They are foaming again, page-20

Good Meo news yesterday, a bit of a letdown today relating to 2 of the Meo permits which I did suspect from what was listed at the back of the Meo quarterly – the table where Meo showed a 100% participating interest to the two mentioned permits. Anyway have read some of the gloats on the Mosman board about SRK and therefore thought I would add to my post of yesterday. I don’t like seeing people lose money, but see more downside risk with Mosman than upside potential, whilst for Meo I see more upside benefit than downside risk. At the end of the day MSMN wants Meo so it should be opend up to some scrutiny by Meo shareholders, esecially when it releases its announcement at th esame time as the Meo quarterly etc. Hope you can follow the maths below and apologies if it is long.

Gas analysis
Conversion 1: 1 Trillion Cubic Feet of gas = 20.5 million tonnes of LNG = 1.05 million terajoules(TJ) of gas (http://www.delekenergy.co.il/?pg=calc&CategoryID=198)

Conversion 2: Regardless of my concerns in my earlier post, using the disputed mean for the Murchison prospect recoverable gas is 13.7 tcf = 280 million tonnes of LNG = 28 years of equivalent LNG production at a 10 million tonne per annum production rate. So if the gas reserve is actually what it is - and I have my significant doubts about this - what you have is potentially a LNG development of the same scale and size of the Australian based proposed Inpex and Wheatstone projects, and 2/3rds of the proposed Gorgon and existing NWS Project. So you know not all projects with a supposedly large gas resource ever get developed – just look at the Scarbarough and Woodside’s Browse basin fields,ong others, in offshore WA that hold significant amounts of gas.

Conversion 3: Based on published stats in 2014 New Zealand's domestic gas demand, i.e excludes exports, was 206 petajoules (1 petajoule = 1000 tJ) = 206,000 terajoules = 4 million tonnes per annum of LNG equivalent export gas (http://www.med.govt.nz/sectors-industries/energy/energy-modelling/data/gas and http://www.med.govt.nz/sectors-indu...-editions/Energy-in-New-Zealand-2013.pdf/view). Ironically WA has a large domestic gas demand - despite a lower population: 365,000 TJ per year (or roughly 7 mtpa of LNG equivalent export gas) (first link - https://www.google.com.au/search?hl....1ac.1.34.heirloom-hp..20.12.2543.uOxcc9Tp-NU

In my opinion, NZ lacks core manufacturing industries that would use a significantly increased domestic gas supply because it is largely an agriculturally based economy, as well as it largely generates its own electricity via cheaper hydro (i.e. renewable energy). So unless MSMN can get and develop an export market for the Murchison gas, in my opinion there is little hope for gas development there for the Murchison prospect to the assumed inferred scale alluded to within the SRK doc (especially noting the prospect is tight gas and that it will be extremely difficult and costly to extract it, and that the NZ domestic market cannot absorb the gas at a sufficiently high demand rate to make the gas prospect commercial); , i.e. my estimate of 10 mtpa LNG equivalent gas from the development is 2.5 times higher than the total NZ current domestic demand. And given its location, in terms of LNG (or any other gas based export commodity) Australia is far closer to the Asian markets so unlikely NZ will be cost competitive with Australia for meeting Asian demand in that market. Doubt it will be cost competitive for Murchison to export gas equivalents to South America, and North America already has enough gas
Oil analysis
Noted what is been said is that the mean is 164 million barrels of oil. Not sure the science around the figure but I also feel this oil cannot be tapped to any large extent. What made shale oil viable in the US was that the gas could be pumped into pipes to meet shortfalls in gas in the US domestic market - the US shale players are also looking at exporting LNG as well (probably to Europe). Now this is the key, without a gas market how will MSMN tap the Murchison oil noting that gas is lighter than oil and will flow from the field first (especially given fracking will be used). Can’t see the NZ environmentalists letting you flare gas in an onshore area it or just let it be released so MSMN you are going to also have a very expensive reinjection facility attached to any oil development there. Therefore, can’t see oil recovery either, before I even mention that the 164 million barrels of oil appears to be a pipe dream because it is unlikely MSMN will be able to tap the bulk of this oil because that is what fracking is.
Linkage of oil prices to LNG prices
Be mindful that LNG prices are linked to oil prices - LNG contracts prices on a mmbtu basis are generally at 85% of the oil price, where oil price parity is an LNG price of about 17% - 18% of the oil price (i.e. in its simplest form LNG price = ((17% of oil price) * (85%)). Most US oil shale projects when they were assessed were likely assessed (reached the FID decision) when oil prices were above US$80, but now that the oil price has fallen this does impact the commerciality and viability of new proposed high cost deposits which tight gas ones are sure to be. US oil shale developments have been severely impacted by the drop in oil prices and their capex is sunk --- worse for the Murchison prospect is that at least US shale oil producers are close to consumers and the required transportation infrastructure, unlike Murchson who will need to develop transportation networks (major addition to required capex). Makes it even further doubtful the Mosman development will occur. (http://www.economist.com/news/finan...ling-oil-prices-curb-americas-shale-boom-bind and http://www.theguardian.com/business/2015/feb/07/shale-industry-hibernation-us-economy-fears) - Notice both articles focus more on the impact of oil prices on fracking developments than conventional oil developments.

So all in all, I can't see Murchison been a goer and therefore I do question the SRK study as per my previous advice - appears more of a desktop study with probably some very wild assumptions underpinning the P90, P50 and P10 reserves. At best Murchison is a very very very very very very if ever long term prospect which will require huge huge amounts of luck. If I were a MSMN holder I would be asking their BOD questions on who have they been talking to as a farmin partner, and what export markets they are targeting etc etc. In my opinion, no wonder QA of the SRK doc was done by a internal MSMM person. Held to any form of true independent scrutiny this SRK report’s house of cards can fall quickly indeed. And I am only an amateur at this!!! Hate to say but troubled times ahead for MSMN when the market catches on more fully.
Like I said I will be keeping my Meo shares.