POTENTIAL PETROLEUM RESOURCES

INTERPRETATION REPORT
CDS PARAQUAY CONCESSION
EMILIA EAST PROSPECT
BOQUERON BLOCK

Preliminary Interpretation Report

BY

Eric D. Carlson
March 18, 2009

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Introduction

This Emilia East Prospect is a true "seismic prospect," generated on 8 2-D lines in an area
where, prior to the seismic acquisition program in 2008, only hints of a structural closure
and dip reversal existed. This subtle structural trap has 15 to 25 meters vertical closure in
an area where regional dip is less than 1 degree. Thus, the structure is broad, and extends
over at least 5 square kilometers in one fault block, and about the same amount of area in
the sum of the adjacent fault blocks. The current seismic interpretation is consistent with
regional seismic, aeromagnetic, gravity, and stratigraphic studies. The 2008 soil
geochemistry program provided good evidence for the effectiveness of topseals over the
Emilia East Prospect.

All of these data types were used to generate the prospect. The proposed CDS-BB-09-1002
wellbore is designed to test 1 GAS objective and 4 OIL objectives between 334 meters and
1,250 meters PTD (proposed total depth). An unrisked EUR of 21 BCFG non-associated
gas, and 38 MMBO is derived from volumetric calculations within the targeted fault block,
and on parameters used in a 2006 engineering resource estimate for the nearby Emilia
Prospect, performed by CAS International, Houston, Texas, USA. The fault block having the
largest area was chosen first. Adjacent fault blocks, that form the rest of the Emilia East
Prospect structure, may also be productive.

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Table of Contents

Page

2 Introduction

3 Table of Contents

4 List of Tables, List of Figures

5 1 Executive Summary

5 1.1 Proposed program of drilling

5 1.2 5 Hydrocarbon Targets

6 1.3 Geological Structure

6 1.4 Reservoir

7 1.5 Supporting Data

8 2 Technical Considerations

8 2.1 Structure

10 2.2 Seismic Stratigraphy

12 2.3 Depositional Environment

13 2.4 Reservoir Topseals

14 2.5 Aeromag and Airborne Gravity Surveys

14 2.6 Soil Geochemistry

15 2.7 Drilling

15 2.8 Reservoir

15 2.9 Additional Data to Reduce Risk:

16 3 Conclusions

16 3.1 Project Implications for Further Development

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List of Tables

Table 01. 2009MarEmiliaEast1250mWellPrognosis

Table 02. 2009MarEmiliaEastEscarpmentGASVolumeEstimate

Table 03. 2009MarEmiliaEastOILVolumeEstimate

List of Figures

Figure 01. EE Prospect Orientation

Figure 02. EE Prospect Regional Struct

Figure 03. EE Top Escarpment Seis Struct Map

Figure 04. EE Top Emilia Main Pays Seis Struct Map

Figure 05. EE Top Tupambi Seis Struct Map

Figure 06. EE Base Carb Unc Seis Struct Map

Figure 07. EE 8 Interp Seismic Lines

Figure 08. EE DHIs 4-Way Closure

Figure 09. EE Prospect Structure 3D View from NW

Figure 10. EE Tying Wells to Seismic

Figure 11. EE Regional Carb XSecs

Figure 12. EE Carb Depositional Environments

Figure 13. EE 3D View From SE Carb Xsec

Figure 14. EE Carb Canyons 3D View from SE

Figure 15. EE Aeromag Anomaly

Figure 16. EE Soil Geochem

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1- EXECUTIVE SUMMARY

This report is a recommendation to drill a 1,250 meter well in the Boqueron Block at the
Emilia East Prospect, at the intersection of seismic lines 306 and 314. The prospect features
a low-relief structure having 4-way dip on the seismic lines, excellent stratigraphy, and
topseals in the Cretaceous and the Permian above the Carboniferous (Figure 1).

The proposed location for the CDS-BB-09-1002 well is 17 kilometers East-Northeast of the
1970 Pennzoil Emilia well, which had shows in the Carboniferous (upper right). The well
will target GAS in the Carboniferous Escarpment Formation, and OIL in the Carboniferous
Tarija Group, the Carboniferous Tupambi Formation, and the Devonian Iquiri Formation
(upper left). DHI's (direct hydrocarbon indicators) appear on both seismic lines. On line
306, the DHI is a dim zone (attenuation of signal strength) in the Escarpment Formation at
shot points 1780 to 1910, compared to the adjacent flanks (mid-upper right). Because
seismic reflectors in the deeper targets are stronger, OIL is expected. The structure
features 15 to 25 meters of dip reversal in the target formations (center right). The
prospect is in the same type and age of rock as the 22 TCFG San Alberto field complex in
Bolivia that has produced 6 BCFG per week (center left). The proposed location is less than
100 kilometers from gas production in Bolivia, in a location regionally updip, and shallow
enough that the Carboniferous in Paraguay contains oil (lower left). The geographic location
in NW Paraguay takes advantage of all the business factors that spark interest in Paraguay
(lower right). The well prognosis is based on all the data streams surrounding it (center). A
volumetric estimate of the resource includes an unrisked EUR of 21 BCF of non-associated
gas from the Escarpment Formation and an unrisked EUR of 38 MMBO from the Tarija
Group in the central fault block seen on line 306 (center). Several other adjacent fault
blocks may also contain hydrocarbons, based on the seismic lines.

1.1 Proposed program of drilling:

The first well on this prospect, the CDS-BB-09-1002, will be a drilled to a PTD (proposed
total depth) of 1,250 meters MD (measured depth) or 941 meters subsea depth (Table 01).
The surface location for this straight hole is adjacent to the intersection of seismic lines 306
and 314. The geographic coordinates for this surface location are x = 607500 and y =
7672850 (UTM Zone 20 South, WGS84 Spheroid). The latitude is South 21 degrees 02
minutes 31.38 seconds; and the longitude is West 61 degrees 57 minutes 55.40 seconds.
The ground level elevation at this location is 304 meters above mean seal level. The
shallowest target, at 334 meters MD, is expected to produce natural gas, because of a DHI
(direct hydrocarbon indicator) which is seen on both seismic lines (type log, Figure 01).
The next 4 targets are prospective for OIL, in the Tarija Group, Tupambi Formation, and
Devonian.

1.2 5 Hydrocarbon Targets:

334 meters GAS Carboniferous Escarpment Formation

434 meters OIL Carboniferous 1 st Tarija Sand
564 meters OIL Carboniferous Emilia Main Pays (Primary Oil Target)
1,016 meters OIL Carboniferous Tupambi Sands
1,220 meters OIL Devonian Iquiri Formation

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The CDS-BB-09-1002 well should encounter a fault block that contains an unrisked
volumetric non-associated GAS resource in the Carboniferous Escarpment Formation of 21
BCFG EUR (Table 02). The gas zone is expected at 334 meters to 406 meters MD, in a
clean sandstone that should be a single reservoir 72 meters thick. A short completion
interval in the middle of the sand should drain the entire gas column. Below that, the
Primary OIL Target in the well is the Emilia Main Pays, which are traced ENE from show
zones in the Emilia well that contained sands having 25% porosity. The sands are expected
to occur as two porous, well-sorted sandstones over an interval of 564 meters to 784 meters
MD. The unrisked volumetric estimated for the oil resource in the fault block is 38 MMBO
EUR. In all, 4 oil targets in the Carboniferous and Devonian are expected in this proposed
wellbore. Adjacent fault blocks may also contain hydrocarbons.

Below that, in the Tarija Group, 3 sands are expected to contain oil in conventional
reservoirs, and laminated sands between these zones may also be productive. The Primary
OIL Target in the well is the Emilia Main Pays, which are traced ENE from show zones in the
Emilia well that contained sands having 25% porosity. The Emilia Main Pays interval consist
of 2 porous sands separated by a zone of low porosity rock. Compared to the Emilia well,
the interval of these 2 target sands is thicker at the Emilia East Prospect, based on seismic
stratigraphy. The sands are expected to occur as two porous well-sorted sandstones over
an interval of 564 meters to 784 meters MD. The unrisked volumetric estimated for the oil
resource in the fault block to be penetrated by the CDS-BB-09-1002 well is 38 MMBO EUR.

1.3 Geological Structure:

In summary, the area of the Emilia East Prospect behaves in a manner typical of fractured
locations in extensional structural settings. All faulting is extensional. Most fault throws in
this area are less than 30 meters. Fault planes are mostly straight, and most of them
penetrate the base of the Neogene (late Cenozoic) Chaco Formation, estimated as Miocene
to Pleistocene in age. The local regional SW dip is 100 meters over a 20 kilometer distance,
less than1 degree. At the Emilia East Prospect, the amount of dip reversal seen at the first
objective is about 15 meters from the crest of the structure to the updip spill point. The
Primary OIL Target also has less than 25 meters of dip reversal. It is fair to say that the
Emilia East Prospect is a subtle prospect, having a 15 meter dip reversal seen on line 306,
which is 65 kilometers long. Computer interpretation techniques made it possible to detect.

1.4 Reservoir:

The potential Carboniferous hydrocarbon reservoirs share characteristics with reservoirs of

other deep marine fan environments. Because the seismic wavelets in the Carboniferous at
the Emilia East Prospect look remarkably similar to the seismic response at the Emilia well,
the reservoir parameters are judged to be essentially the same. The similarity of the rock
matrix properties in sidewall core data from the Emilia, Brigida, Olga, and Alicia wells also
strengthens this use of reservoir parameters from the Emilia well, only 17 kilometers away.
The 355 mD air permeability and 24% porosity suggest a zone that should flow at
commercial rates. Detailed core data in Bolivian Carboniferous fields prove that a 10%
difference in hydrocarbon saturation in a productive zone can affect the oil flow rate by
100x. For now, the assumption that the well might produce both water and oil at IP (initial
potential) is supported by the mapped 25 meter structural closure at Emilia East Prospect.

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1.5 Supporting Data:

a) 160 line-kilometers of reflection seismic program, 2008, in and adjacent to the Emilia
East Prospect detailed mapping area. All the lines but Line 309 are 3-C data, shot
with 3-component geophone arrays; and lines 304 and 309 were shot with 1-
component geophone arrays (1-c data). Thus, line 304 was shot twice as a test of
the 2 types of seismic arrays. In its current form, the 3-C data is suitable for
mapping only shallow targets, such as those expected in the 1,250 meter proposed
well.
b) The Pennzoil Emilia, Alicia, Brigida, Olga, and Cristina Wells, and the Union Picuiba
1B Well:--wireline logs, mudlogs, drilling reports, sidewall cores, a geochemistry
summary diagram, and a wireline FT (formation test) in the Brigida well. Regional
seismic stratigraphic studies incorporate wireline logs and seismic from up to 1000
kilometers away in this report (Figure 1 and Figure 12).
c) About 350 soil geochemistry samples in and adjacent to the detailed mapping area,
2008, analyzed by ETI in Houston, TX, USA.
d) Airborne gravity/aeromag survey,conducted and interpreted by Carson Helicopters,
Pennsylvania, USA.
e) High-resolution aeromagnetic survey, 2006-2007, conducted and interpreted by
GEODATOS, Santiago, Chile.
f) Engineering study of the nearby Emilia Prospect, CAS International, Houston, 2006.

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2. TECHNICAL CONSIDERATIONS

2.1. Structure:

The 2008 seismic program reveals very slightly dipping fault blocks, on the eastern portion
of a small mini-basin in which Pennzoil drilled the Emilia well in 1970. Clues to the regional
structure are found on the topographic map (Figure 2, upper left). The proposed location is
immediately SW of a N60W trending topographic culmination that extends for more than
150 kilometers across the Boqueron Block and into Bolivia. The area of detailed prospect-
scale mapping is SW of this culmination (Figure 2, lower left: close up). In the area
between the 1970 Pennzoil Emilia well and the proposed location, a local sub-basin (here
named the Emilia Mini-Basin) can be considered as a single area for generating
hydrocarbons in the Silurian and Devonian, and vertical migration to the Carboniferous
reservoir rocks. An aeromag/airborne gravity survey conducted by Carson Helicopters, of
Pennsylvania, USA in 2008 confirmed the results of an aeromag survey conducted by
GEODATOS, of Santiago, Chile in 2007. The general position of the Emilia East prospect is
on the east side of the Emilia Mini-Basin (Figure 2, upper right). The regional structural
culmination is located updip and NE of the proposed well location. Of great significance, the
gravity interpretation previously done by Carson showed a positive "bump" in the contours
in the same location as where CDS mapped a structural closure having 4-way dip on seismic
lines 314 and 306 (Figure 2, upper right). A typographical error in a January 28, 2009
report described this location as the intersection of lines 304 and 316, but the table in that
report correctly described the location as the intersection of lines 314 and 306. Carson also
constructed structural cross sections to display the results of their gravity modeling (Figure
2, lower right). The proposed location is nearly mid-way between the Emilia and Alicia
wells, just SW of an apparent basement high along the structural culmination seen on the
topographic map.

Locally at the detailed mapping area for the Emilia East Prospect, the sediments generally
dip about 1 degree to the Southwest. At the prospect location, a dip reversal results in a
oval-shaped structural closure having 4-way dip on the seismic lines. In detail, this oval is
shaped like a peanut shell (Figure 3). Four structure maps are attached with this report:

1. EE Top Escarpment Seis Struct Map (Figure 3): This horizon is the top of a consolidated
rock layer that shows a "dimming" of seismic amplitudes when gas is in the formation. This
is the shallowest hydrocarbon target in the Boqueron Block. At this horizon, the amount of
dip reversal is about 15 meters from the crest of the structure to the updip spill point. This
is a subtle structural trap.

2. EE Top Emilia Main Pays Seis Struct Map (Figure 4): This zone is the stratigraphic
equivalent to the zone which was drilled quickly and had the best oil shows in the Emilia
well. The amount of closure between the crest of the structure and the updip spill point is
less than 25 meters. An unrisked 60% of the possible oil production at this location is from
this Main Pays interval, based on an analysis of production rates and porosity comparisons in
Bolivia.

3. EE Top Tupambi Seis Struct Map (Figure 5): The Tupambi is denser than the Tarija
Group above it, so a reflection contrast is generated that can be mapped. The density
contrast between the T-2 and this siltstone creates a positive reflecton coefficient and a
visible reflector.

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4. EE Base Carb Unc Seis Struct Map (Figure 6): This horizon is a poor seismic reflector,
because of the irregular shape of the base of the Carboniferous deep sea fan in this area.
Evidence in wellbores and seismic lines reveal that some of the submarine canyons in the
Emilia Mini-Basin were incised into the underlying Devonian more than 300 meters.

In this study, 4 mapped structural horizons occur in an interval of 1,500 meter thickness
(Figures 3, 4, 5, and 6). In summary, the area of the Emilia East Prospect behaves in a
manner typical of extensional structural settings. All faulting is extensional. Most fault
throws in this area are less than 30 meters. The local regional dip is 100 meters over a 20
kilometer distance, or less than 1 degree. Fault planes are mostly straight, and most of
them penetrate the base of the Neogene (late Cenozoic) Chaco Formation, estimated as
Miocene to Pleistocene in age. The fault plane angles are typical of extensional locations
(Figure 7, VE=5x and VE=1x). There is evidence for Paleozoic faults in this area, based on
a N45E orientation of the fault strikes. These faults are probably Carboniferous in age, and
related to faulting along the hinge line that marked the Carboniferous shelf edge, about 20
50 kilometers SE of the proposed well location. Mesozoic faults in the area trend N60E and
N60W, and are due to extension in the area, due to opening of the Pirity Graben about 200
kilometers south of the Emilia East Prospect. The strike of Tertiary faults, associated with
the formation of the Andean foothills 200 kilometers to the west, trends N25W and N35E.

Note: Part of the interpretation on the structure maps is to extend fault planes further in a
lateral direction than the last fault picks on the seismic lines (Figures 3, 4, 5, and 6). This
geologic inference is based on extensive study of producing fields, and also, outcrops in
areas which contain extensional faults, such as Big Bend National Park, and the Llano Uplift
area, both in Texas. In Paraguay, the Carboniferous target formations were already about
200 million years old, and fully lithified, prior to Mesozoic structural movement associated
with the Pirity Graben and opening of the South Atlantic Ocean. Another 100 million years
passed prior to the Cenozoic faulting and fracturing associated with the rising Andes
Mountains. For this reason, the extensional deformation of the rocks of the Emilia East
Prospect Area occurred as a brittle deformation, rather than a ductile deformation. Slight
changes in bedding plane dip within fault blocks are due to the collective effect of multiple
fractures over a distance of at least 50 meters. The only fault expected in the proposed
location of the CDS-BB-09-1002 well is located at 991 meters MD (-682 meters subsea
depth), in non-productive Tupambi siltstones (Figure 8). The seismic reflectors are offset by
a 22 meter throw at this location, most visible on line 306, which is nearly perpendicular to
the fault strike. A ghost of this fault appears on line 314 in addition to the actual fault
plane. The ghost, at -577 meters depth, is caused by reflectors on the upthrown side of the
fault. They are seen because the Fresnel zone in the direction parallel to the line is about
60 meters wide, but the Fresnel zone perpendicular to the line is around 1,100 meters wide.

A 3-D perspective view from the NW shows the faults and the Primary OIL Target, the
Top/Emilia Main Pays (Figure 9). The fault block used to planimeter the volumetric oil
recovery for this zone, at about -255 meters subsea depth, is indicated. The same fault
block was planimetered at the depth of the Top/Carboniferous Escarpment Formation for the
volumetric gas resource estimate. That horizon intersects the fault planes at about -25
meters depth. The planimeter polygon was measured in the SMT Kingdom Suite, the
program used for the structural interpretation. The volumetric resource numbers for certain
cases in this report are based on integrated volumes between the seismic horizon and flat
LKG (lowest known gas) and LKO (lowest known oil) contacts. One case in the Escarpment

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Formation integrated the volume of rock between the top of the formation and -40 meters
subsea depth, which is the depth at which the dimming of reflectors in the Escarpment
interval is not obvious (Figure 8). The volumetric OIL estimate includes a case in which a
flat LKO at -295 meters subsea depth intersects the Top/Emilia Main Pays horizon at the
edge of the fault block.

Other apparent dips of more than 1 degree are the result of canyons being cut during
deposition of the Carboniferous in a deep sea fan environment. These dips are not simply
structural dips, but have a component of stratigraphic dip in them. The most obvious
example is the apparent east dip of the Base/Carboniferous unconformity a few kilometers
east of the proposed well location (Figure 6).

2.2 Seismic Stratigraphy:

The 2008 seismic program reveals very slightly dipping fault blocks, on the eastern portion
of a small mini-basin in which Pennzoil drilled the Emilia well in 1970. In general, the dip in
this area is to the Southwest. At the prospect location, a dip reversal results in a oval-
shaped structural closure having 4-way dip on the seismic lines. Four structure maps are
attached with this report.

1. EE Top Escarpment Seis Struct Map (Figure 3): This horizon is an excellent regional
seismic marker, because of a 0.3 grams/cm3 increase in bulk density between overlying,
partly-consolidated Mesozoic rocks and this underlying Carboniferous GAS target. At the
Alicia Well, wet in the Escarpment Formation, this seismic reflector contains a strong positive
amplitude, because of the density contrast. At the Emilia well and at the Emilia East
Prospect, the natural gas in the pores creates a DHI (direct hydrocarbon indicator) which is
a zone of seismic "dimming" (diminishment of seismic amplitude) in reflections from this
depth. The density of the rock, due to gas in the pores instead of water, is reduced by
almost the same amount as the increase due to lithology. As a result, there is no bulk
density contrast available to create a seismic reflector.

In the 2001 Anchovy report released by the Government of Paraguay, this positive reflector
was called the "BK" seismic marker, for Base/Cretaceous Unconformity. At the Emilia East
Prospect, there is only 18 meters of Paleozoic section between the Cretaceous and the
Carboniferous, which is too thin to resolve as two separate events. However, this 18 meters
contains the 2 meter thick Permian Cangapi topseal that isolates normally pressured salt-
water and hydrocarbon-bearing Escarpment Formation from the overpressured Yrenda
Aquifer above. Only in 2007, when regional seismic stratigraphy tied to Bolivia and the
reprocessed Pennzoil data was done, was this change in designation from "Base/Cretaceous
Unconformity" to "Top/Carboniferous Escarpment Formation" made in the low areas of the
Carandaity Basin where the Permian seal is intact. As a result, CDS relinquished areas of the
Boqueron Block where the Base/Cretaceous cut away the Permian seal.

2. EE Top Emilia Main Pays Seis Struct Map (Figure 4): This zone is the stratigraphic
equivalent to the zone which was drilled quickly and had a slight oil show in the Emilia well.
The sands are expected to occur as two porous, well-sorted sandstones over an interval of
564 meters to 784 meters MD, separated by a layer of lower porosity rock (Figure 10, center
panel). The contrast between the first Main Pay sand, at 25% porosity, and this low-
porosity rock layer, creates the strongest seismic reflector in the area around the Emilia well.
The reflector can be traced to the Emilia East Prospect. Stratigraphic correlations between

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nearby wellbores establish that these 2 sands should both be present in the Emilia East
Prospect area.

Note: The shallowest target in the Tarija Group is 225 meters shallower than the Emilia
Main Pays. The 1 st Tarija Sand, is the lateral equivalent of the sand in the P-90 Water
Supply Well that pumped at a rate of 500 BWPD for an extended test in the Gabino
Mendoza Block, pump-constrained. This zone has excellent permeability, and is the Second
OIL Target, from 434 meters to 449 meters MD. The sand is too thin at 15 meters, to map
with confidence. Instead, the shale at the base of the Escarpment Formation, which is the
Top of the Tarija Group, was mapped because it has a positive reflection coefficient. In a
few places under gas filled Escarpment sands, this reflector is strong enough to creat
multiples in the seismic data (Figure 8). These multiples enhance the DHI that is the
dimming (attenuation) of amplitude in the overlying Escarpment Formation.

3. EE Top Tupambi Seis Struct Map (Figure 5): This seismic reflector is immediately below
the T-2 Shale seal. The upper portion of the Tupambi Formation is an unproductive
siltstone. The density contrast between the T-2 and this siltstone creates a positive
reflection coefficient and a mappable reflector.

Below the Tarija Group, the Tupambi Formation, which is gas productive in the Gabino
Mendoza Block, is expected to produce oil at the Emilia East Prospect. The Tupambi is the
Third OIL Target for the CDS-BB-09-1002 well. The upper portion of the Tupambi is
siltstone. The first productive Tupambi sandstone, which is laterally equivalent to the
Independencia Gas Pay Sand, is expected at 1,016 meters MD. A series of porous laminated
sandstones is expected to continue to 1,195 meters MD. The sandstone layers of the
Tupambi Formation are about 20% more porous in the Emilia East location than further
north, and are expected to produce oil. That difference is porosity is important, because the
difference in permeability to oil is such that 24% porosity rock can flow at rates at least as
high as 7 BOPD per vertical meter per day. In contrast, zones having 19 percent porosity or
less have estimated oil flow rates roughly 1% of that rate, based on production data from
the Chaco Basin of Bolivia.

4. EE Base Carb Unc Seis Struct Map (Figure 6): This horizon is a poor seismic reflector,
because of the irregular shape of the base of the Carboniferous deep sea fan in this area.
Near the PTD of the well, laminated sandstones of the Upper Devonian San Alfredo Group
may be sufficiently permeable to produce oil. This Devonian zone, immediately below the
Base/Carboniferous Unconformity, is the Fourth OIL Target. The interval was found to be
porous and oil-bearing in the CDS-GM-05-5001 well in the Gabino Mendoza Block.
Unfortunately, the Devonian had low permeability because of pore throats having a diameter
insufficient for oil production. The likely cause is exposure to rainwater, which probably
enters the formation about 10 kilometers to the northeast, where the Devonian is buried
under only a few meters of recent gravel. However, the area of the Emilia East Prospect
has not seen the uplift and exposure to rainwater that the Gabino Mendoza Block has seen.
Sidewall core porosity measurements from the Devonian include an average 20% porosity in
several wells in and around the Boqueron Block. As a result, the permeability of this rock
may be 3 orders of magnitude better than in the Gabino Mendoza Block, and sufficient for
oil production.

The exercise of generating synthetic seismograms from wireline well logs is a necessary step
in tying the stratigraphic data from wells into the current seismic program (Figure 10). The

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response of the seismic traces in the Emilia East Prospect area, upper right, appear more
similar to the Emilia well synthetic seismogram that the synthetic seismogram from the Alicia
well. The Emilia well synthetic also produces a "dim" DHI in the gas-bearing Carboniferous
Escarpment Formation, in keeping with the mudlog gas show. The Alicia well may be
breached in the Escarpment Formation. Although the log analyst, Roger Smith, concluded
from the SP log that the Escarpment must necessarily contain hydrocarbons in the Alicia
well, and not fresh water, the actual SP log shows a negative deflection in the Escarpment,
and no shows, in contrast to the SP curve associated with slight shows in the Tarija, and
slightly better shows in the Tupambi (log analysis, Figure 11 lower left, scanned Alicia well
logs, Figure 13). The synthetic seismograms indicate that there is gas in the Escarpment,
over oil or water in the Tarija and Tupambi, in the Emilia and Emilia East Prospects, and
water in the Escarpment over gas or oil or water in the Tarija and Tupambi of the Alicia
wellbore.

2.3 Depositional Environment:

The Carboniferous has been studied by many persons in several countries. It is now widely
accepted that the Carboniferous fields of Bolivia, and the prospects of NW Paraguay were
deposited as deep marine fans. It all started when, in the lower Carboniferous, a collision
between continents led to formation of a mountain range near today's sea coast of Brazil,
Uruguay and Argentina. The effect in NW Paraguay was to cause uplift of the previous deep
marine Devonian Basin. Erosion during the lowermost Carboniferous in NW Paraguay
includes more than 2.5 kilometers of Devonian and Silurian rock, found in the Don Quijote
#1 well and absent from the Lopez #1 well, drilled southeast of Mariscal Estigarribia. This
"screaming unconformity" at the Base/Carboniferous is even more extensive further SE. As
the mountains rose along today's Atlantic coast, the areas immediately south of the CDS
concession blocks were a continental shelf, receiving sediments eroded from Devonian and
earlier rocks in the mountains to the Southeast Figure 12 (bottom panel). Portions of this
continental shelf are preserved in the Parana Basin of eastern Paraguay and southern Brazil.
Deposition of Carboniferous shelf sediments in the Hortensia and Gabriela wells was a
process that would appear familiar to people watching the Seine River depositing its bed
load on the Atlantic Coast. The same processes were at work. However, in the
Carboniferous, every so often, (probably on 20,000 year cycles) a glaciation event would
drop sea level. Estimates from Carboniferous limestone shelf edges in North America
suggest repeated world wide drops in sea level of 200 meters, followed by flooding as the
glaciers melted. The effect on the Parana Basin continental shelf sediments was literally
catastrophic. Huge depositional events moved thousands of cubic kilometers of material
from the shelf to the deepwater fans of the Chaco Basin. The events were so devastating
that the deepest submarine canyons in Paraguay and Bolivia are more than 1000 meters
deep in the Tupambi Formation. The canyons were so large that they can be seen on the
seismic line at the lower left of Figure 1, just west of the Bolivia/Paraguay border. Due to
the orientation of the shelf edge, the Emilia East prospect is in the same depositional
"proximal deep sea fan" facies as giant fields in Bolivia such as the 22 TCFG San Alberto/San
Antonio Complex. The rock are sufficiently permeable to flow hydrocarbons at world-class
rates, if they contain hydrocarbons (figure 12, upper).

In the Boqueron Block, these submarine canyons on the fan can be seen on wireline well
logs (Figure 13). The Emilia well located in the proximal fan setting, contains abundant
sandstone having porosity greater than 24% and air permeability approaching a darcy

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(1000mD). Yet the Carboniferous at Emilia is much thinner than in the Brigida and Alicia
wells, which were drilled in spots where the Carboniferous is much thicker.

The 1970 Pennzoil seismic data, when reprocessed in 2001, revealed the submarine canyons
for the first time. When CDS reprocessed the Pennzoil in 2007, submarine canyons that had
existed for 300 million years were still there, and CDS also saw the exact same canyons in
2008 and 2009 (Figure 14). The water-borne sediment flows that bulldozed these canyons
was moving so fast through Paraguay that they can be exactly correlated, based on shape
and depth, when viewed in the direction of sediment transport. The reader of this report
can discern a fourth, smaller canyon which is not marked in the diagram, SW of the 3 that
are marked, based on its relative depth compared to the other 3 canyons.

The CDS-BB-09-1002 well is located just SW of the biggest canyon (figure 8). Observation of
modern deep sea fans such as the Mississippi River Fan and the Ganges Fan, and even the
Monterrey Canyon near San Franscisco, California, prove that sediments near deep sea
canyons contain relatively larger grain sizes (great for permeability), and fewer clay particles
(also leading to better permeabilty) than in locations only 10 kilometers further away from
the fans. Thus, fortunately, the Emilia East Prospect is located in perhaps one of the most
prospective areas for Carboniferous reservoir rocks in the entire area of CDS concessions.

In general, the area of the Emilia East Prospect was a low area of the sea floor because
these bulldozer events are composed of dense water and rock, and they hug the sea floor.
However, today, there is a structural culmination almost exactly where that Carboniferous
sea floor low was found. The necessary conclusion is that the basement block that was
uplifted immediately NE of the Emilia East Prospect, is a Mesozoic feature, and not
Paleozoic. Because it is a Mesozoic event, hydrocarbon fluids that were generated in the
Silurian source during the well-documented high-heat flow episodes of the Cretaceous had a
pathway to charge reservoirs of Carboniferous rocks. One famous example of this high-heat
flow event is the volcanic rock that elevates Asuncion above the surrounding swamps.
Another 2 events are found as igneous plugs near the Dorotea well, based on aeromagnetic
and gravity data. Because the known Cretaceous and Permian topseals are still intact at the
Emilia East Prospect, not only is it possible that oil and gas generated in the Tertiary from
Devonian sources might be present. In addition, oil and gas generated in the Cretaceous
from Silurian sources might also still be present in this prospect.

2.4 Reservoir Topseals:

The best seal in the Emilia Mini-Basin is the Permian Cangapi Formation immediately above
the Carboniferous Escarpment Formation (Figure 1). This seal has kept overpressure waters
of the Tertiary Yrenda aquifer out of the Emilia Carboniferous. More significantly, the same
zone has kept low-resistivity salt water in a Permian sandstone 3 meters above the
Carboniferous away from the high-resistivity gas zone in the Carboniferous. The Permian
Cangapi seal is proof against overpressured water in the Tertiary, and normally pressured
salt water in a sand only 3 meters above the Carboniferous.

Another topseal present in the immediate area is a Cretaceous marl (mudstone containing
microscopic skeletons made out of calcium carbonate) described on most of the mudlogs

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that penetrated the Cretaceous in NW Paraguay. This seal is known to be effective near
Santa Cruz, Bolivia, and in the Salta Rift of northern Argentina.

The T-2 Shale, immediately shallower than the Independencia Gas Pay sand (Carboniferous
Tupambi Formation) was the topseal for the zone that blew out in the 1959 Pure Oil
Company well in the Gabino Mendoza Block. This gas sand (slightly overpressured when
penetrated by Pure Oil in 1959) is about a kilometer shallower than the top of the Wet Gas
Generating Window. The blow-out is further proof that vertical migration along micro-
factures and open faults has occurred; and that the T-2 Shale has trapped that gas. A
quantitative pressure test of this zone was achieved by CDS in 2005 when it ran surface
casing to this zone, cemented, and did a successful BOP test (blow-out preventer test). This
shale formation tested successfully at 2,000 psi during the portion of that test called the
“Formation Integrity Test.” Thus, the minimum quantitative value for sealing power of the
T-2 shale was confirmed in this millennium. This seal should keep Tupambi OIL Targets
virgin, because due to the physical principals involved, any topseal that traps natural gas will
trap oil.

The Carboniferous T-3 conglomerate seal, immediately above the Devonian, is effective in
keeping oil in the Devonian, as demonstrated by headspace gas analyses of cuttings from
the CDS well in the Gabino Mendoza Block.

2.5 Aeromagnetic and Airborne Gravity Surveys:

The available aeromagnetic data include a 2006 survey by GEODATOS, of Santiago, Chile;
and a 2007-2008 survey and interpretation by Carson Helicopters, of Pennsylvania, USA.
Both surveys produced strong positive magnetic anomalies in the area centered around the
Emilia East prospect location (Figure 15). Different acquisition parameters were used, but
each survey produced the same positive anomaly. This anomaly is believed by a CDS staff
geologist to be a result of the interaction of anaerobic bacteria with petroleum, at the
chemical contact between the overlying fresh water of the Tertiary aquifer and the
underlying salty formation water of the target horizons. A normal by-product of this
bacterial activity is magnetite, an iron mineral formed when the usual hematite in rocks is
converted by the biological process. In general, this activity is believed to be placed above
and around highly prospective areas for hydrocarbons.

2.6 Soil Geochemistry:

Within the area around the Emilia East Prospect, soil geochemistry samples were collected
along each seismic line at half-kilometer intervals between sample stations. Additional
samples were collected north of the seismic program, at the same density along the traverse
lines. This surface geochemistry data reveals leaking hydrocarbons in the soil at locations
updip of the CDS-BB-09-1002 proposed location (Figure 16). However, there is very little
gas leaking to the surface above the 4-way prospect closure. That pattern suggests that
hydrocarbons are being generated in this part of the Emilia mini-basin, and migrating to the
surface at the updip edges of the mini-basin, where Cretaceous and Tertiary erosion may
have breached seals. In contrast, the topseals that are effective at Emilia are also effective
over this 4-way closure, which is in a fault block removed from the northeast margin of the
mini-basin.

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2.7 Drilling:

Most of the details of wellbore design for this program are beyond the scope of this
geological/geophysics report and recommendation. However, analysis of the 2005 CDS
drilling program included a recommendation to continue using Drillplex, a thixotropic, water-
based calcium carbonate-weighted environmentally-friendly brackish water mud. This mud
led to no washouts in the Carboniferous for the first time ever in Paraguay. The CDS drilling
consultant onsite at the wellbore calculated a borehole volume only 1.06 times the volume
of the drill bit area times the depth of the hole. That is in stark contrast to Carboniferous
exploration wells in the 20th century, which often drilled a volume 2 to 3 times the bit area x
depth.

2.8 Reservoir:

A lot of information on reservoir qualities of the Carboniferous was incorporated in the 2006
CAS International engineering report on the Emilia Prospect, and used for calculating
resource size and estimated production rates and drainage radii. This geologic information
is available upon request from CDS.

2.9 Additional Data to Reduce Risk:

Further work to eliminate risk can be done with available seismic data in the area of the
Emilia East Prospect. First, TRICON should process the H-1 wave data for all of line 314,
and portions of line 306. The amplitude data in the Escarpment Formation should be
compared to the P-Wave data. Because shear wave data is not attenuated by the presence
of gas in the pores, if there is gas at the proposed location, CDS should see no dimming of
shear wave data. If the dimming in the P-wave data is caused by a different factor, such as
out-of-the-plane diffractiions, the diiffractions will appear on the H1 wave data at a two-way
time that will be useful in gauging distance to the anomaly. This H-1 component data was
gathered on all lines where the array was a 3-component array. A proposal for this work
has been received by CDS management. The data is in Houston already.

A second possibility would be to conduct a small survey using Catari-Seismo Group's

proprietary Seismo-Tomography technique. CDS should ask the Catari-Seismo Group to bid
on a Seismo-Tomography exploration survey in the Boqueron Block, at the Picuiba Nose
Prospect in the NW portion of the block, and at either the Emilia or the Emilia East Prospect.
The physics behind the method are sound. If the price is significantly less than the cost of a
well, and if the program can be conducted during the second quarter of 2009, CDS's owners
should probably find the money to do it.

The physical properties of the Carboniferous and Devonian rocks of the Chaco Basin are
nearly ideal for the use of this Seismo-Tomography technology. The very best place to use
the Seismo-Tomography method is at the Picuiba Nose area in the NW portion of the
Boqueron Block. Soil geochemistry data in that area support the notion that hydrocarbons
are present in the subsurface. A drilling location has been chosen, based on the limited soil
geochemistry data, and the inference that the location is buried deep enough that top seals
are still present. If a short Seismo-Tomography survey can be conducted in the next 4 or 5
months, this alternative method, using a slightly different method to analyze the same
variables in the Earth as the 2008 ETI Soil Geochemistry Survey, is an excellent method to
reduce the risk of a dry hole at the Emilia East Prospect.

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Denser soil geochemistry sampling along the lines 306 and 314 would help to determine if
any of the faults mapped around the proposed location of the CDS-BB-09-1002 well are
leaking hydrocarbons. This data would supplement the reconnaisance data gathered in
2008. A sample density of 1 for each 100 meters of seismic line would be about 200
samples. Only minimal line-clearing should be necessary, if the soil geochemistry is done in
the second quarter of 2009.

3. CONCLUSIONS

3.1 Project Implications for Further Development:

If the CDS-BB-09-1002 well is successful, a program of appraisal and development wells

could begin immediately after completion of the first well. Interference tests on the second
and subsequent wells will establish the optimum drainage radius for the reservoir(s). The
area of the first fault block is nearly flat, so that the anticipated spacing of 16 hectares per
oil well and 75 hectares per gas completion can be placed in a regular pattern. There is less
than 50 meters dip in 5.8 square kilometers in this fault block. The Primary OIL Target pay
sands are thicker than that. If the entire area of the fault block is productive, then 35 wells
will be needed for full development of the block, at 16-hectare spacing. Adjacent blocks
should be tested following successful confirmation and delineation wells. The next
candidate fault block for a test is immediately south along line 314, unless the Tupambi
Formation contains hydrocarbons upthrown to the fault in the proposed well. If that
formation contains hydrocarbons, the area east of the fault would get a higher priority for a
step-out well.

An additional closure has been mapped on line 316 about 6 kilometers SSE of the proposed
location for the 1002 well. This part of line 316 carries a significant structural risk, because
the data is degraded near the edge of the line. Low-cost methods for obtaining more
information, such as Seismo-Tomography and soil geochemistry sampling, should be done
before any recommendation for a cross-line to Line 316 can be suggested.

If a successful discovery, confirmation, and delineation well have all contributed to a field
that can be booked as an asset, a 3-D seismic survey of the field area, and additional 2-D
lines northwest and southeast of this prospect will be recommended.

A successful exploration effort at the Emilia East Prospect would lead to technical
recommendations to continue exploration in a trend line immediately southwest of the
regional structural flexure that forms the north and east boundaries of the Emilia mini-basin.
That trend would include the south flank of the North Emilia Arch, located due north of the
1971 Pennzoil Emilia well. The reason to follow the flank in that direction is the much thicker
Carboniferous stratigraphy along the axis of the submarine canyon which runs just NE of the
well 1002 location.

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Table 01. 2009MarEmiliaEast1250mWellPrognosis
Table 02. 2009Mar16EmiliaEastEscarpmentGasVolumeEstimate

Row
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Table 03. 2009Mar16EmiliaEastOILVolumeEstimate