pure metgasco, page-32

Hi Seam,

I was glad to see a couple of posts back that you acknowledge that MEL is undervalued, as going by a few of your posts on MEL I queried why you "held stock" with a "buy" recommendation... as sometimes you seem to heavily doubt the validity of Metgasco's coal seams or at least their ability to flow gas economically from them.

So, if I put you on the spot and asked which company you'd recommend at this point in time out of say, ESG, BOW, BUL and MEL, and why - I'd be most interested in your response. For me, it's simple - MEL - and that's the way my portfolio is weighted, because I believe there is a substantial upside to this stock that the market is not remotely pricing in at the moment.

I agree with you that MEL is no PES. That is not a like-for-like comparison as you draw attention to - the major differences to me being location/location/location, market for their gas, and as you have pointed out - permeability. To me, that (permeability/flow rates) is the final piece in the puzzle for MEL to finally get some recognition - and it is the reason that Metgasco is so heavily undervalued IMO.

They have reserves that rival BOW and ESG (and PES) but their ability to produce the gas economically is the concern for me. However, I believe that in due time it will be commercially viable via drilling/laterals/completion techniques, and hence the reserves they have do have a substantial value that is almost unrecognised at the moment. Also, there are multiple possible positives, and/or game-changing scenarios with MEL to consider when compared to others in the sector, (plus it's sitting on a dismal market cap when compared with those other stocks).

1. Little to no water
I have worked, and still do work, fairly closely with a few of the players in the QLD CSG realm over the last few years and water management is now almost the flavour of the month. I must admit, that I saw it as a concern to the CSG market moving forward as the RO plants and Water Amendment facilities are a reasonable expense that has to be factored in, and bottom line is it will impact on margins. So, the fact that MEL don't have water issues may be a concern to some people given that it's non-standard for CSG here, but I see it as being a bonus in future (plus less time de-watering before start-up obviously).

2. Conventional gas possibilities
I think I'm right in saying - Kingfisher was the first well that they put in past the 1300m mark to a nominal depth of 2100m. At about 1300m they flowed 900,000 scf/d and at 2050m they flowed 2.97 mmscf/d from 5.3m (3.7m of 30.3m net pay) in a 15 hour test. There was still no gas/water contact - and a gas kick beneath at the target depth where they finished drilling so possibly more gas deeper?
Those kind of flow rates from a single well dwarf the flow possible even from multi-lateral wells in CSG, and I can't wait to see the "conventional" play unfold. They have 21 leads/prospects, and if they can convert those into successful drills - as it appears they have on their first attempt - what value could we put on MEL's reserves then? Could Kingfisher and Mackellar be a linked field via a mid-basin high as suggested in a recent presentation - what size field/resource would we be looking at then?

3. Selling off 50% of PEL16
I think a partner for developing their assets will change the whole game for MEL. And to me, this piece of the puzzle could come together at any time which is why I find it hard to even hold a trading parcel of MEL - I just keep adding for long-term. They have been talking about working towards full field development recently which will obviously be a substantial cash drain, so signing a deal including participation in upstream/downstream would be a sensational development and I so I eagerly await a result here.

I guess I could go on - but I follow your posts on other companies threads and so I know that you are already intimately knowledgable about most things to with the industry, but I guess I'm just questioning what it is that you think MEL have to do to gain credibility/recognition within the industry.

What are you most looking forward to seeing from MEL as a holder? Flow-rates from their CSG? Development of their conventional resources? Partners/financial support?

Thanks in advance if you find the time to respond.