Ntog Hb Brokers Report 13-05-08

A Marketing Communication from

Research Department Sector

1.125

Nostra Terra Oil & Gas

Oil & Gas

Speculative Buy

Nostra Terra Oil & Gas is an Exploration & Production with operations in the North West of the Crimean Peninsula in the Ukraine. The company specialising in the reopening of oil and gas wells, using up-to-date extraction methods, where low oil prices made additional extraction techniques economically unfeasible. Production growth has steadily increased with the main development and cash generation derived from the Neocomian reservoir of the Oktyabrskoe oilfield which began producing in January 2008 and the Cenomanian reservoir which was successfully re-opened in April. The company began drilling with expectations of possible developed reserves of 499.8Mbbls of oil and 4.86Bscf of natural gas, with a combined value of $19m. As of March 2008, oil production from Well No1 was 391bbls, bringing accrued production to 478.5bbls.

Report Date th

13 May 2008

Analyst Name: Sammy Latifi Tel: 020 7510 5824 Email: sammy.latifi@hoodlessbre nnan.com

Key Data AIM Ticker ................. NTOG Broker....... Falcon Securities Website ..... www.ntog.co.uk

Year end January

Revenue £’000

Operating Profit £’000

Operating profit margin % 2007A 1 (76) 2008E 380 280 73% 2009E 820 630 76% Source data: Company Accounts, Hoodless Brennan Estimates

EPS (p)

DPS (p)

PE times

(0.12) 0.6 1.2

-

1.9 4.3 3.6

ƒ Nostra Terra’s current market capitalisation is £4.15m. Revenues from Well No1 amount to c£20k per month giving annualised revenues of £240k. The Oktyabrskoe license covers 36 wells; this implies significant potential upside should even a small number prove to have similar production capacity.

Year High/Low....3p / 0.875p No. of Shares .............368m Mkt. Cap. ....................£4.1m Results ..............March 2008

ƒ We feel that the management, with their considerable oil and gas industry experience having worked previously in the region, and broad range of expertise are well positioned to expand and acquire further licenses.

NMS .............................5000 Screen Size ................25000 Bid/Offer ..............1p / 1.25p Market Makers ...................5

ƒ The Ukraine holds significant upside for small oil and gas exploration and production companies such as Nostra Terra in a region that has historically suffered from under investment in exploration and development infrastructure. Strengths ¾ Nostra Terra remains on track; consistent oil and gas production from Well No1 will cover expenses as further wells are reopened. ¾ Successful re-opening of second well implies production scheduled to begin at the end of Q208 improving the company’s cash balance. ¾ Nostra Terra is well positioned to identify new opportunities and projects in the region.

Weaknesses ¾ Concentration risk from reliance on one producing well. ¾ Cash generation only covers operating activities, further investment required to expand regionally. ¾ Ageing pipelines require maintenance and investment.

1 Hoodless Brennan plc, Registered No. 2693942, 40 Marsh Wall, Docklands, London E14 9TP Authorised and regulated by the Financial Services Authority (Register No 155104) Members of the London Stock Exchange and PLUS Markets Tel: 0207 538 1166 Website: www.hoodlessbrennan.com

This Communication: a) b)

has not been prepared in accordance with legal requirements designed to promote the independence of investment research is not subject to any prohibition on dealing ahead of the dissemination of investment research

Nostra Terra May 2008

Business Background Nostra Terra is in the process of developing wells covered by the Oktyabrksoe license. The company plans on acquiring three licenses in total in the Tarlkankut Peninsula, in North West Crimea. The three licences which the JAA was planning on exploiting originally were; (1) Oktyabrskoe Licence, (2) Tatyanovskoe Licence and (3) Kovylnenskaya Licence. The Licence Area contains two reservoir horizons; the Necomian and the Cenomanian reservoirs, at depths of 1,700 metres and 2,800 metres respectively. The Licence Area covers 154 square kilometres and contains 36 Wells (19 in the Oktyabrskoe Field and 17 in the West Oktyabrskoe Field). Currently two of the 36 wells have been reopened, with one producing at a rate of between 450/bbl and 660/bbl per month. The second, Well No24 has been re-opened and the management is confident of meeting or exceeding production targets. The wells were drilled by the exploration arm of the USSR between 1960 and 1991 and were subsequently capped prior to the break-up of the USSR. The wells were not placed on production and were subsequently shut in for safety and environmental reasons and have remained in that state up until drilling commenced in 2007. The company has entered the area to develop a selection of the wells using modern equipment and production techniques. The Competent Person’s Report estimates that the Oktyabrskoe Licence contains Possible Developed company interest reserves of 499.8 Mbbls of oil and condensate and 4.86 Bscf of natural gas – with a combined value of £10m. The section on Reserves and Present Worth in the CPR states: “Remaining reserves of oil, natural gas and natural liquids have been estimated as of February 28, 2007. Gross, Company working interest and Company net after royalties (“Net AR”) share of possible reserves are shown on Table No. 3 by Company, License and Well and summarised as follows:

Property Gross Possible Developed Oil – Mbbl Sales Gas – MMcf Condensate - Mbbl

372.6 8030.7 446.1

Company Interest

Company Net AR 229.6 4862.9 270.2

160.3 4405.8 188.6

Source: Company Figures

Infrastructure is in place with good road and rail access, deep water ports, gas storage and pipelines. The Oktyabrskoe project is located 10 km from gas pipeline. Oil can be shipped or sent by rail. On the Russian side of the border, small breaks occur to gas pipelines every two or three months with a major break occurring every year. Anecdotal evidence suggests that the pipelines in the Ukraine are in need of maintenance with a large explosion taking place December 6th 2007 along the Ukrainian coast. Pipeline maintenance is not the responsibility of Nostra Terra, although it may affect the volatility of earnings.

2 Hoodless Brennan plc, Registered No. 2693942, 40 Marsh Wall, Docklands, London E14 9TP Authorised and regulated by the Financial Services Authority (Register No 155104) Members of the London Stock Exchange and PLUS Markets

Nostra Terra May 2008

Management

Brian Courtney, aged 64, CEO Mr. Courtney has been actively investing in the oil and gas business for over thirty years, first working with Desmond Smith on the Ingoldsby 10-12 horizontal well, and most recently by serving as the Chairman and CEO of Ucoco Energy, Inc. In addition Mr. Courtney has held many senior executive positions and public company directorships including being founding president and former VP of America’s Oracle Corporation Canada and director of EFT Canada Inc. Most recently Mr. Courtney served as CEO of Global Election Systems Inc. - an American Stock Exchange listed company, and was chairman and CEO of Patent Enforcement and Royalties, a TSX Venture Exchange listed company. Mr. Courtney has been investing in Ukraine for three years. Mr. Courtney is a graduate of the University of Manitoba (B.Comm.).

Neville Desmond Smith, aged 54, Chief Operating Officer Mr. Smith is a geologist who has worked in the oil and gas business for over thirty years and is an honours graduate in geology from the University of British Columbia. Mr. Smith has held several senior executive positions with upstream oil and gas international companies including companies in Canada, the USA, Azerbaijan and Ukraine. Amongst his most recent endeavours were his role as president and CEO of Tai Energy Corporation, formerly a public Canadian oil and gas company and recent senior international assignments as COO of A&B Geoscience Corporation (Arawak Energy Corp.) and Nostra Terra (Overseas) Ltd. Mr. Smith has been working in the FSU since 1995 and in Ukraine for the last six years.

Glenn MacNeil, aged 47, Chief Financial Officer Mr. MacNeil has been actively investing in the oil and gas business for over fifteen years and recently served as a director for Hegco Canada, Inc. - a Toronto Stock Exchange junior oil and gas company. Mr MacNeil holds a Bachelor of Business Administration degree (B.B.A.) and is also a Chartered Accountant (Canada), a Certified Management Accountant (Canada) and a Certified Public Accountant (USA). Mr MacNeil has also held a number of international senior executive positions with various publicly traded insurance companies over the past twenty years. In addition, he worked in public accounting with Deloitte and Touche. He is also a director of three FSA regulated companies and has been a director of a financial services company - Lancaster Sierra Capital Corporation, which trades on the Toronto Stock Exchange.

Sir Adrian Blennerhassett, aged 66, Non-Executive Director and Chairman Sir Adrian holds a Masters of Geology from Imperial College, London and an MBA from Cranfield School of Business Management. Sir Adrian has previously held positions as general manager for Claremount Oil & Gas Ltd and has acted as technical director at Peninsula Petroleum Ltd. He has experience of corporate finance and securities activities and more recently had eleven years experience in corporate finance including mergers and acquisitions.

Stephen Vaughan Oakes, aged 51, Director, Non-Executive Director on Admission Stephen Oakes has over 30 years experience in financial markets and is a Fellow of the Securities Institute. He began his career with stockbrokers Vickers da Costa Ltd, becoming a Member of the Stock Exchange in 1984. In 1985 he joined the then James Capel & Co (now HSBC Investment Bank plc) as a portfolio manager. Increasing management responsibility culminated in the position of Chief Executive Officer, HSBC Investment Management, firstly in respect of the international business and subsequently as acting CEO of the combined UK and 3 Hoodless Brennan plc, Registered No. 2693942, 40 Marsh Wall, Docklands, London E14 9TP Authorised and regulated by the Financial Services Authority (Register No 155104) Members of the London Stock Exchange and PLUS Markets

Nostra Terra May 2008

international operations. He left HSBC in December 2002 and in October 2003 he joined Alfred Henry Corporate Finance Limited. He is currently a director of Alltrue Investments Plc and Chief Executive Officer of Falcon Securities (UK) Ltd. He is Chairman of Timestrip plc and is also a director of a number of companies whose shares are traded on AIM.

Financials On September 24th 2007, Nostra Terra released Interim results for the 5 months ending June 30th 2007. Interim administration costs were £5k compared to £41k for the prior period. Given that these are mostly board and listed company costs, we are not expecting to see them rise significantly over the coming period. More funding has now been raised. Though the company general overheads are low, Nostra Terra may require further financing, given the cash balance at the end of the Interim period.

Valuation

LSE Ticker

P1 + P2 Reserves

Market Cap

FTSE Cairn Dana Emerald JKX Premier Oil Soco International Average

CNE DNX EEN JKX PMO SIA

864 111 15 56 164 133

4561 1626 211 803 1396 1400

5.3 14.6 14.1 14.3 8.5 10.5 11.2

AIM Victoria Oil & Gas Mediterranean Oil & Gas Nautical Petroleum Melrose Global Energy Northern Petroleum Petrolatina Energy Average

VOG MOG NPE MRS GED CDL PELE

35 12 65 112 33 56 7

55 60 115 418 30 100 9

1.6 5.0 1.8 3.7 0.9 1.8 1.3 2.3

Company Name

Market Cap per barrel £

Source: Hemscott and Company Reports

On the basis of our peer group reserve assessment, we have ascribed a valuation of for the Oktyabrskoe fields at £10m, assuming an average oil price of $65/bbl and gas price of $3.7. This does not include the additional combined value of the Tatyanovskoe and Kovylnenskaya projects. Our value for Nostra Terra is £10m compared to a current market cap of £4.15m. We are therefore setting a price target of 2.6p. Nostra Terra offers an excellent opportunity for upside to the current price Recommendation: Speculative Buy Previous recommendation: N/A

Date of previous recommendation: N/A

4 Hoodless Brennan plc, Registered No. 2693942, 40 Marsh Wall, Docklands, London E14 9TP Authorised and regulated by the Financial Services Authority (Register No 155104) Members of the London Stock Exchange and PLUS Markets

Nostra Terra May 2008

Key Events

Profit and Loss st

Year to 31 Jan £’000 Revenue Cost of Sales Gross Profit Administrative Expenses Operating Profit/Loss Finance cost Loss/Profit Before Tax

1 -

2008A interim -

(77)

(5)

(76)

(5)

-

-

(0.12)

(.004)

2007A

Date

Event th

May 13 2008

Placing

th

April 14 2008 rd

April 3 2008

Well 1 production online Second well re-opened

th

January 29 2008

Well 1 re-opened

Financial Calendar Date January 2008

Event Year End

March 2008

Finals

July 2008

Interims

Balance Sheet st

Year to 31 Jan £m Non-current Assets Current Assets Total Equity Total Liabilities

2007A 153 120 33

2008A interim 152 117 35

Major Shareholders Shareholder

%

ACOC

49.40

Ucoco Energy Inc.

23.76

Karin Haugen

9.90

Glenn MacNeil

5.94

Cash Flow Board of Directors st

Year to 31 Jan £m Operating Activities Investing Activities Financing Activities Net Cash Flow Cash and cash equiv. at beginning Bank balance and cash

(46) 4 (3) (45)

2008A interim (57) 2 (55)

196

151

151

96

2007A

Activities:

Name

Position held

Brian Courtney

CEO

Neville Desmond Smith

Chief Operating Officer

Glenn MacNeil

Chief Financial Officer

Sir Adrian Blennerhassett Stephen Vaughan Oakes

Non-Executive Director Non-Executive Director

Share Price Chart

The Company is an oil and gas exploration and production company operating in the Ukraine.

3.0

NTOG NOSTRA TERRA ORD 0.1P

2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 Q2-2007

Q3-2007

Q4-2007 S o urc e : F ides s a

Source data: Company Accounts

5 Hoodless Brennan plc, Registered No. 2693942, 40 Marsh Wall, Docklands, London E14 9TP Authorised and regulated by the Financial Services Authority (Register No 155104) Members of the London Stock Exchange and PLUS Markets

Q1-2008

Nostra Terra May 2008

Key to Material Interests Below are five standard disclosures of Material Interests. Of these five disclosures, the following numbers are relevant in this case: Company Name

Relevant disclosures: [Compliance to Check]

1. The analyst has a personal holding of the securities issued by the company, or of derivatives related to such securities. 2.

Hoodless Brennan plc or an affiliate owns more than 5% of the issued capital of the company.

3. Hoodless Brennan plc or an affiliate is party to an agreement with the company relating to the provision of corporate broking services, or has been party to such an agreement within the last 12 months. Our corporate broking agreements include a provision that we will prepare and publish research at such times as we consider appropriate. 4. Hoodless Brennan plc or an affiliate has been a lead manager or co-lead manager of a publicly disclosed offer of securities for the company within the last 12 months 5.

Hoodless Brennan plc is a market maker or liquidity provider in the securities issued by the company

DISCLOSURES: ANALYST RATINGS: The definitions of our analyst ratings can be viewed on our website in the section entitled “research & prices” under “Analyst Ratings”. See www.hoodlessbrennan.com CONFLICTS MANAGEMENT POLICY: Details of this policy can be viewed on our website in the section entitled ‘research & prices’ under ‘Conflicts Policy’. See www.hoodlessbrennan.com QUARTERLY STATEMENT OF RESEARCH RECOMMENDATIONS: Our quarterly statement of research recommendations can be viewed on our website in the section entitled “research & prices”. See www.hoodlessbrennan.com RISK WARNING NOTICE: All investments are speculative and prices may change quickly and go down as well as up. Past performance will not necessarily be repeated and is no guarantee of future success. There is an extra risk of losing money when shares are bought in some smaller companies including “penny shares”. There can be a big difference between the buying price and the selling price of these shares and if they have to be sold immediately, you may get back much less than you paid for them or in some circumstances, it may be difficult to sell at any price. It may also be difficult for you to obtain reliable information about the value of this investment or the extent of the risks to which it is exposed. Where a company has chosen to borrow money (gearing) as part of its business strategy its share price may become more volatile and subject to sudden and large falls. This investment may not be suitable for all investors, and clients should carefully consider their own personal financial circumstances before dealing in the stock market, particularly those on fixed incomes or approaching retirement age. If you have any doubts you should seek advice from your investment adviser or your broker at this firm. AIM: The Alternative Investment Market (AIM) is market designed primarily for emerging or smaller companies. The rules of this market are less demanding than those of the official List of the London Stock Exchange and therefore companies quoted on AIM carry a greater risk than a company with a full listing. MATERIAL INTEREST: We endeavour at all times to ensure that our research is clear, fair and not misleading, however, we do not hold our research out as being impartial and it should not be viewed as wholly objective since Hoodless Brennan plc (including its parent company and its subsidiaries, their directors, officers or employees) may have or previously held a material interest in the company which is the main subject matter of the research note, or any other company mentioned, and may be providing or have provided within the previous 12 months significant advice or investment services in relation to any company or a related company referred to in this document, or any other associated document. This document has been prepared and issued by Hoodless Brennan plc on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst all reasonable care is taken to ensure that the facts stated are accurate and the opinions given are fair and reasonable, neither Hoodless Brennan plc nor any director, officer or employee shall in any way be responsible for its contents. This document is intended to provide clients with information and should not be construed as an offer or solicitation to buy or sell securities.

6 Hoodless Brennan plc, Registered No. 2693942, 40 Marsh Wall, Docklands, London E14 9TP Authorised and regulated by the Financial Services Authority (Register No 155104) Members of the London Stock Exchange and PLUS Markets