news quarterly released, page-13

Hi everyone. I’ve been overseas for a few weeks and just got back.

It’s good to see the quarterly released on the day I get back. In hindsight I’m also glad management didn’t rush into a CO2 deal at any price. I think a chemical flood is looking more attractive now, especially when they say recoveries can be 15MBO. The graph they have in the report, although very crude does show higher cumulative cash flow for a chemical flood so I take that as being it is more attractive economically than CO2.

I’ve re-done my NPV calculations this morning for a chemical flood using the following inputs:

- 20% OOIP recoverable (as stated in the report) with chemical flood = 15MBO
- Capital investment $15M phased over 3 years
- Long-term oil price of $US60
- Exchange rate 0.65
- Oil production to start within 6 months, peak production in 3rd and 4th years

The NPV works out at $248M

The company says a well has been selected for chemical flooding for a pilot study (also to test the upper sands). This could be a good opportunity as drilling rates have come down lately. If reserves move to 2P I’d imagine finance will be easier to get if they need it and the beauty of chemical flooding is that it can be done on a well by well basis.

It’s also good to see cash went up by $700K in the quarter. They are running a very tight ship and I feel better knowing that they can fund the workovers at Ash Creek from cash. This must surely have a good chance of success because log analysis indicates the Eagle formation could be productive. If the results at SDS were to be replicated we could be getting an additional 200bopd from Ash Creek from a 4 well workover.