Sovereign Oil & Gas - Performance

ACTIVITY FOCUS

Since March 2000, Sovereign Oil and Gas has managed fourteen major upstream property transactions in the Gulf of Guinea pertaining to eight (primarily offshore) license blocks. These transactions include bonuses and work commitments totaling approximately US$450 million to date. These results have given material assistance to local upstream asset owners in Nigeria and Equatorial Guinea in developing their upstream projects, and have brought nine new foreign oil company investors into these projects.

In March 2007 Sovereign concluded the third and final year of an exclusive Joint Development Agreement (JDA) with Syntroleum Corporation (NASDAQ: SYNM) to source upstream E&P projects worldwide on their behalf. Syntroleum owns a proprietary gas to liquids (GTL) process for converting natural gas or synthesis gas derived from coal and other carbon-based feedstock into synthetic liquid hydrocarbons.

PERFORMANCE METRICS

Sovereign has generated for its clients an historical Return on Investment (ROI) for a three-year average window in excess of 100:1 based on the sum of estimated net present value (10%) of P90 reserves obtained plus cash raised through Sovereign’s marketing efforts, divided by the cost of Sovereign’s annual budget charge to investors.

The charts shown in this section illustrate the performance metrics of the Sovereign projects actually captured and completed in the past three years, after being risk weighted. This real performance data is used to derive a Typical Project Profile that provides a template for the forecasting of Sovereign’s expected future performance over the next five years.

The risking exercise assumes that 75% of existing already captured appraisal-delineation projects and 50% of well-defined exploration prospects (having 3D seismic, AVO/DHIs, and offsetting oil production) will succeed in realizing their P50 oil and gas recoverable reserve estimates. The Typical Project Profile is an average derived from Sovereign’s risked current actual project profiles.

The previous two charts show the expected daily gross production volumes for oil and gas from Sovereign’s existing captured projects. The next two charts below show the Typical Single Project gross and net (to the Sovereign Investor) production profiles, as derived from Sovereign’s actual completed project portfolio.

The preceding two charts demonstrate that the Typical Project Profile for a Sovereign future project predicts an average yield to the Sovereign Investor of a net 34 MMBO and 100 BCFG per project. Using Sovereign’s historical capture rate of one completed upstream project per technical evaluation team (one geoscientist plus one reservoir engineer) per year, Sovereign projects the future capture of thirteen new projects over the next five years, or an average capture rate of three projects per year, based on expected staffing and budget levels.

These assumptions give rise to the following chart, illustrating the Total Production Forecast on a net basis to the Sovereign Investor’s share, for the 13 projected future upstream projects that Sovereign would expect to capture by employing these performance assumptions, and based on the risked Sovereign Typical Project Profile.

As shown, the expected Sovereign Investor’s net share is 439 MMBO and 1,310 BCFG, net of all host country taxes, government and Sovereign royalties, capital and operating costs, and all other financial burdens, assuming retention of the entire 40% foreign investor’s share of each project, for the 13 projected future projects that Sovereign would expect to capture over the next five years under these performance assumptions. The Sovereign Investor’s net share of projected daily production from these hypothetical 13 projects peaks at 160,000 bopd and 350 MMCFG/d in 2016.

Putting these performance data into a financial context, the table below shows the following results for the Sovereign Typical Project Profile:

Internal Rate of Return (IRR):	35%
Risk Capital Exposure:	$49 MM
NPV 10%:	$165 MM
NCF:	$407 MM
Net Risked Reserves:	34 MMBO + 100 BCFG

The table above shows the following results for the Sovereign Investor’s participation in all 13 projects:

Internal Rate of Return (IRR):	35%
Risk Capital Exposure:	$636 MM
NPV 10%:	$1,251 MM
NCF:	$4,794 MM
Net Risked Reserves:	440 MMBO + 1,311 BCFG

The table below shows the total sponsor net cash flow for all 13 projects: