 1b for the net volumes. These volumes are reported as unrisked volumes;

specifically, Sproule has not applied any geological risk factors or economic criteria to these

estimates.

Note that there is no certainty that any portion of the undiscovered resources will be

discovered and that, if discovered, it may not be economically viable or technically

feasible to produce.

Table 1aPEP Blocks 38348 and 38349, East Coast, New Zealand

Probabilistic Estimate of Gross Undiscovered In-Place Hydrocarbon Resources

Low Estimate Best Estimate High Estimate

Area Gross BOE1-in-Place (MMbbls)

2

PEP Block 38348 615 1002 1773

PEP Block 38349601 710 866

Total3

1316 1736 25131Barrels of oil equivalent2

Unrisked3The total reported is the sum of all probabilistic cases and will not equal the arithmetic sum of the individual zone or play type



43/75


44/75

Discussion Page 28

3738.70483.DJC.db


test and/or production data and economic analysis will be required in order to identify and

estimate reserves for the play.

Minimum Work Obligations

The PEPs granted to the Company by Crown Minerals, New Zealand, stipulate the length of

time for the Exploration Period, which, for these permits, is 60 months.

As the terms for both permits are essentially the same, the information set out below applies to

both PEP 38348 and 38349 blocks, except where noted.

The work program for both the permits is

a) Within the first 12 months:

i. Review available seismic data and reprocess and interpret as necessary;ii. Conduct geochemical surveys over identified prospects/leads. Review the results

of this work and prioritize prospective areas and prospects/leads;

iii. Examine structural and stratigraphic relationships of prospective areas and carry

out petrographic analysis including porosity and permeability tests of reservoir

and source formations.

And make a firm commitment to complete the following:

b) Within 24 months of the commencement date of the permit:

i. Acquire, process and interpret a minimum of 20 km of 2D seismic data on PEP

38348 and 30 km of 2D seismic data on PEP 38349;

ii. Undertake additional geological and geochemical studies and appropriategeophysical studies, including detailed interpretation of existing and the

reprocessed and newly acquired seismic data described above.;

And make a firm commitment to complete the following:

c) Within 36 months of the commencement date of the permit:

Drill one exploration well to an agreed objective and/ or depth unless geological

or engineering constraints encountered whilst drilling make this unreasonable;

And submit by notice in writing a work program for the remainder of the permit term and

surrender 25% of the permit area or surrender the permit.

The royalty rate for the produced crude oil is set as a sliding scale with reasonable rates. Thereis no minimum expenditure on either PEP.

The work obligation set out in both agreements is considered to be reasonable and achievable

by the Company, given the 5-year exploration period.


45/75

Discussion Page 29

3738.70483.DJC.db


Work Plans and Budget

The Company is negotiating for their first wells to be drilled by the NRG Services Drilling Rig #1

commencing the second quarter of 2009. The first three wells currently planned will target the

Boar Hill prospect of PEP 38349 and the non-contingent Kowhai and Waitangi prospects of PEP

38348. Costs for these wells, to be funded out of current working capital, are estimated at USD

750,000 each for a dryhole case and USD 350,000 additional to complete each well in the

success case for a total budget of USD 3.3 million.

In Sproules opinion the work program being followed by the Company is following the work

commitment requirements listed as part of the terms and conditions of the PEP Permits. Each of

the drilling targets are stand alone prospects.


46/75

Appendix A Page 1

3738.70483.DJC.db


Appendix A Definitions

The following definitions form the basis of our classification of reserves and values presented in

this report. They have been prepared by the Standing Committee on Reserves Definitions of the

Petroleum Society of the CIM (CIM), incorporated in the Society of Petroleum Evaluation

Engineers (SPEE) Canadian Oil and Gas Evaluation Handbook (COGE Handbook) and

specified by National Instrument 51-101 (NI 51-101).

Reserves are estimated remaining quantities of oil and natural gas and related substances

anticipated to be recoverable from known accumulations, from a given date forward, based on:

analysis of drilling, geological, geophysical and engineering data;

the use of established technology;

specified economic conditions, which are generally accepted as being reasonable, andshall be disclosed; and

a remaining reserve life of 50 years.

Reserves are classified according to the degree of certainty associated with the estimates.

1. Proved Reserves

Proved reserves are those reserves that can be estimated with a high degree of certainty to

be recoverable. It is likely that the actual remaining quantities recovered will exceed the

estimated proved reserves.

2. Probable Reserves

Probable reserves are those additional reserves that are less certain to be recovered than

proved reserves. It is equally likely that the actual remaining quantities recovered will be

greater or less than the sum of the estimated proved plus probable reserves.

3. Possible Reserves

Possible reserves are those additional reserves that are less certain to be recovered thanprobable reserves. It is unlikely that the actual remaining quantities recovered will exceed

the sum of the estimated proved plus probable plus possible reserves. Possible reserves

have not been considered in this report.


47/75

Appendix A Page 2

3738.70483.DJC.db


Other criteria that must also be met for the categorization of reserves are provided in Section

5.5 of the COGE Handbook.

Each of

TOP Sproule Report 2008-5-31

Documents

Transcript of TOP Sproule Report 2008-5-31