Svs Note 09-01-08

Sector: Oil & Gas

Irvine Energy plc Speculative Buy

09 January 2008

Irvine Energy plc (“Irvine”) is an Aim listed company that engages in the identification, acquisition and evaluation of both onshore conventional and unconventional oil and gas projects in North America. The Company currently has exploration and production projects in Kansas and Oklahoma, which it is operating and developing in conjunction with its joint venture partner Metro Energy Group. Irvine’s objective is to become a significant player in both the conventional and unconventional USA oil and gas markets by building a solid portfolio of assets within the highly prospective Kansas/Oklahoma region.

Executive Summary In December, Irvine announced that it received share placing commitments to raise £4,689,000 through the issue of 234,450,000 new ordinary shares at 2p per share. These funds will be used to complete the acquisition of producing and prospective oil and gas acreage in Oklahoma, and for additional working capital. Irvine signed an agreement with Metro in July to purchase up to 50% working interests in both producing and prospective oil and gas acreage in Oklahoma and Kansas, subject to due diligence and arrangement of necessary funding. Subsequently the Company completed the acquisition of the Niobrara project in September, which comprises 4,490 acres of oil and gas licences in north-west Kansas. Moreover, the Company has completed the acquisition of a 50% working interest in 17,016 acres of high prospective oil and gas leases in Oklahoma for a cash consideration of US$2,552,026 with the acquisition of remaining Oklahoma assets expected to take place in early January 2008. In July, Irvine disclosed that it was considering various fundraising options for working capital and received indicative terms for a US$50 million mezzanine finance facility from GasRock Capital LLC, which is a specialist oil and gas finance provider. This agreement is based on extensive technical due diligence and asset portfolio.

Price

2.375p

Ticker

IVE

Index

AIM

Market cap (£m)

16.7

Share in issue (m)

704.7

52 wk high (p)

4.125

52 wk low (p)

2.125

Cash (£m) Broker p

Major Shareholders

Lease Area

Bcf

MMbbl*

Bcfe

MMboe*

Unrisked Risked NPV NPV US$m (10%) US$m

Niobrara Total

8.8

-

8.8

1.5

4.9

4.0

Kansas Total

118.1

3.750

140.6

23.5

81.6

24.1

Oklahoma Total

213.5

1.255

221.0

36.9

106.6

64.6

Total Irvine Energy plc

340.40

5.005

370.40

61.90

193.10

92.70

Financial Promotion

% 11.00

Euroclear Nominees Ltd

5.90

Cascade Royalty Holdings LLC

5.00

Golden West Holdings Ltd

5.00

Brewin Nominees Ltd

4.80

Fitel Nominees Ltd

4.50

Source: Proquote International, Hemscott, Company accounts. Shareholers at 12.07.07

Source: Bloomberg

SVS Research [email protected] +44 (0) 20 7638 5600

Source: Irvine Energy plc, Hardman & Co Corporate Research *MMbbl: million barrels of oil. MMboe: million barrels of oil equivalent.

SVS 1 S

No

Pershing Keen Noms Ltd

Irvine currently has unaudited net reserves (post completion of Oklahoma): 1P (proven – at least 90% chance being recovered) of 3 billion cubic feet equivalent (Bcfe), 2P (probable – at least 50% confidence) of 49 Bcfe, 3P (possible – at least 10% of confidence) of 149 Bcfe. Management’s objective is to treble its 2P reserves within 18 months. In addition, the Company currently has net production of 750,000 cubic feet of gas per day (cfd) with 20 wells ready to put on line for the production of 50,000 cfd each (25,000 cfd net to Irvine), and has an 18 month production target of 450 barrels of oil per day (Bopd) and 6,000,000 cfd which would generate net revenue of US$1.7 million per month.

0.71

SVS Securities plc

Company Overview Irvine was founded in 2005 and is headquartered in London. It is an emerging on-shore USA oil & gas producer targeting both conventional and unconventional oil and gas projects in North America. Up to date, the Company has established a large acreage position in areas with multiple oil and gas reservoirs including 112,000 gross acres in Kansas (84,000 net), 50,000 gross acres in Oklahoma (post completion of acquisition of Oklahoma project), and 4,490 acres in the Niobrara project. Irvine has an aggressive growth strategy in place with a work programme to advance its production projects and upgrade its P3 (possible) resources to P1 (proven) status. The Company has a current net production of 750,000 cfd with an 18 month production target of 450 Bopd and 6,000,000 cfd, which would then generate net revenue of US$1.7 million per month. Irvine estimated its net reserves of 3 Bcfe 1P, 49 Bcfe of 2P and 149 Bcfe of 3P. The Company has an objective to treble its 2P reserves within 18 months. Management believe by assembling a combination of conventional and unconventional plays, it provides the Company with a balanced low risk, high capital efficient development programme.

£000s Year Ended 31 Dec PROFIT & LOSS Revenue Cost of sales Gross profit Admin Expenses Other Expenses Operating profit/(loss) Interest Receivable Profit/(loss) Before Tax Tax Profit/(loss) After Tax Basic EPS (p) Diluted EPS (p) BALANCE SHEET Non-Current Assets Current Assets Current Liabilities Long Term Liabilities Net Assets CASH FLOW Operating Cash Flow Investing activities Financing activities Net Cash Flow

H1 2007

2006

(317) (120) (437) 47 (390) (390) (0.10)p (0.10)p

(339) (45) (384) 138 (246) (246) (0.12)p (0.12)p

8,196 742 (50) 8,888

6,581 2,828 (132) 9,277

(418) (1,571) (1,989)

(587) (3,632) 6,916 2,697

Source: Company accounts

Kansas project – Irvine has 75% working interest in the project covering 112,000 acres spanning over the Barber, Butler and Cowley counties in Kansas. Niobrara project – the Company has acquired 50% working interest in the project comprising 4,490 acres in the low cost Niobrara shallow oil and gas development in north-west Kansas. Oklahoma project – the Oklahoma project includes leases that cover the Woodford and Caney Shale, as well as multiple conventional reservoirs with an area of 50,000 acres. Generally, the Company has 50% working interest in the project in Okmulgee, Okfuskee, McIntosh and Hughes counties. However, approximately 10% of the acreage is subject to an option granted by Metro to a third party whereby if that option is exercised, the Company’s working interest will be 25% of that 10% acreage and the acquisition price will be adjusted.

Source: Irvine Energy plc

SVS Securities plc

Financial Promotion

2

Kansas Project The Kansas project has an area of mutual interest (“AMI”) covering approximately seven million acres in eleven contiguous counties in Kansas. The AMI has a prolific oil and gas production history, with one county producing as much as 500 million barrels of oil. Importantly, the AMI also houses the highly prospective relatively shallow Chattanooga Shale formation, which is an extension of the proven Woodford shale and has successfully been drilled across state lines in Arkansas. Up to date, as many as 12 conventional production intervals have produced in the area at depths of 1,500 – 5,000 ft (500 – 1,525m) with three, Arbuckle, Mississippian and Pennsylvanian being prolific. This area has many operating advantages including low cost drilling primarily due to shallow reservoir depth, extensive infrastructure and locally available services and rigs, as well as favourable lease terms. Irvine aims to exploit the conventional oil and gas reservoirs, to reduce overall project risk and generate early cash-flow from conventional sources while at the same time test the Chattanooga Shale gas potential. First stage 2D and 3D seismic programme has commenced in May for approximately 50 square miles in south central Kansas with the first 8 square mile 3D seismic survey already completed which has identified multiple drill targets adjacent to the historically high productive Blood and Cooley fields. Initial drilling targets are being finalized by Irvine’s partner Metro that are planned to commence in December/January. Management believe with a land position of over 112,000 acres plus excellent rig aces, technical services and pipeline infrastructure, Irvine has the first mover-advantage in an area that has good upside potential.

Niobrara Project Niobrara project has 20 well bores completed in Niobrara formation that is primarily focused on the exploration of conventional oil and gas. Local service companies and consultants have been contracted for the initiation of the Niobrara project in September. The results of the fluid levels on 6 of the 20 existing wells showed higher than expected static bottom hole pressures throughout the prospect area and thus Irvine has increased its estimated resource base for the area by 35%. The Company has successfully finished testing 13 well bores at a production of 50,000 cfd each; and all 20 wells are ready to put online at minimal cost of approximately US$0.5 million that would generate total production of 1,000,000 cfd (500,000 cfd net to Irvine). A further 80 well locations have been delineated for expansion and it is SVS 3 S

Financial Promotion

SVS Securities plc

estimated that 24 will be completed by year end 2008, with an additional 56 wells to be drilled in 2009. These wells are shallow, circa 1,500 ft (500m), and can be drilled and completed in less than one week at low cost. According to Irvine’s announcement in July, unaudited estimate of the net attributable reserves of the Niobrara project has 1P of 2 Bcfe, 2P of 9 Bcfe and 3P of 9 Bcfe. Further work of the Company is to focus on upgrading the reserves to the proven category.

Oklahoma Project The Oklahoma project covers the proven Woodford and Caney shales, as well as multiple stacked conventional reservoirs and 18 producing oil and gas wells that are situated in an area with prolific oil and gas production history where 14.7 billion barrels of oil and 94 Tcf (trillion cubic feet) gas have been produced. The project has the potential to provide up to 400 unconventional drilling locations in the proven Caney/Woodford gas shales and up to 150 conventional drilling locations. The project includes: Current net production to Irvine of 750,000 cfd. Estimated unaudited net P2 reserves of 46 Bcfe. 54 square miles of processed 3D seismic that has generated a large prospect inventory. 3 initial drilled prospect wells to date from 3D seismic programme with 100% success which indicate collective gross production of 1,200,000 cfd. 1 horizontal and 5 vertical well bores in the Caney/Woodford gas shales that are being completed with the initial tests of one of the verticals and the horizontal yield encouraging results. Irvine has designed a drilling programme to exploit the low risk stacked conventional oil and gas targets, as well as prove up the Caney/Woodford gas shale potential with 33 wells being planned to be drilled in the next 18 months. In addition, similar to the Company’s other projects, the Oklahoma project has shallow low cost drilling depths of approximately 2,000 – 5,000 ft with excellent drilling rig access, technical services and pipeline infrastructure in place.

SVS Securities plc

Financial Promotion

4

Unconventional Shale Gas Although production of gas from shale is not new, development on a large scale is relatively recent. Unlike conventional gas production, shale gas potential is not confined to limited traps or structures, and may exist across large geographic areas. Gas is held in the shale not only in tiny pores, but also in a solid solution bound onto the rock grains. The key to producing these shales is connecting the pores through the introduction of an artificial fracture system, and lowering the pressure in the rock to allow the gas in solid solution to become gaseous and flow. At first, commercial production of this shale gas were not economically viable due to technical difficulties. However, the ability to undertake large scale shale gas development developed significantly following improvements in hydraulic fracturing and horizontal drilling which allows delivery of the massive fracture treatments necessary to obtain gas flows at commercial rates. Shale gas now is the fastest growing energy sector in onshore USA. The United States Geological Survey (USGS) estimates that shale gas resources that are technically recoverable may be as much as twice the estimated undiscovered conventional gas resources.

Partners As mentioned above, Metro Group Inc is a joint venture partner of Irvine, which is a private oil and gas company, whose directors have experience and expertise in geology, prospect generation, field operations, and oil and gas marketing. Metro is a specialist in conventional and shale gas and has a number of leases that it operates in the conventional and shale gas formations in the USA. It was amongst the first operators in the Woodford Shale formation in Oklahoma and has worked closely with major corporations involved with gas shale including Devon Energy Inc, the largest shale gas producer in the Barnett shale and in the USA and Newfield. Metro has been involved in drilling over 28 vertical wells to identify the best fracture stimulation techniques. Irvine believes it is key to acquire acreage positions ahead of competition in order to unlock value in conventional and shale gas. However, under the USA system this requires teams of experts and takes time, Metro has a team of attorneys and experienced oil and gas professionals and is therefore ideally positioned to aid Irvine in the acquisition of additional acreage.

SVS 5 S

Financial Promotion

SVS Securities plc

The Oil and Gas Market The world crude oil price recently surged to a nominal all-time high of US$99.29 a barrel, driven by lower crude stocks, constrained supplies and new geopolitical tensions. In addition, the fact that non-Opec production has not increased as much as expected has also contributed to higher oil prices. Particularly, despite an economic slowdown in the US, global oil demand would still grow much faster than non-Opec supply (FT, 2007). This will leave Opec supplies and stocks to offset the resulting upward pressure on prices. Thus, relatively high oil prices are expected to remain as the US Department of Energy forecasted that oil will average $87 a barrel in the first quarter of 2008 and $84.8 over next year, whereas Wall Street’s consensus of about $74.5 for 2008. In respect to gas market, natural gas prices have been climbing from late 1990s with increased demand, limited domestic supply, tight global LNG markets and rising infrastructure costs. However, current natural gas prices are sufficiently high to reduce growth in consumption. The Energy Information Administration forecasted that the combination of increased natural gas supply nowadays and slower growth in demand may lead to a decline in natural gas prices through 2013. Nevertheless, it is expected that unconventional production is a growing source of US gas supply since discoveries of new conventional natural gas reservoirs are expected to be smaller and deeper, and thus more expensive and riskier to develop and produce.

Source: Annual Energy Outlook 2007

Valuation Unrisked Risked NPV NPV US$m (10%) US$m

Lease Area

Bcf

MMbbl

Bcfe

MMboe

Niobrara Total

8.8

-

8.8

1.5

4.9

4.0

Kansas Total

118.1

3.750

140.6

23.5

81.6

24.1

Oklahoma Total

213.5

1.255

221.0

36.9

106.6

64.6

Total Irvine Energy plc 340.40

5.005

370.40

61.90

193.10

92.70

Source: Irvine Energy plc, Hardman & Co Corporate Research

SVS Securities plc

Financial Promotion

6

Key Personnel Doug Manner – Chairman Doug Manner has over 25 years engineering experience in the oil and gas industry, principally in the North American region as well as extensive corporate experience serving on the Boards of numerous oil and gas exploration firms. He is currently CEO of Westside Energy Corporation, an American Stock Exchange listed shale gas energy company with 65,000 acres in the Barnett Shale area in Northern Texas and production of 3 million cubic feet gas per day. He is also a Director of Cordero Energy, Inc and Rio Vista Energy Partners LP, energy companies based in North America. Previously, Mr Manner has held senior positions in oil & gas companies including, COO of Kosmos Energy LLC, a private company exploring for oil and gas in offshore West Africa, COO of White Stone Energy, a Houston based oil and gas advisory firm, Chairman and CEO of Mission Resources and COO of Gulf Canada Resources Ltd responsible for both international and domestic activities. He spent 16 years with Ryder Scott Petroleum engineers having started his career at Amoco Production Company. Aaron Close – Managing Director Aaron Close has over nine years experience as a geoscientist in the North American oil and gas sector, having graduated from the Colorado School of Mines Golden with a Bachelor of Science, Mathematics and Computer Science Engineering and Geophysics in 1997. Mr. Close has extensive knowledge and experience of shale gas exploration including mineralogical, petrophysical, stratigraphic, geomechanical, and geochemical analysis. Until recently he was a Gas Shale Supervisor and Geoscientist for Kerogen Resources Inc, which specialises in identifying unconventional gas shale formations in North American Basins. He worked on the initial geologic and engineering evaluation of the Barnett Shale, where he led a team in the acquisition of over 12,000 acres of land and then undertook 3D seismic. He also handled most aspects of corporate technology development with Kerogen Resources Inc. He also gained vast experience as a Geoscientist at EnCana Corporation, an industry leader in unconventional natural gas and integrated oil sands development. Here he primarily worked in unconventional plays, exploration and development focusing primarily on gas shales, as well as tight sand, cherts, tight carbonates and basin centre accumulations. Mr. Close is a proven oil finder having discovered new oil and gas accumulations for EnCana Corporation in the Comanche Ranch Field, Texas. Additionally he has gained experience in the exploration and production of crude oil and natural gas as a geophysicist at Marathon Oil Company, where he undertook seismic interpretation and mapping of exploration sites, and producing fields.

SVS 7 S

Financial Promotion

SVS Securities plc

Charles Bingle – Technical & Operations Manager Mr. Bingle has over 28 years experience in the conventional and unconventional oil and gas arena. He was a founding member and engineering manager at Houston based shale gas specialist, Kerogen Resources Inc, and was part of the start-up team at PetroSolutions Ltd, a dedicated energy consulting firm aimed at evaluating conventional oil and gas reservoirs globally. Previously, Mr. Bingle has held other engineering positions in oil and gas companies including Frontera Resources, where he was responsible for the evaluation and improvement of production in Azerbaijan and Georgian oil fields. He also worked as a consultant for ResTech Houston, a multi-discipline reservoir evaluation services company, working on many domestic and international projects to increase production through drilling and improved operations. Mr. Bingle was awarded the DeepStar contract in 1999 to evaluate all deepwater Gulf of Mexico projects for a consortium of 20 major and large independent oil companies. This work led to his appointment as President of ResTech Houston. Additionally, he gained vast experience as an oil and gas engineer through working at Schlumberger Well Services and Exxon Company U.S.A. as a reservoir engineer in the 1980s.

SVS Securities plc

Financial Promotion

8

Weaknesses There is a risk that Irvine’s unaudited reserve estimates may not be provedup. The Company is yet to generate revenue. Shale gas projects are more expensive to drill than conventional gas deposits.

Strengths The Company has a diversified portfolio combining both conventional and unconventional plays. Irvine’s projects are supported by solid infrastructure, including rig access, technical services and pipeline infrastructure. The Company possesses an experienced management team.

SVS View Irvine has made significant progress in the last 6 months expanding its activities in both producing and prospective oil and gas acreage in Oklahoma and Kansas. Management are looking to advance its production projects with a 18 month target of 450 Bopd and 6,000,000 cfd that would generate net revenue of US$1.7 million per month; and upgrade its P3 (possible) resources to P1 (proven) status by further 3D seismic programme, exploration and drilling. We consider Irvine’s shares to be a worthwhile investment, with potential upside from further resource definition. Speculative buy

SVS 9 S

Financial Promotion

SVS Securities plc

Disclosure list Author:

Yang Yifeng, Associate Analyst (under the supervision of Michael Sawh).

Material sources:

Any facts historical or present relating to the Company, its senior management team or market conditions contained within this report have been obtained from public sources, the supporting acquisition document or sources of information that are made available to market professionals such as SVS Securities. The price quoted on page 1 on this report represents the closing mid-price on 08 January 2008.

Publication date:

09 January 2008

Nature of transaction: SVS Securities is acting on a principal basis. Recommendation disclosure:

During the 3 month period ended 31 December 2007, 4 of SVS Securities’ principal recommendations has been on a hold basis, 18 of SVS Securities’ principal recommendations have been on a speculative buy basis and 4 of SVS Securities’ principal recommendations have been on a buy basis.

Important notes:

This report is solely intended for clients of SVS Securities as defined under the FSA rules. It is not to be distributed to any other parties. SVS Securities is to be under no responsibility or liability if this document is distributed to other individuals or parties, who have not been invited by the company to receive such information, since our research is not directed at, may not be suitable for and should not be relied upon by any other person. The information presented in this report has not been presented on an independent basis, and is not covered by a policy of independence. SVS Securities may actually or may seek to do business with companies covered in its research reports. Investors should be aware and take into consideration that the firm may have a conflict of interest that could affect the objectivity, independence and impartiality of this report. All statements made and opinions expressed are made as at the date on the face of the material and are subject to change without notice. The facts and opinions in this report have been verified to the best of our

ability. SVS Securities' conflict management policy and definitions of analyst ratings can be viewed on our website in the section entitled "conflicts policy": see www.svssecurities.com. Risk warning:

There is an extra risk of losing money when shares are bought in some smaller companies, including AIM and PLUS Markets quoted shares, sometimes known as "penny shares". There can be a big difference between the buying price and the selling price of these shares. If they have to be sold immediately, you may get back much less than you paid for them. The price of the shares may change quickly and it may go down as well as up. Past performance is no guarantee of future success. You should carefully consider your own personal financial circumstances before dealing in the stock market. This information sheet does not constitute an offer to buy or sell such securities. It is presented solely for your information and is provided on the basis and understanding that SVS Securities plc is to be under no responsibility or liability whatsoever except that which it has under the regulatory system. Comments made represent the opinion of SVS Securities plc and have been arrived at in good faith. No representation or warranty either actual or implied is made to the accuracy, precision, completeness or correctness of the statements, opinions and judgments contained within this information sheet. This information does not have regard to your specific investment objectives, investment risk profile or financial background. For this reason, this information may not be suitable for all investors, and if you have any doubts, you should consult your SVS Investment Advisor or an Independent Financial Advisor.

SVS Securities plc

10