Assets

Geographic and Geologic Environment

The Chaco basin is an intra-cratonic foreland basin located between the Andes to the west and the Brazilian craton to the east. The basin fill is siliciclastic and is typified by alternating sandstones and shales. An essential difference between the Bolivian Chaco and the Paraguayan Chaco is the compressional tectonic regime in Bolivia that has produced tight anticlinal structures often with surface expression and the gentler extensional flexing in Paraguay.

The Chaco basin is asymmetrical and the shallowest portions are in Paraguay. The Bolivian portion of the Chaco basin contains substantial oil and gas reserves to the west of CDS’s acreage. Paraguay has seen little exploration in the last thirty years, however, of the 27 discrete exploration wells drilled between 1947 and 1996, 23 reported shows of oil, gas or both. There are four main play types recognized in the Paraguayan Chaco region:

• Gas in carboniferous sands and conglomerates in possible structural / stratigraphic combination traps.
• Oil in carboniferous sands and conglomerates in possible structural / stratigraphic combination traps.
• Oil and gas in Devonian sands and silts in either structural, stratigraphic or combination traps with potential reservoirs interbedded with the source rocks.
• Gas in Silurian and Devonian fractured sands and shales.

Asset base

Gabino Mendoza is a block of 40,000 hectares that have been in exploitation for a period of 40 years, ending in 2038. CDS is in a joint-venture agreement with a local partner, having transferred all its rights and obligations against a gross overriding royalty interest of 3.5% of gross revenues arising from the sale of oil and gas or derivatives. In this block are located Independencia 1, a well producing marginal quantities of gas, and CDS-GM-05-500, a well for which the drilling operations were suspended in 2005 at the depth of 1635 meters.

Boqueron is a block of 800,000 hectares in which the company is the sole assignee and beneficial owner. This block is covered by a prospection, exploration and exploitation contract since November 2004. The commitments under the prospection period have been fulfilled. Under the exploration period to end in 2011 a minimum work program of USD 2,75 million consisting in particular of seismic works has to be completed and is currently implemented. The Emilia and Alicia wells are located in this area.

PG&E is a block of 491,000 hectares in which the company is a party to a joint-venture agreement with Paraguay Gas & Energy SA (PG&E), giving CDS the right to receive 100% of the benefit of the exploration and exploration rights against a gross overriding royalty of 0.6%. The final concession contract has been executed by PG&E and the Ministry of Public Works and Communications. The signature of the Ministry of Finances, deferred temporarily due to clarifications of the tax exemptions, is expected soon. Congressional approval and Executive Decree will follow.