***overvalued now ~ !***, page-2

Graham,

I think you're being too harsh on the Coalition.

First, I agree about Hornet. It should never have been drilled ; they had oil targets in that PEL, and the gas should be left in the ground until all the oil targets had of been drilled ... but DHJ needed "success", even if it didnt lead to cash flow. It should have been Ventura and then Airacobra/Canberra.

Second, Ventura will provide some useful cash flow. 250 bopd should be sustainable, and at current prices thats about 10 grand a day to the Coalition (about the same as 5 mmcf of gas a day would get you). 15% of that puts a hell of a dent in ITC's admin costs.

Third, Ventura upgrades the area. We now know there's oil in the Namur in Squadron block, and have some pretty good clues that the Murta might be productive as well. Remember Christies-2 ... productive in a layer that Christies-1 hinted at.

Fourth, by my numbers, ITC has completed their buy-in, and is now paying even money.

ITC should have about $2.5m in the kitty, but lets wait till the next quarterly for that.

Does this justify a market cap of $15m ?

In this market, yeah, I think it does. After all, 113 has had one technical success for non-commercial gas, and one minor oil discovery ... lets compare that to, say, some of Beach's southern permits.

$1.5m worth of drilling at 15% is six drills, so ITC wont be the first of the Coalition to run out of money.

Ventura cash flow will also help stretch that pile of cash.

Finally, if the Coalition wises up and changes their drilling schedule to go after exclusively oil targets, especially in the non-Flight and -Formation sections of the northern PELs, they are likely to hit a couple of small, worthwhile oil targets between Fly Lake and Toolachee fields (same argument on these as on Arwon ... it hadda go thru there to be found). Sure, they are 0.5-1 mmbl targets, but dammit it's there, and putting $1.5m in the ground to get $7-10m over 5 years is a Good Deal. Yes, drilling the deep gas targets with Merlin's money made sense for the Coalition, but now it's on their own ticket, they should ignore the gas and go after the oil.

Am I going to rush out and buy ITC, RPM or ETE ? No.

But I'll certainly consider accumulating on any more weakness.

Ian Whitchurch