Novamex Energy Inc. (fka NGLE)

[JJSeabrook]

Industry: Oil & Gas Exploration & Production
Blugrass Energy Inc. US$0.033
The Company Has a Portfolio Of Multi-Year Drilling Opportunities

Blugrass Energy Inc. (OTCQB & Pink Sheets BLUG) is under new management and ownership
control, and will change its name to Rio Grande Petroleum Inc. Just recently Rio Grande
acquired an 87.5% working interest on 4,807 acres of high prospective oil and gas leases in
the Val Verde Basin in Texas. The lease is geologically on trend with several giant gas fields
currently under production by major oil and gas companies. To date, more than $4M has been
spent on the property for leases and 3D-seismic, and three proven pay zones have been identified.
The high quality 3D-seismic data, which has been interpreted by a geoscientist with highlevel
expertise in the Basin, identifies a minimum of 77 drilling locations. It is obvious that
this Prospect represents an exceptional opportunity to develop significant conventional, longlived
gas reserves. Based on the newest updated Economic Evaluation report that has formed
the basic study for our Company analysis, the estimated ultimate recovery (EUR) for the
Childress Prospect has been calculated to be 235 Bcf of natural gas. Rio Grande has also an
option to farm-in an additional 9,850 acres, located in close proximity to the Childress lease.
In a very short time, Rio Grande secured an impressive inventory of multi-year drilling opportunities,
with company-making potential. Rio Grande is now raising money to obtain sufficient
financing to start its drilling and development program; the outcome is uncertain, therefore
an investment in Rio Grande is highly speculative. Giving credit to the multi-year drilling
and development opportunities and risking the reserve valuation accordingly, we arrived at a
fair market value of $0.11/share, with significant future upside potential. We acknowledge that
the risk profile may be more than some investors are comfortable with and therefore we recommend
the stock be purchased only by investors who can tolerate above average risk.

INVESTMENT HIGHLIGHTS:
· Key Success Factor for a Start-Up Company is the Management.
Mr. Abram Janz, CEO and Mr. Larry Maguire, CFO of the Company have extensive
oil and gas experience including a variety of operational and senior
management roles. Its geoscientist advisor, Dr. Purves has extensive geology
knowledge of the Permian and Val Verde Basins and specifically the Ellenburger
Formation, the Company’s main target formation. This allows the
Company to minimize geology and drilling risks. We believe that Rio Grande
will have a high (80% to 90%) chance of drilling success on its Childress
Prospect in the Val Verde Basin.
· The Childress Prospect is in a very advanced stage of exploration. To date,
more than $4+ million has been spent over years on the properties for lease
and 3D seismic and data interpretation costs. Because the quality of the 3D
seismic is so high, 77+ drilling targets across the Childress Prospect have been
identified in three proven formations. Based on our findings, the Ellenburger
formation offers tremendous upside for the Company, yielding an estimated
ultimate recovery of 48.3. Bcf of natural gas, with an initial production rate
(IPR) of between 4,000 and 25,000 Mcf/d respectively between 666 and 4,200
barrels-of-oil equivalent per day. Wells in the Strawn formation may produce
between 1.5 Bcf and 8.7 Bcf of gas and IPR is estimated to be between 1.0 to
3.4 Mmcf/d respectively 166 Boe/d to 566 Boe/d.
· The cost to drill an Ellenburger well (drilling depth 14,500 feet) is approximately
$3.85 million and it takes approximately 60 days to drill. A Strawn
well is a bit shallower at 12,000 feet drilling depth and the estimated costs are
approximately $2.7 million. Based on the Company’s business plan, Rio
Grande intends to drill one Ellenburger and one Strawn well during 2011. As
the Company has identified 77 drilling targets on its Childress Prospect, Management
decided to minimize risk and will farm-out 50% of its working interest
in these two wells to a third party. As a result, the drilling expenditure is set
at $6.6 million for 2011 with $3.3 million for Rio Grande’s share.
· Rio Grande is in the process of raising $6.5 million through a convertible
debenture for drilling and working capital purposes. Work already done on
the properties confirms that Rio Grande’s prospect offers an exceptional opportunity
to develop significant conventional, long-lived (21 years+) natural
gas reserves. The potential upside from the Childress lease is stunning and only
a fraction of the play needs to work for it to be a company-maker. Based on
our calculated net asset value of $47 million for unproved reserves potential,
which is based on an in-the-ground value of $0.50 per Mcf, with the chance of
success in finding the reserves at 80%, and with a farm-out of a 50% WI of the
project, we arrive a fair market value of $0.11 per share, with significant future
upside potential based on approximately 440 million shares issued and outstanding
(after the conversion of the convertible debenture). We set a 12-
month target price of $0.15 per share, which is supported by converting probable
resources to proven and probable (P2) reserves within this time frame.

ETC., ETC., ETC..it's an analyst report.

http://www.riograndepetroleum.com/documents/News/Blugrass-Energy-March-11-2011-ES-Final.pdf