Ann: WGP: WGP ROC JV Update , page-3

Extract from WGP Website:

Offshore Oil & Gas, Western Australia

Westralian Gas & Power holds a 50% interest in two offshore petroleum permits comprising 4530 sq km in the Vlaming Sub-basin ranging from Rottnest Island to Mandurah. These are strategically located west of Perth and in close proximity to the Kwinana nickel refinery and industrial district.

The permits (W05-21 and W05-22) are described by the WA Department of Industry and Resources as having “a petroleum system present” with “seismic data providing further evidence of a potential active petroleum system in Areas W05-21 & W05-22, with an apparent gas chimney imaged”.

A geological appraisal of the existing data demonstrated the permits have considerable merit in comparison to similar prospects in other parts of the world. As a result, WGP and its joint venture partners signed of a $37 million heads of agreement with ROC Oil (ROC) in September 2007, assigning it the rights to explore and drill two wells in two offshore petroleum permits.

ROC Oil has significant offshore exploration skills and is the ideal partner to move the project to the next phase. Under the terms of the agreement, ROC has acquired a series of three options that can be sequentially triggered by funding a three staged work programme. ROC is currently carrying out the first exploration stage to acquire an initial 20% interest in the two permits and be appointed Operator, by fully funding A$2 million of pre-seismic exploration activity.


It is ROC’s current intention to also commit to the second earning stage whereby it will acquire an additional 20% interest in each permit by funding 100% of a A$5 million 2D/3D seismic programme. If ROC proceeds with the third earning stage – the funding of 100% of a well in each permit up to a total cost of A$15 million per well – it will earn an additional 40% interest in the permit in which the well is located.

On this basis, if ROC exercises all its options it would acquire 80% interest in each permit for a total cost of A$37 million. The agreement with ROC Oil has considerable merit as ROC has a wealth of experience in exploration and production within the Perth Basin. Westralian Gas & Power is now positioned to gain a free carried interest in production without expenditure. This enables WGP to further develop its diversified portfolio of interests.

ROC Oil is carrying out a project evaluation through a series of data studies to determine field parameters for an exploration program. Initial review of an electrical survey has been completed, analysis of core samples from Araucaria # 1 well using neutron tomography was reviewed, and further work is in progress with the aim of delineating high-grade prospect targets.

Source:
http://www.westraliangasandpower.com.au/offshore.htm

I think the withdrawal is probably positive. After spending the A$2M on the first stage pre-seismic exploration activity, ROC probably though it was not worth spending the additional A$5M on seismics or A$30M on drilling on the permit. I think the fact the WGP only has a market capitalisation of only A$5M is a good indication the market does not think the permit is worth much.

Combine that with the fact that ROC has reduced this years exploration budget to only $10M and that they are expected to particpate in drilling of W351P in 2010, I would think ROC has higher priority use of its funds than spending any further money on this permit.

Regards

SP