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ASSESSMENT REPORT Premier Energy Corp. Premier Energy Corp. 14785 PRESTON ROAD SUITE 550 DALLAS TX 75254

Dec 2009

Phone : +1 (214) 208-3283 Email: anton.pro@gmail.com URL: www.premieroilco.com


EXECUTIVE SUMMARY Description:

Premier Energy Corp. is a publicly listed company on the US NASDAQ OBB (Over the Counter Bulletin Board) Market and the German over the counter exchange. Premier Energy Corp., through its majority-owned Russian subsidiary, Karbon CJSC, is engaged in the business of producing oil and gas from the North-Kopanskoye Oilfield, in the Russian Federation. The company interest’s in the North-Kopanskoye Field consists of 3 shut-in exploration wells and one production well which is currently operating or has been operated recently, totaling 3,213 gross acres for oil production and is located to the southeast of the city of Orenburg. It markets and sells its products primarily through third party operators of the wells and a third party marketing company. As of December 31, 2008, Premier Energy Corp. had approximately 30 million barrels of estimated total oil reserves. The company was founded in 2000 and is based in Dallas, Texas. The company is currently raising capital to improve production at the 3 drilled exploration wells, for drilling of new wells and to acquire further leases and production in the same region of Russia. It is our assessment that this is a very interesting company with valuable assets, experienced management who has worked in Russia and have experience in this type of production. The company is well positioned in an area of Russia, which has proved to be a solid oil producing area. The company’s assets are connected to pipelines, which can be used for export once production reaches minimum levels of app. 1000boe/day. This type of company development is very well know in Canada in the Western basin and the activities in Canada, could be used as a model for the development of older oil regions in Russia, which have been principally developed by large multinationals sized companies. There are risks with this type of production and with its location in the Russian Federation, but the risks are not higher then those in parts of the Middle East or Africa and should be put in this larger prospective. The potential for growth and the potential rewards for being an early entrant in this type of small oil and gas play in Russia could be a very attractive investment.

Strengths:

The company has significant energy holdings in Russia with Proved, Probable and Possible Reserves of about 30 million boe (Barrel of Oil Equivalent). Estimates of the value of Premier were not made, however companies with equivalent amounts of proved and probable hydrocarbons in Canada have recently traded for several hundred million CDN at a rate of 15 USD/boe of similar reserves. The company has signed several non-binding agreements to purchase Speckrit LLC (a purchase agreement in place) and Alba Oil LLC (a wholly-owned subsidiary of Speckrit)


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Weaknesses:

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Opportunities

Threats

  The company has recently hired an experienced CEO The company has 3 shut-in exploratory wells and one producing well that has average production of about 60boe per day. The company is setup as a US company and is listed on the NASDAQ OBB and German over the counter market. The area where Premier owns and leases wells south of the city of Orenburg is well known for oil and gas production. The company’s subsidiary Karbon CJSC has the right to export hydrocarbons and is tied in to a nearby OAO Gasprom trunk pipeline which, can be used to access export markets once production levels reach about 1000boe/day. The company’s assets are located in central Russia. The Russian government has in the past taken over private oil and gas companies under circumstances that would not be acceptable to business in Western countries. The company needs to work over existing exploratory wells and drill new wells in order to reach its initial production targets of about 1000boe/day The company needs significant capital resources of over 50 million USD to expand the oil production, but likely only a few million to improve current production. Current production must be sold at the wellhead at below market prices since the costs of using pipelines and accessing export markets is not feasible until production reaches about 1000boe/day. There are opportunities for development companies to expand oil production where mostly only large companies have operated such as the Orenburg area A similar situation in the Western basin of Canada has given rise to dozens of small companies which have generated billions of USD and continue to develop, merge and expand operations in fields that were previously not big enough for multinational companies. Russia has extensive experience in oil and gas production, existing infrastructure and transportation resources for moving production to ports and Western Europe. The company has the ability to export production, operate from public listing in Europe and the USA, while taking advantage of lower labor costs in Russia. There are some political threats and certain practices including taxing and business costs may not be as transparent as they are in western countries. Lack of capital in Russia for small projects and startup companies makes it difficult to develop small oil and gas production companies, which necessitates the need for financing from outside of Russia. Investments in European and US markets must be invested in activities in the Russian Federation, however this type of arrangement happens routinely in other parts of the world in resource companies.


  Labor laws and disruptions and administrative issues could result in failure to meet timelines for expansion and improvements.


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CONTENT EXECUTIVE SUMMARY   CONTENT   COMPANY DESCRIPTION   REASON  FOR  THE  ASSESSMENT  

MANAGEMENT / ORGANISATION   Senior  Management  Team  

PRODUCTS, SERVICES AND TECHNOLOGY   TECHNOLOGY   PRODUCTS  

FINANCES   CURRENT  FINANCIAL  SITUATION   FUTURE  FINANCING  

ASSESSMENT   COMPETITIVE  ADVANTAGE  /  CORE  COMPETENCES   RISK  ASSESSMENT   CRUCIAL  FACTORS  FOR  INVESTMENT  

REFERENCES  

2   5   6   7   7   7   8   8   8   10   10   11   11   11   12   12   14  


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COMPANY DESCRIPTION Description

Premier is an oil and gas company with resources and leases in central Russia in the North-Kopanskoye Oilfield, located to the southeast of the city of Orenburg. The company has listings on the OTCBB in the US and Germany. The company’s business model is to work over (improve) production at 3 existing exploratory wells and a single existing production well (which was drilled in 2006), and drill new wells in the current field. Beyond the current field the company plans to expand its resources through the purchase of further assets in the same region.

Business Model

The business model is relatively straightforward to buy old production areas in Russia, improve production, expand the number of wells and eventually use more modern techniques for drilling and production. This approach has been used very successfully in the Western Basin of Canada where large multinationals initially controlled production and have gradually decamped and sold to intermediate players or abandoned fields, which were then developed extensively in the last 25 years by a variety of small companies producing mostly under 10,000boe/day. Gradually larger companies have emerged through mergers and acquisitions and this region of Canada has seen growing production from many previously underused or abandoned fields.

Partnering Strategy

The company will partner with local drilling companies and with larger companies such as OAO Gasprom, which control the transportation pipelines.

Exit Strategy

The company currently has an over the counter listing in the US and Germany and investors will be able to buy and sell their shares publicly. Liquidity of the company share capital should improve as production increases and its finances improve. It is also very likely that once the company reaches 5000boe/day to 10,000 boe/day it will also be a target for an acquisition by a larger company either in Russia or from abroad.

Valuation

We have not done a formal valuation but believe that the company if it were in the Western Basin of Canada and had production levels restored to 1000boe/day to 2000boe/day would be similar in value to a company recently acquired by NAL Oil and Gas Trust called Breaker Energy Ltd., which was acquired for USD 390 million. On a reserve basis the company was valued at about USD 16/boe proved and probable. This would translate to USD 475 million for Premier. There are many factors to take into account, which would change this comparison. Firstly Breaker had almost 6,700boe/day of production. Also the location of the assets would have the largest impact on any valuation. We have not attempted to determine the impact of having only 1/100 the level of production or the fields located in the Russian Federation


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as opposed to Canada. Also we did not look at the impact, of the need for work over and other development work, which needs to be done on Premier’s assets. We have not included the assets of companies which Premier has rights to buy under contracts, in our assessment. Therefore these potential assets should be considered as further upside potential for the company. Premier has provided estimates for the reserves for the two companies which Premier has options to purchase, Speckrit and Alba as follows: Speckrit: oil in place 18 billion bbls in the South-Chernushinskoye field in the perm region. Alba: oil in place 2.2 billion bbls, recoverable 450 million bbls in the NorthSorokinskoye field in the Tyumen region (lease 485,000 acres) REASON FOR THE ASSESSMENT This assessment is being carried out because Premier would like to increase its capitalization through the sale of equity in Europe and or the USA.

MANAGEMENT / ORGANISATION Senior Management Team

Dr. Anton Prodanovic was appointed as Chief Executive Officer and Director of Premier Energy Corp. on October 16, 2008. Dr. Prodanovic’s professional experience has been focused on the evaluation, planning, permitting, contracting, construction and management of various energy projects. From 2000 until joining the company, Dr. Prodanovic has served as a consultant to various oil and gas projects, renewable energy sources and emerging alternative fuel projects. Between 1984 and 2000, Dr. Prodanovic served in various capacities with Mobil Corporation as an officer or senior executive with various divisions and projects within Mobil Corporation, and from 1976 until 1984 he was a Senior Research Associate with Exxon Production Research Co., a division of Exxon Corporation. Dr. Prodanovic is a member of the American Society of Civil Engineers and the American Society of Mechanical Engineers. He was co-founder or organizer of Offshore Mechanics & Arctic Engineering, Polar Offshore Arctic Conferences, Offshore Technology Conferences and Russian Arctic Offshore Conferences. A Fulbright scholar (1973), Dr. Prodanovic also served as Assistant Professor at the University of Sarajevo, Yugoslavia and was a Research Assistant at Rice University. Dr. Prodanovic holds a Ph.D. in Structural Engineering from Rice University, an M.A. in International Business from the University of Texas and a B.S. in Civil Engineering from the University of Sarajevo. Mr. Alexey Goleshev has been appointed as the Chief Financial Officer, Director of Premier Energy corporation on February 27, 2009. He has served as Vice President of National Republic Bank (Russia) since June 2003 where


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has been responsible for planning of oil and gas project financing. From November 1998 through June 2001, Mr. Goleshev has served as the President of Codexbank. Mr. Goleshev holds a MBA from the Pacific Coast University. Mr. Bosko Popovic has been appointed as the Chief Operating Officer, Director of Premier Energy Corporation on February 27, 2009. He has served as a Director of a Representation Office for Auxerre Trading Ltd, a significant shareholder of the Company, since October 2005 where he has monitored and controlled assets in Russia and traded crude oil and products. From July 2003 through September 2005, Mr. Popovic served as Director of the Moscow office where he was responsible for processing and supplying crude oil. Mr. Popovic holds an engineering degree from the University of Belgrade. Mr. Aslanbi Kodzokov has been appointed as the Secretary, Director of Premier Energy Corporation on February 27, 2009. He has since 2006, served as the Deputy General Director for the Legal Department of Rossgaz and the Director of the Legal Department for OAO Hydrometalurg from 2002 to 2006. From 2000 to 2002, Mr. Kodzokov served as the General Director of Moscow Institute of Economy and Law. Mr. Kodzokov earned an economics degree from the Government University of Kabardino-Balkaria and a law degree from the Moscow Institute of Economy and Law.

PRODUCTS, SERVICES AND TECHNOLOGY TECHNOLOGY Technology Overview

The company owns oil and gas production wells in Russia, we have not received information nor do we believe that these wells have any special technological advantage and in fact the current production requires extensive modernization.

PRODUCTS

The company produces light gravity crude oil and natural gas.

Quality Assurance/Control

It is not know it the company has any laboratory facilities or expertise. There is not a great deal of need for specialized expertise for the production of light gravity crude, however there are a number of important tests which must be done on a regular basis, but these could be done by contractors.

Regulatory Approvals

Approval for oil production and export is in place for the company’s facilities in Russia. It is not clear what annual or other permits must be obtained or renewed in order to maintain production. It is also not known if drilling permits have been obtained what these would cost and how long new

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permits would take for processing and approval. It is also not known what environmental permits might be needed in addition to production and drilling permits or if the company has such permits.

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Finances CURRENT FINANCIAL SITUATION

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FUTURE FINANCING The company is looking to raise significant capital of up to USD 70 million for improvement of existing wells and increased production, drilling of new wells, acquisitions and general corporate purposes. Likely the company will need to take a stepwise approach to raising needed capital with initially one or two small infusions of equity up to USD 5 million and subsequently a further infusion which is at least an order of magnitude larger for drilling and further acquisitions.        

ASSESSMENT COMPETITIVE ADVANTAGE / CORE COMPETENCES Management

The company has an experienced CEO and management on the ground in Russia, which should be more than adequate for the purposes of its business plan and for a company at this stage of development.

Technology

The company has some production equipment and infrastructure but this needs to be renewed and will need to be expanded.

Operational

The company has experienced management who are capable of managing this type of operation. Currently the company has some infrastructure, which needs to be renewed and expanded.


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      RISK ASSESSMENT External risks

The company faces a number of external risks: • The biggest risk facing the company is financial risk. At this time the company needs a large infusion of capital in order to realize the value of its Russian assets. Due to the financial crisis of the past year the company has had difficulty to execute its business plan related to financing. • The price of oil is also a substantial risk to the company. Currently the price has been steady for the past 6 months at USD 75 ± 10

• • • • Internal risks

USD but over the past 18 months the price of oil has fluctuated between USD 125 and USD 30. Political and business risks of operating in the Russian Federation. Inability to move production to the market through the transportation facilities of other companies such as Gasprom. Lack of contractors or equipment for drilling, production chemicals, other infrastructure projects etc. Government restrictions, the level of taxation and government fees.

Based on the above assessment, we see the key internal risks are as follows: • • • •

Inability to execute the current business plan due to lack of personnel or other issues related to human resources Inability to increase production sufficiently to achieve critical mass, establish exports via pipeline transportation Inability to meet timelines due to external factors and lack of management of critical issues. Unexpected issues related to the recovery or processing of the oil and gas production

CRUCIAL FACTORS FOR INVESTMENT In our view the most critical factors at the moment relate to the need for capital. While the company is seeking a large amount of capital even a few million would be sufficient to increase production to about 200boe/day and this should result in cash flow of USD 5 million even at the low price which well head hydrocarbons are sold for under current fixed contracts. For this reason the first USD 2 to 5 million is critical for the company and from that point it should be possible to grow organically borrow against future production and recruit further equity financing. Beyond this initial financing the next critical risks will be to execute new drilling plans in the Russian Federation, the risks of drilling generally and the need for further capital to capitalize on this expansion.


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Beyond these critical issues the general operation of a company in a nonWestern company. Also Russian standards and administrative regulations and processes may be more rigorous or time consuming than in Western countries. All in all if we use examples from other older production fields, the assets of Premier Energy should represent a very good opportunity for growth and development of an early stage oil and gas company provided the company can execute on its financing plans. Most of the inherit risks of operating in Russia should be mitigated by establishing a strong management team with experience in oil and gas production in the Russian Federation. It appears that the company has made a good start on this with the hiring of a CEO with experience in operating in the Russian oil patch.

Copyright Š 2009 Venture Valuation VV Ltd. All rights reserved. This report is provided for information purposes only. Under no circumstances is it to be used or considered as an offer, solicitation, or recommendation to sell, or a solicitation of any offer to or buy any security. While the information contained herein has been obtained from sources deemed reliable, Venture Valuation VV Ltd (i) makes no guarantees that it is accurate, complete, timely, or contains the correct sequencing of the information, or (ii) make any warranties with regard to the results to be obtained from its use, and (iii) shall have no liability for any claims, losses or damages arising from or occasioned by any inaccuracy, error, delay, or omission, or from use of the report or actions taken in reliance on the information contained in the report. Reproduction or redistribution of this report in any form it prohibited except with written permission. The providers of this report make it explicitly public in the report if a position in the securities discussed herein are held.


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REFERENCES Venture Valuation has relied almost exclusively on materials supplied by Premier Energy or submitted by Premier Energy to the SEC (USA), we have not independently checked the veracity of this information and the reader should make their own due diligence based on their own expertise and experience. • • • • •

Phone conversation on December 6, 2009 with Dr. Anton Prodanovic. Company presentation “Premier Energy – Russia 2009” Press Release - OCT 13, 2009 - 06:30 ET, “NAL Oil & Gas Trust Enters Into Arrangement Agreement to Acquire Breaker Energy Ltd.” http://www.nal.ca/ web site Confidential report by Degolyer and MacNaughton, Dallas, Texas entitled:

Company submissions to the SEC (USA) which were located at www.sec.gov


Premier Energy Corp Report