first zone penetration today, page-8

Hi Staplemen,

In a way, all valuations are unreliable. I have taken an ultra conservative approach. In saying this, I dont believe in 'risking' especially at this stage of exploration. The resource is either there or not. If its there, then you have to base things like NPV on est. from people like NSAI. I dont believe you should risk on a risk. By this I mean, there is no point in discounting the best estimate resource, as this is the best estimate. I am an analyst and I have long been arguing for a change to this methodology.

When you think about this logically, discounting by 10%-20% (wildcat standard) on the best estimate doesnt make sense if gas is found. This is because gas has been found. You are effectively discounting the resource size. But why would you discount the resource size simply because this is the standard CoS for similar plays.

For Cua lo, I get an NPV of around 500-600M. This equates to around $1.15-$1.4ps on best est resource. From past experience (on average) some sort of farm-down has occured in order to bring the valuation to production expectations. I have therefore halved the equity attributable to NEN from the JV. So I end up with a valuation of ~$0.50ps. As I said earlier, this is ultra conservative.

If everything falls into place we could be looking at a SP in the region of $1.50 for Cua lo only. This is because:
a) There is a good chance that resource size will be larger than expected - Im saying much larger, based on what we now today.
b) Flow could be very good - comparable to DongFang.
c) There is likely to be a premium placed on top of valuation as it will add confidence to the entire block i.e there are 6 other leads. If Cua lo achieves the high estimate then the block 'high' est will likely be expected (21Tcf). Thats mamouth.
d) Similarly, there is likely to be a premium placed on top of valuation as NEN will become a takeover target.