A Marketing Communication from

Research Department

Sector
Oil & Gas Nostra Terra Oil & Gas 1.125 Speculative Buy

Report Date Nostra Terra Oil & Gas is an Exploration & Production with operations in the North
th
13 May 2008 West of the Crimean Peninsula in the Ukraine. The company specialising in the re-
opening 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.

Analyst Year end Revenue Operating Operating EPS DPS PE

Name: Sammy Latifi January £’000 Profit £’000 profit margin (p) (p) times
Tel: 020 7510 5824 %
Email: 2007A 1 (76) - (0.12) - 1.9
sammy.latifi@hoodlessbre 2008E 380 280 73% 0.6 - 4.3
nnan.com 2009E 820 630 76% 1.2 - 3.6
Source data: Company Accounts, Hoodless Brennan Estimates

Key Data
AIM Ticker ................. NTOG
Broker....... Falcon Securities
Website ..... www.ntog.co.uk
Year High/Low....3p / 0.875p
No. of Shares .............368m
Mkt. Cap. ....................£4.1m
Results ..............March 2008
NMS .............................5000
Screen Size ................25000
Bid/Offer ..............1p / 1.25p
Market Makers ...................5
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.
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.
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 Weaknesses
¾ Nostra Terra remains on track; consistent ¾ Concentration risk from reliance on one
oil and gas production from Well No1 will producing well.
cover expenses as further wells are re- ¾ Cash generation only covers operating
opened. activities, further investment required to
¾ Successful re-opening of second well expand regionally.
implies production scheduled to begin at the ¾ Ageing pipelines require maintenance
end of Q208 improving the company’s cash and investment.
balance.
¾ Nostra Terra is well positioned to identify
new opportunities and projects in the region.

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) has not been prepared in accordance with legal requirements designed to promote the independence of investment research
b) 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:

Company
Property Gross Interest Company Net AR
Possible Developed
Oil – Mbbl 372.6 229.6 160.3
Sales Gas – MMcf 8030.7 4862.9 4405.8
Condensate - Mbbl 446.1 270.2 188.6

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 P1 + P2 Market Cap

Company Name Market Cap
Ticker Reserves per barrel £

FTSE
Cairn CNE 864 4561 5.3
Dana DNX 111 1626 14.6
Emerald EEN 15 211 14.1
JKX JKX 56 803 14.3
Premier Oil PMO 164 1396 8.5
Soco International SIA 133 1400 10.5
Average 11.2

AIM
Victoria Oil & Gas VOG 35 55 1.6
Mediterranean Oil & Gas MOG 12 60 5.0
Nautical Petroleum NPE 65 115 1.8
Melrose MRS 112 418 3.7
Global Energy GED 33 30 0.9
Northern Petroleum CDL 56 100 1.8
Petrolatina Energy PELE 7 9 1.3
Average 2.3
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

Profit and Loss Key Events

st
Year to 31 Jan 2008A Date Event
2007A
£’000 interim th
May 13 2008 Placing
Revenue 1 -
th
Cost of Sales - - April 14 2008 Well 1 production online
rd
Gross Profit - - April 3 2008 Second well re-opened
Administrative January 29 2008
th
Well 1 re-opened
(77) (5)
Expenses
Operating (76) (5)
Profit/Loss
Finance cost - - Financial Calendar
Loss/Profit Before
(0.12) (.004)
Tax Date Event
January 2008 Year End
March 2008 Finals
July 2008 Interims
Balance Sheet

st
Year to 31 Jan 2008A Major Shareholders
2007A
£m interim
Non-current Assets - - Shareholder %
Current Assets 153 152 ACOC 49.40
Total Equity 120 117
Ucoco Energy Inc. 23.76
Total Liabilities 33 35
Karin Haugen 9.90
Glenn MacNeil 5.94

Cash Flow
Board of Directors
st
Year to 31 Jan 2008A
2007A
£m interim Name Position held
Operating Activities (46) (57)
Brian Courtney CEO
Investing Activities 4 2
Financing Activities (3) - Neville Desmond Smith Chief Operating Officer
Net Cash Flow (45) (55) Glenn MacNeil Chief Financial Officer
Cash and cash Sir Adrian Blennerhassett Non-Executive Director
196 151
equiv. at beginning
Bank balance and Stephen Vaughan Oakes Non-Executive Director
151 96
cash

Activities: Share Price Chart

The Company is an oil and gas exploration and 3.0 NTOG NOSTRA TERRA ORD 0.1P
2.8
production company operating in the Ukraine. 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 Q1-2008

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
 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

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QUARTERLY STATEMENT OF RESEARCH RECOMMENDATIONS: Our quarterly statement of research

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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