Topz Report Cohen 102010

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October 09, 2010

Topaz Resources, Inc.
Symbol TOPZ
Exchange OTC BB
Current Price $0.55
52 Week High/ Low $3.95/ $0.20
Avg daily volume (3 mo.) 27,719
Shares Outstanding (in mn) 84.1
Current Market Cap (in $mn) $42.2
Float As % of Shares Out. 89.3%

Cohen Price Target $1.94

INVESTMENT THESIS & RECOMMENDATION
Topaz Resources is an independent oil and gas company focusing on production, acquisitions and development of oil and gas
properties. The Company has a balanced and diversified portfolio of oil and natural gas properties located in the prolific Barnett
Shale Area and North Texas. Topaz is currently focused on commercializing its properties and expanding its Partner Program to
leverage its experience, skills and resources. The Topaz management team has a proven track record of success in executing
drilling, reserve growth and monetizing its assets in these prolific regions. The Company’s immediate growth plan includes the
acquisition and enhancement of North Texas shallow oil & gas production and acreage; drilling ten additional vertical shallow oil
wells; drilling one horizontal Barnet Shale gas well and drilling two horizontal Barnett oil wells.

In addition to its significant inventory of acreage and acquisition and drilling targets, the Company is likely to benefit from its
experienced management team and proprietary technology. Topaz has assembled a management team that has the capabilities and
experience to improve its potential and prospects. Key value drivers for the Company include: balanced portfolio of assets, use of
modern technology, favorable industry economics, higher profitability, healthy financial position and strong management.

Based on these factors, we believe that Topaz Resources is an undervalued Oil and Gas investment proposition. We forecast
Topaz’s top line to grow significantly from $0.3 million in 2010 to $175.9 million by FYE 2016. The Company will have to raise
over $30.0 million in capital, and close to $7.5 million in immediate funding to meet our projections. The stock is an attractive
short term trade and long term investment provided the Company raises the capital and meets our projections. Upside potential is
252.3% in the short to long term.
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Sales, Earnings Margin Forecast – Base Case

all figures in $ 'millions; unles 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F 2016 F
‡˜‡—‡•
% growth 199.3% 126.6% 69.7% 59.9% 40.2%

EBIT Margin 116.2% 99.8% 95.5% 94.6% 94.4% 95.0%
‡– ”‘ˆ‹–
Net Profit Margin 33.1% 54.5% 60.1% 61.4% 61.8% 54.1%
ƒ”‹‰• ‡” Šƒ”‡ ‹Ž—–‡†
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Cohen Price Target Summary

The Cohen Price Target is calculated by 25% equal weighting of four different valuation methodologies. We use
an industry average PE, an industry average price/capital employed (P/CE), a Cohen Performance Index, and the
fundamentally driven Cohen DCF.
The Cohen Price TargetTM Formula

Price to Earnings (P/E) in US$
TOPZ Earnings Per Share 2011 Avg. Forecasts 0.13
Industry Average P/E Ratio 17.43
Price based on P/E Ratio 2.20

Price to Capital Employed (P/CE) in US$
TOPZ Capital Employed 0.36
Industry Average P/CE Ratio 6.47
Price based on P/CE Ratio 2.35

Cohen Discounted Cash Flow Model in US$
Cohen DCF Value Base Case 2.12

Cohen Performance Index in US$
Cohen Price Performance Index Value 98.2%
TOPZ Current Stock Price 0.55
Price based on Cohen Performance Index 1.09

Cohen Price Index Target 1.94

Current Price 0.55

Upside/ (Downside) Potential 252.3%

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EXECUTIVE SUMMARY
x Topaz Resources Inc. (OTC BB: TOPZ), headquartered in Texas, is an independent oil and gas exploration and
production company. The Company’s focus is to explore and acquire acreage in the prolific North-West-Central
Texas belt, especially the Barnett Shale Play.
x Topaz business strategy focuses on building its strengths to acquire acreage and production within its target
locations, enhance the value of its acreage through drilling and well work-overs and expanding its network through
a Partner Program to leverage its expertise in the oil gas exploration and production industry.
x The Company’s objective is to increase and enhance free cash flows by maximizing its proven reserve bases
through acquisitions, organic growth and strategic partnerships. Management is continuously examining exciting
acquisition opportunities and is focused on monetization of its assets via individual or complete asset sales.
x The Company has assembled an enviable lease position with a large resource base. The Company’s total acreage
in the Barnett Shale Area is spread over 2,800 gross acres and is estimated to have a resource base equivalent to 90
billion cubic feet of natural gas.
x TOPZ recently reported positive results from its drilling program at its Barnett Shale well located in the oil leg
of the Barnett shale. The well was drilled to a total depth of 7,740 feet, and the logs have identified a 600 foot
section of Barnett Shale which includes a solid 400 foot section in the Lower Barnett with porosity and
permeability values that indicate good productive capabilities.
x In addition, following completion of its acquisition of shallow oil and gas properties in North Texas and through
the recently launched partner program, Topaz will hold an additional 1,000 acres with an estimated reserve base of
14 billion cubic feet of natural gas equivalent.
x This exciting reserve base and lease position combined with experience in drilling wells and advancing projects in
the Barnett play and North-Central Texas energy provides Topaz with a strong competitive advantage. The
Company is poised to fully exploit the production potential and financial upside of its project inventory.
x The Company’s immediate growth plan is to make significant investment in drilling wells at its Barnett Play,
expanding its network through the partner program and acquiring additional properties. Topaz plans to drill 5 new
wells in 2010, commercialize production at these properties and further expand its asset base.
x Declining conventional crude discoveries, increasing dependence on foreign oil, technology advancements and
higher oil prices have resulted in renewed focus on abundant but difficult to explore oil and gas reserves. One of
the most credible and proven sources is natural gas from the 8,000-9,000 feet depth Barnett formations.
x Continuing global economic growth led by emerging markets such as China and India along with worsening
geopolitics in the key oil producing areas and other economic slowdown in developed nations are likely to keep
pressure on the demand-supply equation of oil and natural gas.
x Risks: Capital access and competition from larger companies. Though the Company recently received debt and
equity funding, Topaz will require investing $30.0 million to achieve its long term plans out of which $7.5 million
would have to be raised immediately. Inabilityof a capital raise would impact growth plans.
Valuations:
x We project revenues of approximately $0.3 million for fiscal year end December 31, 2010 and $175.9 million by
2016. Margins are likely to expand as the Company’s assets are concentrated in low cost producing areas. We
expect the Company to be cash flow positive by 2012.
x The Cohen Price Target is calculated using market-based multiple valuation, Discounted Cash Flow (DCF) and by
applying the Cohen Price Performance Index approach. The multiple based valuation approach uses the expected
2011 Price-to-Earnings and Price-to-Capital Employed ratio. We also include the Cohen Price Performance Index,
which is representative of the past coverage performance of all stocks evaluated by us. The last component in
calculating the Cohen Price Target is the value derived using the long-term Cohen Discounted Cash Flow (DCF)
valuation approach.
x Based on this method, TOPZ common stock is valued at $1.94 per share, 252.3% higher than current market price
of $0.55. The stock is an attractive short term trade and long term buy provided funds are raised.

Page 3 of 38


INVESTMENT SUMMARY

Topaz Resources, Inc. (OTCBB: TOPZ), headquartered in Denton, Texas, is an independent oil and gas
exploration and production Company. The Company is currently focusing its activities in the prolific belt of
North-West-Central Texas. The Company’s strategy is to acquire and expand its acreages and continue the
production and development of drilling opportunities within proven producing areas. The Company only selects
projects that have the potential to create a secure and abundant resource base which can be profitably explored
and developed. The Company currently holds acreage in the Barnett Shale play that passes through 15 counties in
North-West-Central Texas; with expected acreage acquisitions in other North Texas formations, including the
Strawn.

The Company’s management team provides it with a significant competitive advantage which should enable it to
achieve its corporate objectives: increase shareholder value, enhance cash flows and grow owned proven reserve
values. The Company will achieve this by leveraging its strength and aggressively pursuing its growth strategy.
The Company plans to increase and enhance cash flows through opportunistic monetization of its assets or
individual properties.

Figure 1: Topaz’s Corporate Strategy

Focus operations within North West Central Texas where the
management team has a competitive advantage

Drive organic growth through internally generated projects

Maximize reserve growth through exploration and drilling of
existing core properties

Complement this growth strategy by strategic and timely
acquisitions of assets

Manage costs and development schedules through operational
control to achieve higher profitability

Expand its network through the Partner Program that shall enable
it to leverage its rigs , work crews, and other expertise.

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In the current year, we expect the Company to consolidate and enhance its oil and gas properties and acquire new
acreage to expand reserve base. Topaz will need to invest approximately $30.0 million to expand acreage and drill
new oil and gas wells, of which the Company will need to invest approximately $7.5 million in the next 12-
months. We expect long term upside revenue opportunities from the Company’s portfolio of assets, highly
scalable business model, and new acquisition deals as natural gas discoveries increase in these prolific locations.
The recent announcement regarding the agreement with RMJ, Inc. as a part of its Partners Program further
provides positive impetus to Company’s growth plans. Our projections are based on reserve recovery of over 90
billion cubic feet of gas equivalent. However, the Company’s total probable reserve base could be much larger
than this, and any additional exploration will result in further upside. Topaz Resources is one of most exciting
junior oil and gas companies and provides an exciting short term and long term investment opportunity for risk
adverse investors.

EVOLUTION OF THE COMPANY
The Topaz Group is one of the most dynamic and exciting Groups working in the prolific Barnett Shale belt. The
Company has evolved into one of the most competitive players in this area through a disciplined strategy based on
focusing only within prime producing formations of North-West-Central Texas and seeking financing partners to
drill wells and generate proven reserves. This has enabled the Company to become a partner of choice for wells,
which previously have been drilled and need specialized expertise in either completion, work-overs or other
supplemental work to bring them into production or to improve production. During the last decade, the Topaz
Group has assembled, drilled and sold over 10,000 Barnett lease acres totaling approximately $100 million
through a number of separate drilling programs/ ventures. Management of Topaz Group through various
partnerships and private entities have drilled and/or operated in over 250 wells in this region.

Figure 2: Evolution of the Topaz Group

2001 03: •In 2001, the Group established its first drilling program.
•Committed approximately 550acres to a privately held company that financed drilling a
Krum Area, Denton total of 11 wells.
•In 2003, these acres and reserves were sold to EnCana Corp. (TSX,NYSE: ECA) as part of a
County larger property sale.

2002 05: •In 2002, the Topaz Group committed approximately 2,500 lease acres to another privately
held company.
Argyle Area, •A total of 12 Barnett wells were drilled.
•In mid 2005, this production, the reserves and acreage were sold to a private company for
Denton County approximately $30 million and later resold to Range Resources Corporation (NYSE:RRC).

2004 06: •In 2004, the Topaz Group acted as an operator and committed approximately 5,000 acres
located to the west and southeast of the city of Denton, Texas.
West and Southeast •In partnership with a private Australian finance group, a total of 16 wells were drilled
•The Company sold its production, reserves and acreage to Dune Energy, Inc. for $46
of Denton City million and later sold to Pioneer Natural Resources Company (NYSE:PXD).

Page 5 of 38


COMPANY STRUCTURE
In order to achieve superior growth and achieve its highest level of efficiency, Topaz has grouped its assets and
projects of interest into different operating segments. At times, these are operating segments or assets held in
wholly owned individual limited partnerships. The key objective of using this structure is to provide operational
and budgetary focus for reserve development and enhancement. In addition, it also allows the Company to act
swiftly to make opportune acquisitions. The Company’s current operating structure is shown below:

Figure 3: Topaz Resources’ Current Operating Structure

Parent Company
Topaz
Resources Inc

Production
Barnett
Current Operating and Barnett
Gas
Segments Leasehold Oil Project
Project
Acquisitions

Page 6 of 38


COHEN GROWTH DRIVERS
Figure 4: Cohen Growth Drivers

2010 F 2011 F 2012 F 2013 F 2014 F 2015 F 2016 F
Barnett Gas Project
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Barnett Oil Project
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North Taxes Oil Plays
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Total Production

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Price

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% growth
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% growth

Net Revenues (in $ millions)

ƒ•
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TOTAL 0.33 6.82 20.41 46.25 78.47 125.46 175.93

Annual Revenues, Margins, Assets, Turns
all figures in $ 'millions 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F 2016 F
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Percentage Change in Annual Revenues, Margins, Assets, Turns
2010 F 2011 F 2012 F 2013 F 2014 F 2015 F 2016 F
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Page 7 of 38


The Cohen Growth Drivers Model is an intelligent road map used by many securities analysts to analyze the
forecasted growth of a given company. Topaz Resources is expected to generate revenue from sale of Oil and
Natural Gas. The Company expects to cater to the large and growing market for oil and natural gas to be explored
from the prolific Barnett Play. Topaz is likely to aggressively expand its drilling program to commercialize oil
and gas production from its owned acreages. The Company is expected to continue acquiring unique assets that fit
the investment strategy of the firm. The global market for petroleum and natural gas is poised to continue with its
growth momentum over the next few years. Limited new discoveries, uncertainty in major producing nations,
growing demand and economic recovery will result in demand supply imbalance, in favor of suppliers, resulting
in high prices.

We expect significant revenues as the Company continues to bring more wells into production.
Commercialization of reserves in the prolific Barnett Shale gas play during the second half of the current year will
result in gross revenues of $0.3 million for FYE 2010. Going forward, the Company will not only benefit from
the expansion of Barnett acreages and partnerships to drill additional wells will result in revenues of $6.8 million
in FYE 2011. We expect revenues to grow thereafter to $175.9 million by FYE 2016. The key driver for this
growth is continued demand for oil and gas. The Company’s assets are an intelligent mix of acceptable risk, high
profit and short return in historically successful and productive regions. There are a number of established
companies in the industry and the available equipment and infrastructure is excellent. As a result TOPZ is likely
to ensure higher operating margins throughout our forecast period (Management Guidance).

The Company plans to spend approximately $7.5 million in capital expenditures in the next 12 months and will
require investing an additional $22.5 million to meet our projections (total funding requirement of $30.0 million).
These expenditures will be directed toward developing existing proved and probable reserves and evaluating and
acquiring new project areas. In addition to drilling new wells, Topaz is expected to invest additional funds in
development of logistics and transportation infrastructure.

Revenues are expected to grow rapidly as the Company commences commercial production from its wells.
Margins are positive and are expected to improve from 2010 going forward. Free cash flows are forecasted to be
positive in 2012 as significant investments are expected.

Page 8 of 38


VALUE PROPOSITION

Topaz expects to generate substantial growth in value from sale of natural gas once it commercializes production
from its Barnett projects. The Company has designed an exploration program to cost effectively evaluate the
leases, using superior production technologies. The Company is positioned to seek opportunities arising from the
increased demand for natural gas due to demand supply imbalance and economic resurgence. Management’s
ability to raise funds, acquire new reserves and exit at the right time also provides a positive impetus to the
Company.

Figure 5: Topaz’s Value Drivers

Balanced and Excellent
Attractive
Diversified Asset Business Model
Financial Position
Base and Strategy

Established Attractive Attractive
Production Industry Current
History Dynamics Valuation

Partner Program Experienced
Established Exit
will enable Management
Strategy
expansion Team

Note how the value proposition integrates significant revenues and market opportunities.

Page 9 of 38


COMPANY ASSET DESCRIPTION

Since its inception, Topaz Resources has assembled an exciting portfolio of assets located in Texas. Currently, the
Company is actively pursuing acquisition, expansion and drilling activities in the Barnett play and North Texas.

Figure 6: Overview of Company’s Assets

Topaz Resources Inc.
North
Barnett Area
Texas
Barnett Gas Barnett Oil Strawn
Project – Project – 950 Formation –
1,850 acres acres 1,000 acres

About The Barnett Gas Project

The Company owns approximately 1,850 gross acres in the natural gas heart of the Barnett play. Located in the
historic core area in Wise and Denton counties and surrounded by existing production and current drilling
activity, this acreage has excellent exisiting gathering systems and pipeline infrastructure. The Company plans to
invest approximatly $2.75 million per well, and Topaz's strategy is to drill at least 1 horizontal well in 2010 at a
depth of 8,000 to 9,000 feet and then 1 horizontal well per quarter during 2011 accelerating thereafter.

Figure 7: Barnett Gas Project – Horizontal Well

Page 10 of 38


It is estimated that each well holds 1.75 billion cubic feet of gas providing additional probable and possible
reserves of 61.25 billion cubic feet of gas. Management expects initial production rates of 2.0 million cubic feet
per day of natural gas. Topaz’s acreage in this project area easily could accommodate drilling 35 new horizontal
Barnett wells.

This Barnett acreage was acquired by Topaz through the 2006 farm-out agreement under which the Topaz group
participated in drilling and completing sixteen wells, all of which were successful commercial wells. Six of these
wells were funded and acquired by a privately held company and ten wells have been acquired by Pioneer Natural
Resources Company (NYSE:PXD).

About The Barnett Oil Project

Topaz holds approximately 950 acres located favorably in the oil area in Montague County of the Barnett play in
Texas. Due to significant improvement in completion techniques, it has been possible to explore oil from the
extended Barnett into the Montague County. Topaz will need to invest $2.75 million per well. The Company
plans to drill at least 2 horizontal wells in 2010 at a depth of 8,000 to 9,000 feet followed by 5 horizontal wells in
2011 accelerating thereafter.

Figure 8: Location of Company’s Barnett Oil Project

Management believes that these wells will typically have initial production rates of 150 bbls of oil and 275 Mcf of
gas per day. Topaz will target to accommodate and drill 15 new horizontal Barnett wells with expected resources
in place of 1.875 billion cubic feet of gas equivalent, further providing additional probable and possible reserves
of 28.125 billion cubic feet of gas equivalent.

Page 11 of 38


Management’s estimates are expected to be realistic as several new vertical wells near the Company’s acreage
have successfully drilled wells with initial production rates of 100 to 200 barrels of oil per day and 200 to 350
Mcf per day. The most active player close to Company’s acreage is EOG Resources, Inc.

Topaz recently reported1 the drilling and log results of its Barnett Shale oil well. The well was drilled to a total
depth of 7,740 feet stopping at the top of the Viola formation. The electronic logs have identified a 600 foot
section of Barnett Shale which includes a solid 400 foot section in the Lower Barnett with porosity and
permeability values that indicate good productive capabilities. The logs also confirm good productive
characteristics from 6,775 feet to 6,785 feet, from 6,817 feet to 6,827 feet and from 6,881 feet to 6,888 feet in the
shallower Conglomerate, supporting the good oil and gas shows that were encountered during drilling through
these depths. In addition, oil and gas drilling and the logs indicate a potential productive Marble Falls zone at
6,980 feet to 7,160 feet. Based on these results, Topaz set casing and cemented as a vertical well through the
Barnett up to the shallower Conglomerate and Marble Falls zones. The Company is currently designing a
completion program and assessing the behind pipe production and reserve potential in the Marble Falls and
Conglomerate formations.

Figure 9: Barnett Oil Project – Vertical Well

About The North Texas Shallow Oil Gas Project

In addition to aggressively expanding its presence and expediting its drilling program in the Barnett play, Topaz is
also acquiring shallow oil and gas production properties with development upside in North Texas. One such
anticipated property acquisition is spread across 980 acres and consists of six leases. Currently, there are 25 wells
which together produce 3,000 bbls of oil and 6,000 Mcf of gas per month. The wells produce from the Strawn
Sand from two producing horizons, at 3,000 feet and at 1700 feet. Wells have been drilled at 20 and 10 acre
spacing with the possibility of further down spacing.

There are 20 to 30 additional drill locations at both depths. Recent drilling has focused on the shallower sand
horizon. At these shallower depths, the cost of drilling and completing a new well ranges from $100,000 to

1
Source: Company Press Release

Page 12 of 38


$125,000 with an average initial production of 25 bbl and 50 Mcf per day. With oil prices at $80 per barrel the
payback on capital can be less than six months.

Topaz plans to prioritize the drilling program at this site as management believes that this property will quickly
increase its monthly cash flows thereby assisting the financing of new drill programs and further acquisiitons. The
Company is expected to drill at least 10 vertical wells at a depth of 1,700 feet in 2010.

Page 13 of 38


COMPANY LOCATION DESCRIPTION
Topaz has focused its activities and resources on expanding its presence in the North-Central-West Texas
producing formations that are spread across 15 counties immediately northwest of Dallas, Texas. The Barnett
Shale/Newark East Play located within these counties and today is one of the largest natural gas plays and drilling
booms in the continental United States and the biggest producing gas field in Texas.

Figure 10: The Barnett Shale Play

The Barnett Shale is a geological formation located in the Bend Arch-Fort Worth Basin. It consists of sedimentary
rocks of Mississippian age (354–323 million years ago) in Texas. Improved completion techniques have allowed
operators to more than double the daily production in the Barnett since 2006 to about 4 billion cubic feet per day
from the currently operating 6,000 Barnett wells. The drilling activity is intense with approximately 70 rigs
running in this area operated by small operators to larger public energy companies.

Based on reports by various experts, it is estimated that Barnett Shale may have the largest producible reserves of
any onshore natural gas field in the United States. The Barnett Shale has a proven reserve base of 2.5 trillion
cubic feet of natural gas, and additional probable reserves of 30 trillion cubic feet of natural gas resources. Recent
technology developments and geological surveys have also shown reserves of oil, though in much lesser
quantities, but sufficient to be commercially viable.

Page 14 of 38


Figure 11: The Barnett Shale – Oil and Gas Producing Areas

Barnett is the productive formation that occurs at a depth of 8,000 to 9,000 feet. Until the 1990’s, most drilling
was done at formations above the Barnett, throughout Topaz’s acreages. The key hindrance that has limited the
production from Barnett Shale is because this play is a tight gas reservoir, indicating that the gas cannot be easily
extracted. The shale is very hard, making it virtually impossible to produce gas in commercial quantities from this
formation. However, recent improvements made in hydraulic fracturing technology and horizontal drilling,
coupled with the upturn in the natural gas prices have made drilling attractive in this region.

Page 15 of 38


Figure 12: The Barnett Formations

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BULL CASE
x Total world demand for natural gas will continue to increase at an average annual rate of 1.5% to 2025.
Liquid fuels are expected to rise 1.0% annually until 2030.

x Increasing use for electricity generation and industrial applications will account for about 75% of the
projected growth in natural gas demand until 2025.

x Price-inelastic demand as most customers are unable to switch easily to an alternate fuel once they have
committed to using gas for gas-fired equipment.

x Topaz Resources has a strong base of assets in areas known for producing high quantity oil and gas.
x The Company’s oil and gas properties are located in the prolific Barnett Shale Play. These assets are
likely to provide assured funds to finance other projects to be undertaken in the future.
x Partner programs will enable Topaz to leverage its rigs, workforce and other expertise in the region to
increase revenues and cash flows.

BEAR CASE
x Factors that govern commodity prices are beyond the Company’s control.
x The rise in global Oil and Gas supply might result in lower prices making exploration from Barnett Shale
uneconomical.
x The Company’s revenues and operating results are highly dependent upon the success of the exploratory
and developmental drilling program at its various projects.
x Access to substantial sums of capital.

Page 17 of 38


GROWTH PLANS
The Company plans to invest significant capital to expedite growth. This capital will be invested in:

x Acquisition and enhancement of North Texas shallow oil gas project

x Sign up with additional companies to expand its Well Partner Program with a target to at least sign-up
with 5 wells.

x Drilling additional vertical Strawn oil wells

x Drilling three additional Barnet wells, (1 gas wells and 2 oil wells)

Based on its growth plans, internal management estimates and planned acquisition and drilling activities, total
proved and probable reserves could total 106 billion cubic feet of gas equivalent by year end 2010.

Figure 13: Topaz Resources – Reserve Break-up

Page 18 of 38


INDUSTRY OVERVIEW AND COMPETITION
Economic slowdown, rising exploration, production costs, and the increasing imbalance between demand and
supply are the primary drivers for the volatility in oil prices. The inability of oil companies to replace their
reserves and depletion of the proven reserves are the principle reasons for ongoing supply constraints. Existing
reserves are depleting due to rising energy needs of growing economies such as China, India and Brazil. OPEC
does not have spare capacity to increase supply. It is also increasingly difficult for companies to find new oil
fields. Iran’s nuclear standoff, civil unrest in Nigeria, nationalization of production by Venezuela, Ecuador, and
Bolivia and maturing fields in the U.S. and Europe further constrain supplies. Increases in oil supply are
dependent upon technological advancements or price increases in order to make undeveloped oil resources
profitable. Speculative market activities are increasing the demand for oil. The limited supply of drilling and
exploration equipment and the growing cost of steel and other raw materials are driving costs higher. A solution
is to use previously abandoned land for profitable oil production and use new technology in order to meet the
growing demand-supply imbalance. Exploration of oil sands is another important solution.

Figure 14: Industry Overview

Page 19 of 38


Value Drivers: Oil and Gas Industry
Figure 15: Value Drivers: Oil Gas Industries

led

Outlook: Oil and Gas Industry

Demand and Supply: Global oil demand declined in 2009 for the second consecutive year, the first time since
1983 that this has occurred. The decline bottomed out in the middle of 2009, as the world economy began to
recover in the last half of the year. The global market for oil and gas is expected to tighten in 2010 and 2011
driven by the positive recovery in the global economy. Developing and under-developed economies and other
countries outside the OECD are expected to lead the demand recovery. Last, the demand for oil in developed
nations will also grow in response to improving economic conditions. China and India continue to lead world
consumption growth.

The recent cuts announced by the Organization of the Petroleum Exporting Countries (OPEC) have weakened the
global market for oil. This has led to global oil and gas inventories and spare production capacity. This coupled
with expectations of a continued global economic turnaround have resulted in the reinforcement of the global oil
markets.

Page 20 of 38


Figure 16: Energy Demand Forecasts (Source: EIA)

Competition

The global oil and gas industry is highly competitive. Individuals, smaller companies, and major oil and gas
companies compete for attractive assets. The primary factors differentiating major companies from smaller ones
are increased technical, financial and operational resources and staff. Also, for smaller companies, competition
arises mainly from other companies operating in and around their acreage of operations. The 70+/- drilling rigs
running in the area and over billions of dollars of investment annually into Barnett Area highlight its tremendous
opportunity. Today, more than 8,000 wells have been drilled in Barnett alone within the last six years. Currently,
Chesapeake Energy, Devon, EOG Resources and XTO (recently acquired by ExxonMobil) are among the major
players working in Topaz Resources’ focus area in Barnett Shale Area. We believe several factors differentiate
Topaz from its competitors, as discussed in the Value Driver section of our report.

MANAGEMENT BIOS
Top management at Topaz Resources provides a competitive advantage. Their experience in the field of Natural
Gas, exploration and production includes capitalizing on industry cycles, making opportunistic acquisitions,
significantly ramping-up production and identifying suitable exit opportunities bodes well for the Company.
Management’s capability to source funds for acquisition in current uncertain markets provides liquidity for the
Company required to stay afloat in tough commodity cycle conditions.

Edward J. Munden, CEO, is a professional geological engineer with an MBA and is a co-founder of a private
boutique investment banking organization that has provided and/or arranged early and mid stage venture capital
and hands-on managerial assistance to a portfolio of energy, mining and technology software companies. From

Page 21 of 38


2001 to present, Mr. Munden has focused on development and financing of oil and gas leasing and drilling
projects in the Barnett Shale play in north-central Texas with a strategy of accumulating a solid mineral lease
position and building a strong operational capability. In 1994, Mr. Munden co-founded a Dallas based
independent NASDAQ-traded public energy company engaged in the exploration, development and acquisition of
oil and natural gas properties and held senior level positions including Director, Chairman, President and CEO
until it was sold for over $150 million in December 2001. Mr. Munden has held positions in the energy, mining,
manufacturing and technology industries for more than 30 years.
Robert P. Lindsay, COO, is a second-generation oil and gas professional with over 43 years experience in the
petroleum industry. He has planned and executed drilling and rework programs in Texas, Louisiana, Kentucky
and New Mexico. From 2001 to present, Mr. Lindsay has focused on locating, evaluating and securing mineral
leases in the Barnett Shale play in north central Texas, wherein he has drilled or participated in over 250 oil gas
wells in the immediate region; has assembled, drilled and sold over 10,000 acres with dollar values approaching
$100 million; and has built and sold 6 Barnett Shale drilling rigs. Prior to this, Mr. Lindsay was Chief Operating
Officer of a NASDAQ energy company responsible for all administrative and operational aspects of the
company’s producing and development properties. From 1973 until 1995, Mr. Lindsay managed over 200
employees and 10 drilling rigs concentrating on drilling oil and gas wells throughout north Texas. Prior to 1973,
Mr. Lindsay held senior positions with an international oil and natural gas drilling and exploration company
headquartered in Tulsa, Oklahoma.
Rand Stinnett, VP and General Counsel, is a fourth-generation oil and gas professional, having focused full-time
on Barnett projects since 2000. Through various entities, Mr. Stinnett has executed a successful, disciplined
leasing strategy that has resulted in the acquisition and development of over 10,000 acres of quality mineral leases
within the Barnett in and around Wise, Denton, Montague and Tarrant Counties, Texas. Mr. Stinnett is a
commercial/business attorney and petroleum landman who has represented clients in all aspects of the oil and gas
business, including financial institutions, mineral owners, working interest owners, operators, drillers and
contractors. Since 1982, he has engaged in a general civil legal practice involving title examination, commercial
litigation, transactional work and regulatory/corporate matters, both as a sole practitioner and in association with
law firms, in Hurst and Austin, Texas. Mr. Stinnett is licensed to practice law in both Texas and Oklahoma and
holds B.S. and J.D. degrees.
Bill Williamson, VP Operations and Land, is a certified petroleum landman with over 28 years experience in the
oil and gas industry including eight years experience in operating and building oil and gas drilling rigs. In 2005,
Mr. Williamson co-founded a company to build and operate land drilling rigs, completing construction of three
drilling rigs. Prior to this from 2002, he worked for an independent drilling contractor located in Denton, Texas.
From 1998 to 2002, Mr. Williamson was VP, Land for a NASDAQ energy company responsible for all land,
acquisition and divestiture transactional contracts and agreements. Prior to 1998, Mr. Williamson provided
clients with oil and gas asset management, acquisition and divestiture services from a land and legal perspective.
Bruce I. Benn CFO and VP Finance, is a specialist in investment banking and international finance with over 25
years experience in identifying, structuring and negotiating acquisitions and investments, particularly in the
energy, mining and technology sectors. He arranges and executes public and private offerings of debt and equity
financing and oversees all aspects of public and investor relations and regulatory compliance. He was
instrumental in structuring and arranging over $500 million in debt and equity financing for a NASDAQ energy
company. He is a co-founder of a private boutique investment banking organization, where he focuses on
structuring transactions and interfacing with a select core of institutional and private investors. Mr. Benn is an
attorney and holds B.A., LLB and LLM degrees.

Page 22 of 38


VALUATION

THE COHEN PRICE TARGET - $1.94
The Cohen Price TargetTM is a dynamic and logical valuation approach as it combines market-based approaches
and intrinsic value methodologies. Capital raising and cash are the life blood of any micro cap/small cap
company. Hence, the Cohen Price TargetTM includes four components, 25% equal weighted that together reflect
and are based on the Company’s ability to raise capital for growth. The four components used in our price index
are: Price-to-Earnings ratio (P/E), Cohen Price-to-Capital Employed ratio (P/CE) (Both Market based valuation
approaches), Cohen Discounted Cash Flow (DCF) method (Theoretically an Intrinsic Value based approach) and
Cohen Price Performance Index. Our formula for The Cohen Price TargetTM is shown below.

Figure 17: The Cohen Price TargetTM Formula

Price to Earnings (P/E) in US$
TOPZ Earnings Per Share 2011 Avg. Forecasts 0.13
Industry Average P/E Ratio 17.43
Price based on P/E Ratio 2.20

Price to Capital Employed (P/CE) in US$
TOPZ Capital Employed 0.36
Industry Average P/CE Ratio 6.47
Price based on P/CE Ratio 2.35

Cohen Discounted Cash Flow Model in US$
Cohen DCF Value Base Case 2.12

Cohen Performance Index in US$
Cohen Price Performance Index Value 98.2%
TOPZ Current Stock Price 0.55
Price based on Cohen Performance Index 1.09

Cohen Price Index Target 1.94

Current Price 0.55

Upside/ (Downside) Potential 252.3%

Page 23 of 38


Figure 18: Cohen Discounted Cash FlowTM

Range of Target Price vs. Long Term Growth Rates

in US $

Range of Long Term Growth Rates

’–‹‹•–‹… ƒ•‡
ƒ•‡ ƒ•‡
‡••‹‹•–‹… ƒ•‡

Range Target Price vs. Cost of Equity
in US $

Range of Cost of Capital

’–‹‹•–‹… ƒ•‡
ƒ•‡ ƒ•‡
‡••‹‹•–‹… ƒ•‡

Page 24 of 38


LATEST PRESS RELEASE
Source: Topaz Resources, Inc.
September 22, 2010 4:00 PM ET

Topaz Resources Signs Definitive Agreement With RMJ
Topaz Resources, Inc. (OTCBB: TOPZ) today announced that it has signed a Definitive Agreement with RMJ,
Inc. to partner in a Multi-Well Development Program. Under this Program, Topaz and RMJ are now negotiating
participation by RMJ in the Barnett Shale well recently drilled by Topaz in the oil leg of the Barnett Shale
formation in North Texas, which Topaz currently is preparing to complete.

We are very impressed at how quickly RMJ has been able to complete their part of this transaction, commented
Ted Munden, CEO of Topaz Resources, and we look forward to partnering with RMJ in our current Barnett
Shale well and in the next series of wells that we have planned in the near future.

About RMJ

RMJ is a private independent oil and gas (EP) company engaged in the exploration, development and
production of oil and gas in Texas, Oklahoma and California.

About Topaz Resources

Topaz Resources is an independent oil and gas company focusing on production, acquisitions and developmental
drilling opportunities within proven producing areas of north, central and west Texas. The Company's website can
be found at www.topazresourcesinc.com.

Page 25 of 38


CONCLUSION
Topaz is one of the most exciting junior oil and gas exploration and production companies. The Company is
transforming itself from a start-up stage to a development stage oil and gas Company. Topaz’s objective is to
increase and enhance shareholder value, through possible monetization via sale of Topaz assets or of individual
properties. Topaz plans to aggressively pursue its well drilling program to expedite growth and become cash flow
positive. The Company is focused on executing its strategy of leveraging its strengths to acquire additional
acreages and production within its area of operation, and to enhance this acreage through drilling and well work-
overs using modern technology. Also, Company’s Partner Program whereby it utilizes its infrastructure, resources
and expertise to to partner with asset owners shall result in positive cash flows for Topaz. Topaz’s experienced
management team represents a strength and advantage necessary to execute this strategy.
The Barnett Shale Belt is turning out to be America’s most attractive oil and gas drilling location. Billions of
dollars are likely to be invested in this area. We believe that continued industry growth through the development
and exploration of conventional domestic oil and gas reserves will provide essential near-term growth drivers.
The Company plans to grow organically by raising and utilizing the funding it needs to begin its well
development program and acquire additional leases at its lucrative projects. The Company’s business model is
scalable and is able to accommodate larger capital infusions with correspondingly larger returns in dollar terms.
We expect significant growth potential from TOPZ’s prolific gas leases in the Barnett Area in the immediate to
medium term. Revenues are expected to grow from $0.3 million for Fiscal Year End (FYE) December 31, 2010 to
more than $175.9 million by FYE 2016. Note: our projections assume that the Company will be able to achieve
our forecasted targets provided if raises a total of $30.0 million funding.
We believe the Company’s focus in the attractive North-West-Central Texas Area together with the experience
and proven track record of its management team will provide enhanced returns on investment. The Company
intends to become an intermediate level oil and gas producer in the next few years. The stock is an attractive short
term trade and long term buy provided funds are raised.
RS/Cohen Independent Research Group

Page 26 of 38


HISTORICAL HEADLINES
Topaz Resources Commences Drilling Program in Barnett
Jun 22, 2010 - Market Wire
Topaz Resources, Inc. (OTCBB: TOPZ), an independent oil and gas company (Topaz or the Company), today
announced that it has commenced its next drilling program in the Barnett shale formation in North Texas.

According to Topaz Resources, Natural Gas Is Key to Reducing...
commented that natural gas is key to reducing U.S. dependence on oil. This is the foundation of the Topaz
strategy of expanding and developing its growing natural gas reserves in the Barnett shale, which has become one
of the biggest natural gas plays and drilling booms in the continental United States and the largest producing gas
field in Texas.

Topaz Resources Outlines Objectives for 2010
issued a corporate update to provide its shareholders with insight into a series of fundamental developments
occurring at the Company in 2010. In a formal statement, Ted Munden, the Chief Executive Officer of Topaz,
stated.

Current Forecasted Natural Prices Reinforce Topaz Strategy
commented that current and forecasted prices of natural gas are providing significant reinforcement to the Topaz
acquisition and development strategy.

Topaz Resources Confirms Strategic Areas of Interest
confirmed that it is targeting its operations and growth in the established, proved producing areas of north, central
and west Texas.

Topaz Resources Introduces Operations Capability
introduced its team of 57 administrative and operations personnel.

Topaz Resources Announces Appointment of General Counsel
announced that the Company's Board of Directors has named Rand Stinnett, 52, as Vice President and General
Counsel.

Page 27 of 38


APPENDIX
The Cohen Price Target
The Cohen Price TargetTM is derived using a combination of academic and market-based valuation approaches.
The following four equal weighted (25%) components used in calculating our target price, include the assumption
of capital raised:

1. The first 25% equal weighted component: is the market multiple based valuation methodology. This
method uses the industry average 2011E Price-to-Earnings ratio to calculate the potential stock price
(and/or price to Book if an asset based company). We take the average Price-to-Earnings multiple of a
given industry. This means that, on an average, stocks in this industry should currently trade at a multiple
times their 2011 expected earnings. These earnings are usually only generated by a small company
raising cash to meet its master budget. The index, therefore, reflects capital invested in any micro/small
cap company.
2. The second 25% equal weighted component: Cohen Capital Employed based valuation. Most start-up and
micro/small cap companies require significant capital to meet our projections. Our Cohen Price TargetTM
reflects the Company’s ability to raise additional capital. Based on our capital projection and long-term
price target from our Cohen DCFTM valuation model, we derive a Price-to-Capital Employed ratio. We
then multiply this ratio with our capital employed per share assumption to derive this target price.
3. Our third 25% equal weighted component is our use of the Cohen Price Performance IndexTM, which
calculates the average price increase of all the stocks covered by Grass Roots Research and Distribution
Inc. and Cohen Research after their release. Currently, for the period ending September 30, 2010 the
Cohen Price Performance IndexTM is up by 98.2%, meaning that we expect the stock to follow the same
trend and rise by 98.2%. To date, since May 2009, 97.6% of all of our stocks post report release have
traded above the price of our initiate coverage report within 26 days. The Index assumes that all of its
companies had capital employed in each company. In general, almost 100% of our researched stocks
went up close to 100%.
4. Our fourth 25% equal weighted component is our Cohen Discounted Cash Flow (DCF) method of
valuation. Our Cohen DCFTM valuation includes a complex trademarked formula proprietary to our firm,
which includes an assumed long-term sustainable growth rate, cost of capital and assumed capital
invested in a given company. Our DCF price target values a company today, based on projections of how
much future cash will be generated from a given company. We assume that a company is worth all of the
cash it can make available to investors in the future. It is called 'discounted' cash flow because cash in the
future is worth less than cash today, and therefore must be discounted to today. We forecast various line
items including assuming a given amount of capital is raised, to calculate the free cash flow we project a
company to generate during our 5 year forecasted time period. If a company does not raise our estimated
cash requirements, it is highly unlikely to reach our forecasts and can go out of business. After using a
formula to discount free cash flow, we divide the total forecasted equity of the company by the shares of
stock outstanding to calculate our Cohen DCFTM valuation, or theoretical price per share target. We
believe the Cohen DCFTM formula is a more accurate measurement of operating cash than the traditional
DCF used by most Wall Street research analysts. A DCF, or 5 year forecasted free cash flow projection,
cannot be calculated without forecasting the three statements (IS,BS,CF) for 5 years. We are the only

Page 28 of 38


firm in the investor awareness industry that forecasts all of our companies for 5 years in three assumed
cases. We believe this in depth level of securities analysis is a must for all of our companies, and is a
foundation of the Cohen Research MethodTM.

Capital raising and cash are the life blood of any micro cap/small company. Our Cohen Price TargetTM includes 4
components, 25% equal weighted, that together reflect capital is raised in our client companies. Our components
are trademarked and proprietary to our firm, as is the Cohen Performance IndexTM.

Most micro/small cap companies have difficulty raising sufficient funds to reach our theoretical forecasts; hence
there is considerable risk for any investor. While we do not give investment advice, any company that cannot
raise adequate capital to finance its business model is a highly risky investment, short term or long
term. Investment awareness campaigns also affect our price targets. Do not rely on our price targets because they
are based on academic theory. Do your own research or consult with your investment professional.

Price Targets

Price targets can be heavily influenced by investor awareness campaigns. In general, we observe the more money
spent on such campaigns, the greater the probability for short term price increases post report release. Our price
targets normally assume capital raising and forecast 5 year Income Statement, Balance Sheet and Cash Flow
statements. In a perfect world, these assumptions may be realized. We do not give investment advice. However,
in the practical/real world, it is very difficult for a small company to raise adequate capital to reach our theoretical
5 year projections. We are not aware of any research firm that forecasts the three statements (IS, BS, CF) in 3
cases for 5 years to reach our price targets. We believe our price targets are unique to the body of knowledge in
the field of securities analysis.

The Penny Stock Market is primarily a short term trader’s market. Our reports often times recommend client
companies as short term trades, and long term investments only if an investor believes a company will raise the
required capital to meet our valuation and price targets. Our statistics indicate that short term price increases
regularly occur after release of our initiate coverage reports. Thereafter, we note that of the majority our stock
recommendations go down significantly due to profit taking. Our Disclaimer advises our readers to do their own
research outside and separate from our commercial advertisements. Do not rely on our price targets as they are
academic theory.

Note: How we calculate our Price Targets

We further explain our Cohen DCF, which is an important 25% component of The Cohen Price Target. The
Cohen Discounted Cash Flow Analysis (DCF) creates a price target and values a company today, based on
projections of how much future cash will be generated from a Company. Our DCF analysis assumes that a
Company is worth all of the cash that it can make available to investors in the future. It is called discounted cash
flow because cash in the future is worth less than cash today, and therefore must be discounted to today. We
forecast various line items including assuming capital is raised, to calculate the free cash flow we expect a
company to generate during our 5 year forecasted time period. After using a formula to discount free cash flow,
we divide the total forecasted equity of the Company by the shares of stock outstanding to calculate our Cohen
DCF (Discounted Cash Flow) valuation, or theoretical price per share target. We believe our Cohen DCF is a

Page 29 of 38


more accurate method of calculating operating cash. We forecast three assumed price targets because companies
change during 5 years, Base Case, Optimistic Case, and Pessimistic Case.

Note: What is our formula used to calculate our DCF, the Cohen Price Target?

Some line items include free cash flow to the firm, the weighted average cost of capital, assumption of capital
raised and capital spent, and the total enterprise value of the business less its debt, total equity value, total shares
outstanding, and our projected price per share. A DCF cannot be academically calculated without projecting the 5
year cash flow statement.

Risks of the Cohen Price Target

Our Price Targets assume capital will be raised in our four components, or 100% of the Cohen Price Target. The
majority of micro cap/small cap companies need capital to reach our 5 year sales and cash flow projections. In
the academic world, The Gordon Growth Model justifies an analyst's decision to forecast for 5 years. We
forecast the three statements for 5 years in 3 cases. However, in the practical/real world, buying a micro cap stock
based on 5 year forecasting is highly risky.

If smaller companies are able to raise capital, our theoretical price targets in a perfect world might be justified,
providing the Company executes on its business model. If an investor believes that a given Company cannot raise
the necessary capital to reach our projections, then any investment becomes highly risky.

The investor should consider the possibilities of a given company being able to raise capital and execute over 5
years. Few micro/small cap companies are able to raise enough capital and execute over an extended period of
time, primarily due to competition, management competence, access to capital, and execution of their master
budget. Our price targets are academic theory and should not be relied upon. Investors should do their own
research and consult with their financial consultants.

Oil and Natural Gas Measurement Abbreviations

Page 30 of 38


FINANCIAL EXHIBITS
Income Statement – Base Case
Net Revenues 0.3 6.8 20.4 46.2 78.5 125.5 175.9

Cost of Production 0.0 0.7 2.1 4.6 7.8 12.5 17.6
Gross Profit 0.3 6.1 18.3 41.6 70.6 112.9 158.4

Total Operating Costs
Operating Profit/ EBITDA 0.3 5.8 17.5 39.8 67.5 107.9 151.3

‡’”‡…‹ƒ–‹‘ ƒ† ‘”–‹œƒ–‹‘
Earnings Before Interest and Tax/ EBIT (0.8) 3.6 14.7 35.4 60.7 97.4 135.5

–‡”‡•– š’‡•‡ ‡–
Earnings Before Tax/ EBT (0.8) 2.8 13.9 34.7 60.2 96.9 135.9

ƒšƒ–‹‘ š’‡•‡ ‡‡ˆ‹–
Net Profit/Loss for the period (0.6) 2.3 11.1 27.8 48.2 77.5 95.2

Šƒ”‡• —–•–ƒ†‹‰ ƒ•‹…
Šƒ”‡• —–•–ƒ†‹‰ ‹Ž—–‡†

ƒ•‹…
‹Ž—–‡†

Balance Sheet – Base Case
ASSETS
ƒ•Š ƒ† ƒ•Š “—‹˜ƒŽ‡–•
……‘—–• ‡…‡‹˜ƒ„Ž‡

˜‡–‘”›
–Š‡” ••‡–•
Total Current Assets 0.4 2.0 5.0 11.5 28.3 56.4 84.6

”‘’‡”–› Žƒ– ƒ† “—‹’‡–
”‘••
ƒ’‹–ƒŽ š’‡†‹–—”‡
‡’”‡…‹ƒ–‹‘ ˆ‘” –Š‡ ›‡ƒ”
……——Žƒ–‡† ‡’”‡…‹ƒ–‹‘
”‘’‡”–› Žƒ– ƒ† “—‹’‡– ‡–
–Š‡” ••‡–•
Total Assets 15.0 32.0 43.3 70.5 118.2 195.8 291.1

LIABILITIES
……‘—–• ƒ›ƒ„Ž‡
–Š‡” —””‡– ‹ƒ„
—””‡– ’‘”–‹‘ ‘ˆ ‡„–
Total Current Liabilities 0.4 0.1 1.4 1.7 2.1 2.8 3.6

‘‰ –‡” ‘ƒ
Total Liabilities 0.4 7.6 7.9 7.2 6.8 6.9 7.0

‘‘ –‘…
‘–”‹„—–‡† —”’Ž—•
‡–ƒ‹‡† ƒ”‹‰•
Total Shareholders Equity 14.6 24.3 35.5 63.2 111.4 188.9 284.1
Total Liabilities, Shareholders Equity, M 15.0 32.0 43.3 70.5 118.2 195.8 291.1

Page 31 of 38


Cash Flow Statement – Base Case
Operating Activity
‡–

…‘‡

Adjustments to Reconcile Cash Flows
Depreciation and Amortization
Other Adjustments
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Other assets
Accounts payable
Other liabilities
Šƒ‰‡ ‹ ‘”‹‰ ƒ’‹–ƒŽ
Cash Flow from Operating Activities 0.7 2.6 11.4 30.1 50.6 81.7 104.1

Investing Activity
š’‡†‹–—”‡• ˆ‘” ’”‘’‡”–› ’Žƒ– ƒ† ‡“—‹’
–Š‡” ‘‰ –‡” ƒ••‡–•
Cash Flow from Investing Activities (15.6) (17.5) (11.2) (25.1) (37.7) (60.0) (83.0)

Financing Activity
Proceeds from or repayment of debt
Proceeds from issuance of common stock
Cash Flow from Financing Activities 15.2 15.0 (1.1) (0.9) (0.8) (0.7)

Net Change in Cash 0.3 0.0 0.2 4.0 11.9 20.9 20.5
Opening Cash Balance 0.3 0.3 0.5 4.5 16.4 37.3
Ending Cash Balance 0.3 0.3 0.5 4.5 16.4 37.3 57.8

Income Statement – Optimistic Case
Net Revenues 0.3 6.8 20.7 47.6 81.9 132.9 189.0

Cost of Production 0.0 0.7 2.1 4.8 8.2 13.3 18.9
Gross Profit 0.3 6.1 18.5 42.8 73.8 119.6 170.2

Total Operating Costs
Operating Profit/ EBITDA 0.3 5.8 17.7 40.9 70.5 114.3 162.6

‡’”‡…‹ƒ–‹‘ ƒ† ‘”–‹œƒ–‹‘
Earnings Before Interest and Tax/ EBIT (0.8) 4.4 15.6 37.2 64.3 104.1 146.7

Topz Report Cohen 102010

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