-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JfYygEay9utXvHIV0HaHzRwbxgHhK5fK+9D7weneg7COiFCTQEucu6DGI9YjPOtH fVMwBCZO0uNSam1t3ZwrAw== 0001144204-03-004065.txt : 20030730 0001144204-03-004065.hdr.sgml : 20030730 20030730152141 ACCESSION NUMBER: 0001144204-03-004065 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030730 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE RESOURCES CORP CENTRAL INDEX KEY: 0000933157 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 870306609 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25170 FILM NUMBER: 03811369 BUSINESS ADDRESS: STREET 1: 6 EAST ROSE ST CITY: WALLA WALLA STATE: WA ZIP: 99362 BUSINESS PHONE: 509-526-3491 MAIL ADDRESS: STREET 1: 6 EAST ROSE STREET STREET 2: NO SUITE CITY: WALLA WALLA STATE: WA ZIP: 99362 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL SILVER MINES INC DATE OF NAME CHANGE: 19960223 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED ROYAL MINES INC DATE OF NAME CHANGE: 19950908 8-K 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) July 30, 2003 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (Exact name of registrant as specified in its charter) UTAH 87-0306609 (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION) IDENTIFICATION NO) 6 EAST ROSE STREET, P.O. BOX 2056 WALLA WALLA, WASHINGTON 99362 (Address of Principal Executive Offices, including Zip Code.) 509-526-3491 (Registrant's telephone number, including area code.) ITEM 9. REGULATION FD DISCLOSURE. On July 30, 2003, we issued a press release announcing the drilling of our second natural gas well in Louisiana and its progress. The press release also discusses a timetable for fracturing and perforation of our first well in Lousiana (the subject of a press release issued on July 17, 2003). These processes are part of what is termed the completion process and are steps necessary to be taken to bring a natural gas well into commercial production. At this point in time, as the news release points out, the first well is not in production and may never reach production unless these steps are completed successfully. The press release also references and summarizes an analyst report recently completed by Proteus Capital Corp. of New York, NY. The report was written by Douglas Newby and the press release references his credentials to complete such analysis. The press release also summarizes some of his conclusions concerning the De Soto Parish project of the Company in general, and cites several of his specific conclusions regarding the valuation of the project and projections about number of wells possible to be drilled and estimates of the amount of natural gas which may be contained in such wells. Investors are appropriately cautioned that such projections are based upon the historical operations and results achieved by other operating companies in nearby fields that may not be relevant to the project of the Company. The press release then provides a dynamic internet link to the website of Proteus Capital Corp. where the report may be read in its entirety. Alternatively, the press release provides several contact phone numbers where a printed copy of the report may be obtained. The press release is furnished herewith as Exhibit 99.1. The Proteus Capital Corp. report is furnished herewith as Exhibit 99.2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. The following exhibits are hereby made part of this Form 8-K: Exhibit 99.1 Press Release Exhibit 99.2 Analyst Report Prepared by Proteus Capital Corp. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CADENCE RESOURCES CORPORATION ---------------------------------- (Registrant) Date: July 30, 2003 By: /s/ John P. Ryan - -------------------- ---------------------------- John P. Ryan Chief Financial Officer EX-7 3 doc2.txt Exhibit 99.1 FOR IMMEDIATE RELEASE JULY 30, 2003 CADENCE ANNOUNCES DRILLING ON SECOND WELL ON DE SOTO PARISH PROPERTY INDEPENDENT EVALUATION OF CADENCE FIELD PEGS $136 MILLION VALUE CADENCE DOUBLES TARGETS TO MORE THAN 60 FROM 30 TWO WEEKS AGO WALLA WALLA, WA - Cadence Resources Corp (OTCBB: CDNR) announced today that on July 21, 2003, drilling was initiated on its second well in De Soto Parish, LA on the NE Logansport property. The well is currently at greater than 6000 feet of depth. The project is a joint venture between Cadence and Bridas Energy USA. The well, the Mary Belle Smith #1 is slated to be drilled to a total depth of approximately 10,300 feet with primary gas targets in the Hosston and Cotton Valley sands. On July 17, 2003 the Company announced drill log results from its first well in the area, the Ardis-Martin Timber Co. #1, indicating that there are 107 feet of pay in the Cotton Valley and 186 feet of pay in the Hosston sand formations in that well. The Company expects that a pipeline connection will be completed the week of August 4th and that the well will undergo staged perforation and fracturing techniques for approximately one month. In other news the Company is pleased to announce that Proteus Capital Corp., a New York based corporate advisory and research firm has completed an analysis of the De Soto Parish property for the Company valuing the Company's interest in the project at approximately $136 million, based upon the report's assumptions and prevailing natural gas prices. The report was completed by Mr. Douglas Newby, President of Proteus. Mr. Newby in his career has completed analyses and undertaken investment banking assignments for numerous domestic and international oil and gas projects. Mr. Newby completed an analysis of the projected value of the Company's interest in the project based upon 55 wells being completed on the project acreage over the next four-and-a-half years, and assuming a 90% drilling and completion success rate. These completion success rates are well within the historical norms experienced in wells drilled in both the neighboring Holly and Bethany-Longstreet fields. At assumed natural gas and oil prices of $4.50/mcf and $25/bbl, the PV10 of the pretax future cash flow net to the Company was estimated at $136 million. The report did a comprehensive analysis of the production in the adjoining fields finding that to date, on average, nearly eight wells have been drilled in each 640-acre section in the Holly field, and about five wells per section in the Bethany-Longstreet field. However, continued in-fill drilling by the operators in those fields leads the Company and Mr. Newby to conclude that the number of possible wells in each section is closer to ten, thus allowing for nearly sixty wells on the acreage controlled by the joint venture, which is more than double the number of wells projected in the July 17, 2003 news release. The report also noted that the typical well in the two fields studied has produced on average 4.2 BCF of gas to date. However, since the Company has not yet completed its first well, the results achieved may differ from those achieved in the past by other operators. The Company has determined that due to the importance of this report in analyzing the impact of the De Soto Parish project upon the future of the Company, the report in its entirety will be filed as an 8K document and thus will be available as an EDGAR document at the website of the United States Securities and Exchange Commission at www.sec.gov. Interested parties may also obtain a written copy of the report by requesting one from either the Company or Proteus Capital Corp. at the phone numbers listed below, or by accessing the report at www.proteuscapital.com/cadence.htm . This news release includes certain estimates, projections and "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements reflect various assumptions by the Company or by Proteus Capital Corp "Proteus". No representations are made as to the accuracy of such statements, estimates or projections. These forward-looking statements are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. While these statements are made to convey the Company's progress, business opportunities and growth prospects, such forward-looking statements represent the opinion of management or Proteus, according to attribution. Whereas management or Proteus believe such representations to be true and accurate based on information and data available to, respectively, the Company or Proteus at this time, actual results may differ materially from those described. The Company's operations and business prospects are always subject to risk and uncertainties. CONTACTS: CADENCE RESOURCES: Howard Crosby at (509) 526-3491 or John Ryan at (843) 682-2023 PROTEUS CAPITAL: Douglas Newby at (646) 879-5970 EX-99.2 4 doc3.txt Exhibit 99.2 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp INFORMATION MEMORANDUM CADENCE RESOURCES CORPORATION LOGANSPORT, DE SOTO PARISH, LOUISIANA JULY 29, 2003 ================================================================================ proteus capital corp o 120 BROADWAY, SUITE 1010 o NEW YORK, NY 10271 TEL: (646) 879-5970 o FAX (646) 365-3230 o E-MAIL: proteuscapital@aol.com www.proteuscapital.com ================================================================================ CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp IMPORTANT NOTICE IN THIS REPORT, CURRENCY IS US FUNDS UNLESS STATED OTHERWISE. PRICES AS OF CLOSE, JULY 25, 2003 This Memorandum has been prepared solely for information purposes from publicly disseminated materials supplied to Proteus Capital Corp. ("Proteus") by Cadence Resources Corporation (the "Company") and information gathered by Proteus from other sources. Proteus is retained by the Company to provide corporate advisory services, including but not limited to analysis of the Company's prospects. Any analysis and conclusions contained herein, other than analysis disseminated by the Company, are the sole responsibility of Proteus. Proteus has full editorial control of this Memorandum and all other information and analysis it prepares in connection with the Company. The information contained herein has been prepared to assist parties in their evaluation of the Company. Neither Proteus nor the Company makes any representation or warranty as to the accuracy or completeness of this information and shall have no liability for any representations (express or implied) contained in, or for any omissions from, this presentation or any other written or oral communication transmitted to the recipient whether or not Proteus or the Company knew or should have known of any such errors or omissions or was responsible for or participated in its inclusion in or omission from the Memorandum. This Memorandum includes certain estimates, projections and "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward looking statements reflect various assumptions by the Company, when attributed to the Company, or Proteus when attributed to Proteus or "we", concerning anticipated results, which assumptions may or may not prove to be correct. No representations are made as to the accuracy of such statements, estimates or projections. These forward-looking statements are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. While these statements are made to convey the Company's progress, business opportunities and growth prospects, such forward-looking statements represent the opinion of management or Proteus, according to attribution. Whereas management or Proteus believe such representations to be true and accurate based on information and data available to, respectively, the Company or Proteus at this time, actual results may differ materially from those described. The Company's operations and business prospects are always subject to risk and uncertainties. This Memorandum does not constitute or form part of an offer of, or invitation to acquire, any financial instruments in the Company or any company associated therewith. Proteus is not a registered investment advisor under the Securities Act of 1940. Any investment in any security mentioned herein should be made only after consulting and analyzing financial statements and other documentation received directly from the issuer of the security or securities involved. Proteus provides corporate advisory services to the Company, for which it is paid, and has been granted stock options by the Company. (C)Copyright 2003 by Proteus Capital Corp., all rights reserved. It is a violation of United States copyright laws to duplicate or reprint this report without written consent of Proteus Capital Corp., except that limited portions may be excerpted for inclusion in other publications provided credit is given along with the name and address of the publisher. All subsequent written or oral opinions expressed by Proteus Capital Corp., its associates and staff are expressly qualified in their entirety by this notice. ================================================================================ JULY 2003 PAGE ii CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp CADENCE RESOURCES CORPORATION - OVERVIEW CADENCE RESOURCES CORPORATION IS AN EMERGING ENERGY COMPANY FOCUSED ON ESTABLISHED, PRODUCTIVE DOMESTIC US OIL AND GAS AREAS: DE SOTO PARISH, LOUISIANA; WILBARGER COUNTY, TEXAS; AND ALPENA COUNTY, MICHIGAN. OF THESE, WE CONSIDER THE DE SOTO PARISH PROPERTIES TO BE THE MOST SIGNIFICANT IN TERMS OF THE POTENTIAL TO ESTABLISH CADENCE AS A MID-SIZED INDEPENDENT NATURAL GAS PRODUCER. Cadence's NE Logansport property comprises an initial 3,200 acres in De Soto Parish, acquired in 2002. Since then, it has signed a joint venture with Bridas Energy USA and acquired additional acreage both within the joint venture and 100%-owned. De Soto Parish has a long history as both an oil and natural gas area. Initial activity in the NE Logansport area dates from 1955. In 1996, Sonat, Inc. consolidated the Holly and Bethany Longstreet fields - Sonat subsequently merged with El Paso in 2000. Sonat/El Paso has drilled 119 wells since 1996, all of which have been commercial and all of which have been completed successfully. The main targets are the Hosston and Cotton Valley formations. Until recently, most wells have been completed in the shallower Hosston. However, El Paso has successfully dual-completed several wells in both formations. The Cadence property is in the same structure as the Holly field. Cadence's consulting geologist identified the area and secured lease options before El Paso stepped-up its drilling rate in the area. We estimate the PV10 of the projected future cash flow to Cadence to be $136 million, assuming natural gas at $4.50 per mcf. We estimate Cadence's share of the cash flow will increase to more than $32 million in the fifth year of operations. The Company has two other projects. The Waggoner Ranch in Wilbarger County Texas is a shallow oil play where recent seismic indicates potential below the previous productive horizons. Cadence has three producing wells at this property and is in the process of connecting two more to the gathering system. Cadence also has a 20% working interest in an Antrim shale project operated by Aurora Energy, covering up to 200 wells. The Antrim joint venture is a low-cost, low-risk opportunity to establish production and cash flow - the first four wells are in production. The Company's team of geologists, led by Lucius Geer, provides key technical management. Mr. Geer has a long and distinguished career focused on the Gulf Coast region. In addition, the Company's management and Board have extensive experience in financing and managing emerging natural resource companies. ================================================================================ JULY 2003 PAGE 1 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp LOGANSPORT DISTRICT, DE SOTO PARISH, LA Logansport is located in west central De Soto Parish, in western Louisiana near the border with east Texas. The area has a long history of oil production - the first oil well in De Soto Parish was completed in 1916. The dominant geological feature is the Sabine Uplift, a large structure that is related to the Cretaceous and younger rocks in the established oil and gas fields of northeast Texas and northern Louisiana. The Sabine Uplift divides the prolific East Texas Basin to the west from the Louisiana and Mississippi salt basins to the east. The Carthage natural gas field, primarily comprising Cotton Valley sands, was discovered in 1968 on the eastern side of the East Texas Basin. Carthage, which abuts the Sabine Uplift, is one of the most prolific fields in Texas, with approximately 1,700 wells drilled, completion rates exceeding 96% and cumulative production in excess of two trillion cubic feet of gas. The Holly natural gas field in Louisiana is located on a large, shallow dipping anticline that trends northeast within the Sabine Uplift. Following the Cotton Valley discoveries in East Texas, Pelto Oil began exploring the Holly Field in the mid 1970s. The primary targets are the Cotton Valley (deepest), Hosston, Sligo, Rodessa, Paluxy, and Tuscaloosa formations. The top of the Cotton Valley is between 8,800 and 8,900 feet, with the top of the Hosston about 2,300 feet higher. Cadence's NE Logansport property is to the southwest of Holly, along the anticlinal strike and located at about that same stratigraphic position as the most prolific sections of the Holly field. There is a fault to the northwest of the anticline - further to the northwest lies the Bethany Longstreet natural gas field. Continuing to the southwest, the stratigraphy dips towards the Logansport oil field. NATURAL GAS FIELDS AND TOWNSHIPS: DE SOTO PARISH LA (RED: SIGNIFICANT GAS; GREEN: BRIDAS/CADENCE JV; BLUE: 100% CADENCE) LOUISIANA [GRAPHIC OMITTE] ================================================================================ JULY 2003 PAGE 2 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp NE LOGANSPORT LOCATION, DE SOTO PARISH, LOUISIANA - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] ================================================================================ JULY 2003 PAGE 3 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp REGIONAL GEOLOGY AND STRATIGRAPHY Geologically and stratigraphically, the area to the north east of Logansport is not complex. With the exception of a regional northeast trending fault that divides the Holly and Bethany Longstreet fields, there is little minor faulting and the stratigraphy dips gently. As a consequence, well production is largely controlled by porosity and permeability. There are five potentially productive sands in the area: Cotton Valley, Hosston, Sligo, Rodessa, and Paluxy. There have been several successful completions in the Paluxy, with initial production in excess of 1,000 mcf per day. The Rodessa, a lower cretaceous sandy limestone, has generally been left behind pipe until the deeper sands have been fully produced. However, some significant production from the Rodessa has been achieved, ranging up to initial production in excess of 7,000 mcf per day in El Paso's Rochelle Fuller 25 No. 1 well in the Holly field. The deeper Sligo or Pettet sands can also be a good producer, yielding 0.67 bcf of gas per foot of pay. However, the main targets are the Hosston and Cotton Valley formations. The Hosston, which typically starts between 6,450 feet and 6,600 feet, has been logged over 2,500 feet, comprising a sand and shale sequence with thick intervals of tight gas bearing sands. The best sands are located between 7,900 and 8,900 feet. The lowest targeted formation is the Cotton Valley that lies immediately under the Hosston. The best sands are the deeper B and C zones, typically extending to about 10,300 feet. HOLLY Pelto's first successful well in the Holly field was spudded in July 1974, drilled to 10,400 feet and perforated in the Hosston between 7,000 and 8,900 feet. It has produced consistently since then, with cumulative production of approximately 2.4 billion cubic feet of natural gas. During the subsequent two years, Pelto drilled an additional seven wells, all of which were producers and all but two of which is in production today. Sporadic drilling by various operators continued until 1984. In 1990, exploration in the field started again when Rosewood Resources returned to the area. Well logs typically showed 40 or 50 zones that could represent payable gas. However, operators could not differentiate between gas and gas with water. Consequently, they perforated the wells over large intervals that often included both gas and water, with new wells often making as much as 400 barrels of water per day, which shortened the well life and reduced the ultimate recovery. In the late 1990s, improved logging and seismic techniques enabled operators to perforate more selectively, differentiating between those gas zones with producible water and those without. The improved technology has resulted in significantly higher production rates and has prompted the reworking and recompletion of numerous older wells at higher rates. ================================================================================ JULY 2003 PAGE 4 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp The Holly field was consolidated by Sonat Inc. in the mid-1990s. In turn, Sonat merged with El Paso Energy Corp. in 1999 after clearance by the Federal Trade Commission. Since Sonat commenced drilling in late 1996, Sonat/El Paso has successfully drilled and completed 77 wells with no dry holes and no completion failures. In fact, of the 123 holes drilled during the past 28 years, there has been only one dry hole, three completion failures, and four have been plugged and abandoned following successful production - 115 of the wells are currently producing. In 2000, following completion of its merger with Sonat, El Paso started an aggressive development program for the Holly field. It has drilled an average of slightly more than two wells per month and reentered many of the older wells that had been perforated in water as well as gas. El Paso is currently drilling or completing an additional six wells. Most of the production has come from the Hosston formation. However, during the past year, El Paso has typically drilled to the Cotton Valley and completed in both the Hosston and Cotton Valley - El Paso is producing from twelve dual completion wells. The productive part of the Holly field covers 16 sections, with an average of 7.6 wells per section. Cumulative production from the wells drilled by Sonat/El Paso is 180 billion cubic feet of gas and the average well has achieved initial production (either original or after stimulation) of 4,907 million cubic feet per day. BETHANY LONGSTREET In the mid-1970s, Amoco started development of the Bethany Longstreet field, located to the west of Holly and north of NE Logansport. A variety of operators, including May Petroleum Inc., drilled and completed 29 wells - with no dry holes and no completion failures - prior to 1996, when Sonat consolidated the field. Since then, Sonat/El Paso has successfully drilled and completed 42 holes, maintaining the 100% completion record with no dry holes. The productive part of the field covers 14 sections, with an average of five wells per section. Cumulative production from the wells drilled by Sonat/El Paso is 119 billion cubic feet of gas and the average well has achieved initial production (either original or after stimulation) of 5,068 million cubic feet per day. El Paso currently has ten wells permitted and either being drilled or planned within the next six months. ================================================================================ JULY 2003 PAGE 5 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp SONAT/EL PASO WELL DATA - -------------------------------------------------------------------------------- BETHANY LONGSTREET HOLLY TOTAL Wells permitted 52 86 138 Wells drilled 42 77 119 Permits expired -- 3 3 Awaiting completion 10 6 16 Total cumulative production bcf 119.109 180.055 299.164 Average cumulative production mmcf 2,836 2,338 2,514 Average life to date months 35 36 35 Average production rate mcf/d 2,708 2,190 2,370 Average IP mcf/d 5,068 4,907 4,964 Maximum IP mcf/d 8,875 9,620 9,620 Minumum IP mcf/d 615 767 615 - -------------------------------------------------------------------------------- NE LOGANSPORT NE Logansport is variously described as being part of the Holly, Bethany Longstreet, Grand Cane and Logansport fields. Geologically, we believe it is most relevant to consider NE Logansport the southwestern extension of Holly. However, while NE Logansport is separated from Bethany Longstreet to the north by a northeast trending fault, the geology and stratigraphy is similar so we consider drilling results there to be relevant. The Cadence NE Logansport property comprises five full sections and one half sections in the south-central part of Township 13N Range 15W, De Soto Parish. More specifically, the company has leased sections 27, 28, 29, half of section 32, and sections 33 and 34. The first well on the property was drilled in 1920, shortly after the discovery of oil in De Soto parish. At that time, there was no interest in gas (it is unclear whether the well produced gas) and it was considered dry for oil, plugged and abandoned. The area remained inactive until 1968 when a 7,000-foot well was drilled in section 27, producing from the Paluxy sands at approximately 3,000 feet. Subsequent drilling activity was sporadic. In 1978, May Petroleum brought in well on section 34 that had initial production of 1,500 mcf per day producing from the Rodessa. In 1981, a 1,000 mcf per day well was successfully completed on section 28. A decade later, Hallwood Petroleum successfully started production at nearly 2,000 mcf per day from the Rodessa in section 27. Cadence identified the potential of the NE Logansport area based on extensive experience in the area culminating in three years of intensive mapping and study by Lucius Geer, Consulting Geologist. The area has not previously achieved the success of the Holly and Bethany Longstreet fields primarily because of the difficulty in differentiating porous sands that included gas from those that contained both gas and producible water. ================================================================================ JULY 2003 PAGE 6 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp However, state-of-the-art logging techniques developed by Halliburton identify pore fluids and consequently separate gas with water from gas. The technique has been used successfully in the Hosston is East Texas and the Haynesville area of north Louisiana. Halliburton anticipates that its log will enable the operator to perforate only water free gas sands and may provide sufficient data on permeability to reduce or eliminate fracing. While the log adds to initial costs, the benefits in terms of reduced fracing costs, reduced water disposal costs and, most importantly, increasing production and reducing stimulation required are much more significant. NE LOGANSPORT OPERATIONS AND OWNERSHIP Cadence Resources acquired leases covering four sections and two half sections in late 2002. The underlying surface owners have approximately 20% royalties. In May 2003, Cadence farmed out a 55% operating interest in the five sections to Bridas Energy USA, a wholly owned subsidiary of Bridas Corporation, a major, privately held energy company based in Argentina. The joint venture partners have subsequently acquired an additional half section. In addition, Cadence has recently leased the eastern three-eighths of section 20. Under the terms of the farmout, Bridas gained an addition 20% working interest in the first well and an area of its choosing comprising one section or up to four quarter sections around the first well in exchange for carrying Cadence into production on the first well. Bridas obtained permits to drill the first well, the Ardis Martin Timber Co. Number 1, which was spudded in June 2003 and drilled to 10,262 feet targeting the Hosston and Cotton Valley formations. On July 17, Cadence announced that well logs indicate 107 feet of pay in the Cotton Valley and 186 feet of pay in the Hosston sand formations. The well will be tested in early August. On July 7, 2003 Bridas obtained permits for the Mary Belle Smith No. 1 well, also located in section 27, and spudded the well on July 21, 2003. Continuing from that well, we anticipate that Bridas will establish a development plan for the field that is likely to comprise about 55 wells that, at one well per month, would take four-and-a-half years to complete. Cadence and Bridas are also acquiring additional leases in the area that will likely extend the development plans. WELL ECONOMICS The drilling conditions are not complex - the ground is not fractured or overpressured. After the first couple of wells, drilling costs are projected at $750,000 per 10,300-foot well, with completion and connection to the gathering system budgeted at $350,000 per successful well. The "typical" well production profile set out in the chart below reflects the extensive experience gained at Holly and Bethany Longstreet. Current indications are that the Ardis Martin Timber Co. No. 1 well is comparable with or slightly better than this "typical" well projection. Obviously that is not statistically significant but it is certainly encouraging. ================================================================================ JULY 2003 PAGE 7 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp This profile is based on dual completion in the Hosston and Cotton Valley formations - it does not include potential from the shallower sands. LOGANSPORT PROJECT: TYPICAL PRODUCTION PROFILE - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] PROJECT ECONOMICS Based on the well history at Holly and Bethany Longstreet, we have estimated a distribution of initial production, set out in the second chart below. This assumes a total of 55 producing wells drilled over the five-and-a-half sections on a mixture of 80-acre and 40-acre spacing. In our Base Case analysis, we have assumed a dry hole rate of 10% and a completion rate of 90%. Thus, in order to drill and successfully complete 55 wells, we have assumed six completion failures and seven dry holes, equating to a total of 68 boreholes. These numbers should be viewed in the context of the Holly and Bethany Longstreet fields, where dry hole rates have been zero and completion rates in excess of 95%. We have assumed, based on current indications, that the first well will achieve initial production of 3,000 mcf per day. We have then assumed that the drilling sequence will start with the least productive (two 1,500 mcf per day wells) and end with the most productive (one 6,500 mcf per day well). We also assume that one well will be spudded and drilled each month, with completion in the second month and production commencing in the month three. ================================================================================ JULY 2003 PAGE 8 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp LOGANSPORT PROJECT: WELL IP DISTRIBUTION - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] NE LOGANSPORT PROJECT SUMMARY - -------------------------------------------------------------------------------- PER HOLE 100% OPERATING INTEREST, 20% ROYALTIES Cost to drill $'000 750.0 Cost to complete $'000 350.0 TOTAL $'000 1,100.0 AVERAGE WELL Initial production mcf/d 3,109 Total production mmcf 4,255 Dry Hole Rate % 10.0% Completion rate % 90.0% FIELD, 100% BASIS Number of sections 5.5 Number of producing wells 55 Completion failures 6 Dry Holes 7 Cumulative production bcf 234.1 Production per section bcf 42.6 CADENCE INTEREST Average participation % 41.4% Cumulative production bcf 96.8 Natural gas price $/mcf 4.50 Condensate price $/bbl 25.00 Pretax PV10 $ million 135.794 CADENCE FUNDING REQUIREMENT $ million 5.091 - -------------------------------------------------------------------------------- ================================================================================ JULY 2003 PAGE 9 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp As a Base Case, we have used a natural gas price of $4.50 per mcf and a condensate price of $25 per barrel. We estimate the PV10 of the pretax future cash flow from the whole project, net of 20% royalties, to be $324 million and the PV10 of the pretax future cash flow to Cadence to be $136 million. Sensitivity Analysis SENSITIVITY ANALYSIS - -------------------------------------------------------------------------------- Condensate Price Natural Gas Price ($/bbl) ($/mcf) 15.00 20.00 25.00 30.00 2.00 48.352 50.315 52.277 54.240 2.50 65.056 67.018 68.981 70.943 3.00 81.759 83.721 85.684 87.647 3.50 98.462 100.425 102.387 104.350 4.00 115.165 117.128 119.091 121.053 4.50 131.869 133.831 135.794 137.756 5.00 148.572 150.535 152.497 154.460 5.50 165.275 167.238 169.201 171.163 6.00 181.979 183.941 185.904 187.866 6.50 198.682 200.645 202.607 204.570 7.00 215.385 217.348 219.310 221.273 7.50 232.089 234.051 236.014 237.976 8.00 248.792 250.754 252.717 254.680 8.50 265.495 267.458 269.420 271.383 9.00 282.199 284.161 286.124 288.086 9.50 298.902 300.864 302.827 304.790 10.00 315.605 317.568 319.530 321.493 - -------------------------------------------------------------------------------- ESTIMATED PV10 TO CADENCE AT DIFFFERENT NATURAL GAS PRICES [GRPAHIC OMITTED] PRETAX PV10 ($ MILLION): CADENCE RESOURCES' INTEREST ================================================================================ JULY 2003 PAGE 10 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp The table and chart on the previous page demonstrate the sensitivity of the PV10 to different natural gas and condensate prices. The condensate price has little effect, whereas changes in the natural gas price have a significant effect on the valuation. If the natural gas price maintains its recent level of $6.00 per mcf, the PV10 increases by 37% to $186 million. In the Base Case model, pretax cash flow to Cadence increases to a peak of nearly $33 million in year 5, before stabilizing at approximately $15 million a year from year 8. The chart below sets out the projected value (cumulative cash flow plus PV10) to Cadence over the next decade. NE LOGANSPORT: CADENCE INTEREST ($ MILLION) - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] PV10 PLUS ACCUMULATED CASH (LHS) ANNUAL PRETAX CASH FLOW (RHS) The table below sets out the projected contribution to Cadence from its interest in the NE Logansport project. Net revenues are projected to increase rapidly from $3.6 million in the first year of activity (ending June 2004) to nearly $33 million in year five (ending June 2008). ================================================================================ JULY 2003 PAGE 11 CADENCE RESOURCES CORPORATION proteus------------------------------------------------------------------------- capital corp NE LOGANSPORT PROJECTED CONTRIBUTION TO CADENCE
Year: 1 2 3 4 5 NE LOGANSPORT Project production mmcf 2,957 9,016 13,619 17,890 23,506 Cadence share mmcf 1,115 3,225 5,285 7,572 10,240 Wells completed # 10 12 12 12 9 Wells in production (period end) # 10 22 34 46 55 Revenue $'000 5,019 14,513 23,781 34,075 46,080 Operating costs Lifting $'000 (9) (33) (57) (80) (99) Share of lease royalties $'000 (1,004) (2,903) (4,756) (6,815) (9,216) Share of taxes (other than income) $'000 (418) (1,209) (1,982) (2,840) (3,840) TOTAL $'000 (1,431) (4,145) (6,794) (9,735) (13,155) Net revenues $'000 3,588 10,369 16,986 24,340 32,925 Capital costs Drilling $'000 (3,981) (3,519) (5,000) (5,000) (3,333) Completion $'000 (1,672) (1,478) (2,100) (2,100) (1,400) TOTAL $'000 (5,654) (4,996) (7,100) (7,100) (4,733) Free cash flow before taxation $'000 (2,066) 5,372 9,886 17,240 28,192 Cumulative $'000 (2,066) 3,306 13,192 30,433 58,625
CONTACT INFORMATION CADENCE RESOURCES CORPORATION Howard Crosby 6 East Rose Street P.O. Box 2056 Walla Walla, WA 99362 Tel: (509) 526-3491 Mobile: (509) 301-6322 Fax: (509) 526-3492 e-mail: crosbyent@valint.net PROTEUS CAPITAL CORP. Douglas J. Newby 120 Broadway, Suite 1010 New York, NY 10271 Tel: (646) 879-5970 Fax: (646) 365-3230 E-mail: ProteusCapital@aol.com www.proteuscapital.com -----END PRIVACY-ENHANCED MESSAGE-----