molopo being watched everywhere

Ferret's Stock to Watch: MOLOPO AUSTRALIA LIMITED
09:31, Tuesday, 15 July 2008

A SOUTH AFRICAN NAME BUT THE ACTION IS AT HOME IN QLD

Sydney - Tuesday - July 15: (RWE Aust Business News)
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OVERVIEW
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Molopo Australia (ASX:MPO) has reported a fivefold upgrade of gas
potential in Queensland.
The Queensland acreage is now estimated to contain 7.5 Tscf
(trillion standard cubic feet) gas-in-place.
Some 2.3-3.6 Tscf of gas-in-place is potentially commercial at
current gas prices with existing technology.
Molopo estimates total combined reserves and contingent resources
as 1.1 Tscf at 2P and 2.1 Tscf at 3P.
Molopo's net share is currently 50 per cent.
Improving Queensland gas prices and developments in technology
have the potential to make a significant additional portion of the
resource commercially viable.
It should also be remembered that Molopo will enjoy a
disproportional share of the spoils of the well drilled because its
partner in the Mungi field, Anglo Coal, had elected not to participate in
the current campaign involving three multilateral wells.
According to Baillieu Research, under the sole risk well clause
in the joint ventures, Molopo will earn 100 per cent of the revenue from
wells drilled at its own expense.
Therefore Molopo's net share of Mungi field production could
remain as high as 85 per cent following the recent acquisition of Helm's
in the field if Anglo chooses not to fund its share of new wells.
The company's detailed volumetric review of the potential of its
Queensland-based assets includes ATP-564P, ATP-602 and PL-94.
At current Queensland gas prices, Molopo's gas-in-place is
believed to be commercial down to about 700-800m depth, resulting in a
currently commercial GIP target of 2.3 to 3.6 Tscf.
However, it should be noted that the Paranui pilot adjacent to
the PL94 producing areas is seeking to test coals down to 950m.
Based on a horizontal well approach and current industry costs,
Molopo estimates a recovery potential of 1.1 Tscf to 2.1 Tscf on a 100
per cent gross basis.
Current certified reserves in the Mungi and Harcourt areas total
95 Bscf at 2P and 469 Bscf at 3P (100 per cent basis) following the
recent upgrade to Harcourt South.
The majority of the potential recovery would therefore be
classified as contingent resources representing some 650 Bscf at 2C and
1,650 Bscf at 3C.
The Contingent Resource recovery category is defined under the
SPE/World Petroleum Council Petroleum Resources Management System
definitions as "those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations by
application of development projects, but which are not currently
considered recoverable due to one or more contingencies".
In this case the sub-category of uncertainty is that the
development is unclarified.
More of the permit Gas-in-Place is expected to become commercial
over time as result of:
* Increases in Queensland gas prices due to the development of
LNG export and power generation opportunities;
* The advent of carbon trading schemes; and
* Improvements in CBM development technology.
The Mungi and Harcourt areas represent the closest gas production
to the Gladstone industrial/LNG export area.
The Wallumbilla to Gladstone pipeline runs through the middle of
the Harcourt area while the Mungi Field already produces into this
pipeline via the Dawson Valley spur pipeline.
Molopo has commenced a sole risk development drilling trial at
Mungi using its horizontal drilling approach.
The first well in the drilling programme has been completed,
tied-in to the gas gathering system and dewatering is now underway.
Production results from the first well Mungi-22 are expected to
be available within the next one to two months.
Further optimisation of the drilling trial is now underway, with
upgrades to the rig and drill-string design based on the experience
gained with the first well.
Drill-string integrity issues were encountered on the first well,
Mungi-22, and the current Mungi-20 well, while these will not prevent
completion of either of the wells, more reliable drilling equipment is
being sourced.
Molopo expects to demonstrate the wider commercial potential of
the contingent resources over the next 12-24 months through additional
exploration and pilot well activity.
In addition to the sole risk development well trial at Mungi
referred to above, Molopo has proposed a sole risk seismic program at
Mungi and Harcourt.
Some market analysts have valued Queensland CBM reserves based on
recent industry transactions at $1.5 to $2.7 million/Bscf for 2P and from
$0.7 to $1.7 million/Bscf at 3P.
Based on these multiples the recently announced upgraded
certified reserves at Mungi and Harcourt South could be worth net to
Molopo some $70-$130 million (or 39c to 71c per share) at 2P and some
$160-$400 million (or 87c to $2.18 per share) at 3P.
These ranges illustrate the additional potential value inherent
in the Queensland acreage held by Molopo if its net contingent resources
can also be converted to reserves.
Interest holders in the acreage are Molopo Australia 50 per cent,
Anglo Coal 25.5 per cent and Mitsui 24.5 per cent.

SHARE PRICE MOVEMENTS
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Shares of Molopo yesterday rose 5c to $1.685. Rolling high for
the year is $2.09 and low 40c. The company has 182.8 million shares on
issue with a market cap of $308 million.
Baillieu Research predicts revenue of $2.5 million this year but
a net profit deficit of $2.5 million.
Next year's revenue is forecast at $10 million, enabling the
company to break into profit of about $2.5 million.
In 2010 revenue is expected to be $23.6 million and net earnings
$13 million.
By 2016 the company should be earning a profit of $33.4 million
on revenue of $69.7 million.
Earlier this month Molopo announced the award of an additional
274,000 acres in the emerging eastern Canada Quebec shale gas play.
The acreage award will allow Molopo up to a ten-year exploration
term under the Quebec Provincial regulations.
With this award Molopo will hold 100 per cent of approximately
2.13 million acres in Quebec province, which will provide Molopo with an
87.5 per cent net revenue interest (NRI) for the new acreage.
Molopo already holds an 80 per cent NRI for the previously
acquired 1.85 million acres.
Work to date by Molopo has included a review and assessment of
the significant database acquired. This includes data from over 150
wells, seismic data, gravity data and high resolution aeromagnetics.
The review is ongoing, but it has already identified significant
leads and prospects in the thermogenic and biogenic shale plays as well
as several conventional gas leads.
The two new acreage areas are located adjacent to the south and
central parts of Molopo's existing acreage.
The new southern blocks are located in the thermogenic shale
fairway adjacent to the existing Bedford and Drummondville leads, both of
which also contain conventional gas leads.
The new central blocks are adjacent to the existing Lyster and
Quebec shale gas prospects.
These comprise both thermogenic shale fairway acreage east of the
Logan Line with good well control, and the more speculative thermogenic
shale fairway in the area of poorer well control.
Molopo is currently assessing all the available data within the
acreage and basin, with a view to developing a number of shale gas and
conventional gas prospects to be explored over the next few years.
Significant industry-related interest has been experienced from
North American-based companies seeking to participate in the exploration
and development of Molopo's acreage.

BACKGROUND
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Molopo Australia Ltd is a gas producer focused on the development
of coalbed methane and other on-shore gas projects.
The company holds a 50 per cent interest in several gas fields
located in Queensland's Bowen Basin, a 30 per cent interest in CBM
operations located in the Gloucester Basin (NSW), a 50 per cent interest
is a US gas project, and a 50 per cent interest in two permits in the
Clarence Moreton Basin, NSW.
It has an 100 per cent interest in the Liulin CBM project in
China.
But a four-well pilot production test recently completed did not
yield commercial flow rates.
Molopo estimates a total recovery potential of about 800 Bscf (3P
Reserves, 3P Contingent Resource and 3P potential resource.
During Q1 2008, MPO acquired an acreage position in the emerging
eastern Canada shale gas play about 1.85 million acres in Quebec
province.
Other prospects cover Mason County, West Virginia (USA) and
Evander & Virginia (South Africa) with an interest in two South African
projects covering 250,000 hectares.
ENDS