ISSUE # 13 — JANUARY 27 2010 TAG OIL- TAO-TSXv ‘The premise for this investment is simple: Tag Oil has a 100% working it million acre of a shale oil formation in New Zealand that looks, geologically, remarkably like the prolific Bakken shale play in North Dakota and Saskatchewan (except the NZ formations are much thicker and more porous!). Management will likely test it in Q3 2010. An independent geological consultant has estimated it may hold up to 12 billion barrels of oil. It is a drill punt, but there is a lot of geological evidence backing it up. Tag Oil also has production -350 bopd of light oil, $10 million net cash, and management owns 11,000,000 of the 30,000,000 million shares out. With a tight share structure and massive land position, the capital gains potential here is surreal. | know of two oil & gas stocks that went from $1 -$100 per share: Niko (NKO-TSX) and Ultra Petroleum (UP-AMEX). | believe Tag Oil has that kind of potential. Trading symbols: Share Pri TAO-TSXv $2.30 (Jan 26) Current Production: 350 Shares Outstanding: 29,879,445 -Insider shares (32%): 9,641,501 Fully Diluted: 31,767,515 Market Ca $68,722,723.5 Net CASH: $10 million Enterprise Value: $58,722,723.5, www.tagoil.com POSITIVES -2.4 million acres in a shale formation that is a Bakken look alike and has independent report, saying 12 billion barrels -tight share structure (=leverage) their 350 bopd is now in a development stage field (Cheal) and | think can grow to over 2000 bopd with low risk just valuing the potential reserves at $20/bbl at Cheal supports the current stock price -good cash position relatively undiscovered company-no research -New Zealand has Anglo Saxon rule of lawNEGATIVES 1am paying a small speculative premium for the stock already (I clearly am not the first to discover the potential of this shale land package) +the overall market — and especially oil — looks like it wants to go lower now -the two shale formations are drill punts — and even if it is oil bearing, there’s no guarantee the chemistry will allow for economic completion (i.e. proper fracking may take a longtime to figure out) liquid stock will make for volatile trading the first horizontals might not get drilled until Q4 this year or Q1 2011 PROPERTIES The Shale Formations - Waipawa and Whangai shales, East Coast Basin Vm stai ig here because this is the big prize — if it works. An independent technical report dated September 2008 by AJM Petroleum Consultants -written in remarkably simple English (as is the whole website—kudos to mgmt) - states the potential for this property. (All emphasis, in underlines and bolding, is mine-KS.) ‘The Waipawa shale lies overtop of the Whangai shale, on the east coast of the north island of New Zealand. Three historical wells have been drilled — one in 1967 hit 734 m of Whangai shale at 1469 metres depth. Another well in 1985 hit 392 m of Whangai shale at 1990 m. Awell in 2001 hit 323 m Whangai shale at 2764 m. The overlying Waipawa appears to be only 30-70 m thick. From independent AJM report:“The Waipawa and Whangai shales represent an unconventional development similar to that of the Bakken Formation within the Willesden Basin in southern Saskatchewan and North Dakota. The area has several oil and natural gas seeps that clearly indicate the area is prospective for hydrocarbons. Prior to any defined development, additional drilling, sampling and testing will be required to further quantify the hydrocarbon potential in the area. “The company has plans to drill an exploratory well on each of the permits. The cost of the each well is estimated to be $CDN 2,500,000. This capital will allow forthe drilling of a,500m vertical test that will recover significant core. In addition, each well will have a modern well log suite run to allow for the optimal review and characterization of the shale zones. As per the exploration permit requirements, these wells should be drilled and tested by the end of the third quarter of 2009. AJM's long term forecast for light oil is $US 100.00/bb WTI “New Zealand has an active market for petroleum products, and the exploration permits are lose to a major ocean port in Napier. As a result, it is expected that any future development in the area will have access to markets and transportation infrastructure.” Belowis the chart from the AJM report that estimates Original Hydrocarbons in Place: Low Estimate [choc tet ‘02 fnitrace (moves) Jens siese aoroens) nang Sale [etree ‘tet sys00 |icsrece (moves) 3e05 prove siess fagteene) 88 These are BILLIONS of barrels of oil estimated “The best estimate (P50) hydrocarbon in place volume of 12.6 billion barrels is the total available volume.”