ARHT Media Inc V.ART.H

RE: RE: News Release wording?

[GreatSwami]

In the oil business you need three things. You need a source, you need a reservoir and you need a trap.

We know there are source and reservoir rocks here we are having to make inspired guesses that we have a sealed trap. All indications are that we have an intact trap here so we have all the basics.

Now if we have a reservoir and a good sealing trap - the entire Qara Dagh structural closure overlain by this thick (much thicker than expected) shale seal - what are the possible fuid situations in the underlying reservoir?

The reservoir can be filled with gas, gas condensates, oil, water - or plugged with bitumen or sulphur perhaps?

If the reservoir was filled to spill with gas or gas condensates - where we drilled into the fracture plumbing at the crest of the structure we would have had the most overpressured part of the reservoir (with respect to depth and mud density required to hold back any well flow situations). There have been no reported drilling issues related to gas kicks or potentially losing control of the well due to anomalous pressure situations.

That leaves the possibility that the reservoir is filled to spill with oil, water or plugged with bitumen or sulphur. The fact that we are having to run 7" casing is almost certain confirmation that we have hit fracture permeability - and significant fracture permeability! (See previous posts).  Having significant (inferred) permeability - the reservoir is not plugged with bitumen or sulphur. There remain two possibilities - the reservoir is filled with oil or it is filled with water.

The Company (Niko, Vast, Groundstar) comment that they have drilled into what they infer is the top 143m of Shranish (in part lowermost Tanjero) and have encountered increasing mud gas shows as well as fluorescence. (Fluorescence that will only come from live oil).

We do not have any further details only that this 143m is called possible prospective pay - and that for avariety of reasons they have to run casing before they can drill ahead - and I have tackled all the implications of that previously. Someone - xomoc - commented that his sources inform him that the type of casing run suggests that whatever else they may have - they do not have (significant) H2S gas. I am somewhat surprised by that as my take from most things here in this region is that everything would be just a wee bit to a whole lot sour (H2S bearing). I will have to look into that and whether such an evaluation is robust - but for now I have no reason to doubt the potential source or inference - but maybe the oil here is slightly sour and what he infers is that the casing string choice rules out a free gas cap with high H2S concentrations rather than slightly sour oil?

So here is where we have to read the Tea Leaves. We know that they have an unexpected gas and oil pay zone in the overlying shallower Aalijii sands. We do not know if that will be distributed over the entire Qara dagh structure or whether that is merely a localised phenomenon? But what it tells anyone who thinks about it is that if there is a trapped shallow sand zone stuffed full of gas and oil - then the seal for that shallow hydrocarbon is intact. We have a much thicker seal over the Cretaceous Reservoirs of the Shiranish and Kometan et al - we know this because everything we have all waited for has come in so much deeper than anyone expected. It is safe to assume that this means that the seal over the Shiranish is pretty darn good.

We are in the crestal part of a sealed and visibly huge structure in an area where there are several underlying significant and proven oil producing source rock formations. We have been given enough information to almost completely rule out the possibility of this structure being gas filled at the level of the Shiranish. We know it has permeability. The nature of these structures in the Big Picture scenario is that whatever is present in one part of the structure at this level will be present everywhere else within the structure.

The only thing we do not know absolutely is whether the oil that is here (or that indubitably was here at one point) could possibly have leaked out to surface and vanished - its place having been taken by water? I am sure that Niko/Vast/Groundstar - and even the lowly rig roughneck konw whether they have oil or not - even if the evidence is soft evidence and not hard physical data.

Did my feelings change with the release of the last news item? Yes I feel Vastly (sorry) more confident that they have decreased the possibility of gas condensate filled reservoir zones and having a leaky reservoir seal.

The odds for a significant oil strike here? (Ignoring the already defined shallow Tertiary gas and light oil reservoir intersections). This now is solely dependant on internal reservoir parameters. Thickness of intensely fractured zone within each prospective reservoir interval and the presence or absence of significant matrix porosity. Secondly is the structure filled completely to an obvious maximum spill point - or is there a slightly higher - potentially leaky - thrust fault zone that reduces the area that can be hydrocarbon charged?

But odds? To me they have become something very close to 95:5 at this point. (If I must be cautious). In other words there is very little chance of not already having a significant oil find - the only remaining question is one of size.

Why the SP action? I can only think that there must be a need for some more financing coming up (very) soon and somebody wants that price to be kept down - not necessarily the company but someone representing the potential brokerage involved?

There is no doubt in my mind that once they start drilling ahead on the open hole below casing - they will be getting all the extra "hard" data that anyone might need short of running a production test. And when that happens I doubt that we will be drifting around in this 40-50 cent range. But I do not expect any huge run up either - I look at what is happening with Gulf Keystone and the huge volumes of oil that they have already proven up and that amply demonstrates that finding and proving an oil resource is only the beginning of a much longer process to extract full value in the market.

I think I shall have said enough already - time to take a break and simply watch the action. Besides I have to figure out what I can sell to buy a few more here at this level - after all I was happy to increase holdings at just over 60 cents a few months ago. I never thought we would see the mid 40's and this to me seems the opportunity of a lifetime... (But then so too did another company in my past - which it actually was if only I had been smart enough to have sold everything anywhere above 14-15 dollars! And there were plenty of opportunities to have done that if only my mind had not been full of dreams of something in the 25-30 dollar range )

What are the probabilities of significant strike of oil? 100% is probably not too optimistic...

GS