Ann: Operational Update, page-43

Wow!!  On 2 separate counts....what we have; and market reaction!

What we have

• 2 billion bbls (nett to 88e) of recoverable prospective resource in the thermal maturity sweet-spot within the HRZ with high porosity, in a highly permeable strata with good bottom seal and appropriate porosity overpressure and with rock mechanics that are highly amenable to hydraulic fracture stimulation.
• An independently rated Pg of 60% and Pc of 50%.....so significantly de-risked as at April this year.
• Modelling based an analogous plays that indicate that the cost of field development and oil extraction based on a P50 –mid cost scenario of $31 / bbl which implies an NPV zero (i.e. break-even) of $39 / bbl after applying royalties and state taxes.
• Fully funded drilling program to confirm the flow potential at different latitudes within the HRZ and also to assess potential increases to resource levels from the Hue shale above the HRZ.
• Well advanced planning and permitting to execute the flow test and retain the option for subsequent horizontal sidetracks for more thorough lateral flow tests within the HRZ and/or conventional leads readily accessible from the bore.
• An additional $8m cash in the bank to pursue any opportunities over and above the planned vertical flow tests – that are shareholder value accretive.
• An initial 5 potential conventional leads of  587 million bbls (nett to 88e) volumetric potential – of which 1 sizeable lead is adjacent to the 2V drill site.
• A subsequent identification of additional conventional leads with highly encouraging initial results from AVO analysis that indicate the presence of hydrocarbons – and with volumetric assessments imminently pending.
• POO that has comprehensively broken past $50 / bbl on the back of an OPEC production cut agreement and with the potential to keep trending north over the next 12-24 months towards $70 (IMO)

Market Reaction
Essentially a yawn saying “so what’. At 3.7cents SP, the market is effectively saying (IMO) that the option value of 88e’s prospective resource identified so far is about 5%!! Only two interpretations that I can fathom:

• The market doesn’t get the risk/reward opportunity presented at this time and hence the ludicrously low ‘option value’ represented by the SP; or
• The market does not believe the ‘option value’ can be more than 5% of potential future value of a proven reserve with full field development until the flow testing can validate the modelling.

No amount of price manipulation by cappers, bots and assorted termites, could hold back the tide if either of these two interpretations could be nullified. IMO.

Which reinforces to me that the management focus (for optimal shareholder value creation) should be initially more focused on improving the option value coefficient rather than on further enhancing the prospective resource base....assuming that we realistically can’t do both.
Interesting few days, weeks and months await us.  IMO, DYOR and GLTA.