latest annpuncments, page-22

I too have been wondering what to do re the rights issue and have decided to go with it.

I see NWE have three potential share rerating events over the coming year.
1. Puffin.
2. TP/15
3. Northern UK.

by far, puffin is and remains the game changer. I continue to believe (perhaps foolhardly) that there is oil there and sinopec will be taking their time to do it properly and ensure the next drill/plan is successful. The downside of this is that it will be 6months or so before I believe we hear of anything substantial.

TP/15 seems to hold potential and is the near term catalyst. I understand the GGI survey will commence in 2 weeks or so, based on timings in quarterlies, GGI contractor should be finished 1st week of Oct. So NWE should be in a position to announce results of this to market mid-late Oct. Assuming it is positive, then farm out will take place, followed by drilling plan (per quarterly drilling has to take place by oct2010). I would guess that these two announcements would happen before end of the year.

Northern UK is one I'm least optimistic about due to the seeming difficulties in interpreting the data and the stated complexities. From speaking to NWE, a farm out package is being prepared now and any partners buying in will be announced later this year.

The rights issue has been underwritten by pattersons so this in parts some confidence as they would have done their due diligence on the company and reached the conclusion that the outlook is positive.

I believe management have done the best they can given the GFC, the puffin mishaps and the bad luck with Wisteria. While this rights issue is not ideal, they had no choice with puffin going the way it is. The positive is that they have been able to navigate their way through this and create two new opportunities.

The other concern I have is with their cash balance and being forced to tap the market again. The way I see it after liabilities their latest quarterly stated $600k or so cash. Add another $2.2m from the rights. Both TP/15 and UK if they go to drilling will involve minimal or no costs due to farming out. Obviously puffin is zero costs to NWE. So it would seem given stated exploration costs and current run rates they would have a year or so before they would need to go back to the market for more cash. By that time, we should well and truly know the results of these 3 opportunities.

The rights issue will create significant overhang but I see the potential announcements over the next 3-6months as possible of causing a significant rerating. Given the low cost entry, I believe the risk reward ratio is favorable.