pure metgasco, page-36

Gday SI,

you must be happy about the little pump that Blue has recently got from ASCI :)

To correct a small point, you said I didnt think they (MELs) were economic. It is more a matter of 'how commercial' they are. Its all about margins and there is no reason why anyone with good business sense would sink capital into something that was going to only give them marginal returns; returns nonetheless.

For example, solar (thermal or PV) capital investment is too much for the long drawn out return. I think MEL will attract capital as there is a clear opportunity for them in dogmas, electricity as well as picking up slack from the departing gas providers in the Surat. Why would they want to send their gas to Brisbane if they can get a better return on their resource by exporting it to the North?

Which company would I recommend?
Firstly, I am not a licenced provider of advice, nor am I qualified in geology or the like or have ever worked in the industry. I am just an average punter.


ESG, BOW, BUL and MEL....?

To be honest, they each have there +ves and -ves. Maybe the best indicating of weighting on them is to describe my holidings in them? Of CSG stocks I hold ESG (21%), BOW(51%), MEL(11%) and AOE(17%).

AOE
- in a pretty terminal phase atm and not much to say really. Holding for further action as well as diversifying to the industry drillers.

ESG
-they have SIGNIFICANTLY better flow rates than MEL, as well as the critical mass to get to those high value markets. they also have a significant investor in Santos.
-I think their risked upside is the same as MELs

BOW
-they are strategically very different because of their location. Right now they are in the eye of a descending storm and if AGL has an offer made on its acreage, then watch BOW fly. My end of year targets for BOW are still in the $2.48-3.31 range, and the movement in that range will be driven by their success from the 2P program at Blackwater. I think BOW is very well capitalised and supported towards having continued successes in their development and exploration program.
-I think they have the same ricked upside as ESG but a different set of circumstances driving its successes.
-interestingly, a move on AGL, would not be just good for BOW, but also put some shine on MEL because of AGLs NSW focus.

MEL
-MEL does have a bit of an potential x-factor with it at present and a much bigger upside than the others, however, the risks to getting to that upside are much greater. BOW and ESG represent a much lower risk profile to me. Hence, they make up larger portions of my portfolio.

BUL
-I think Blue has the biggest unrisked upside at present. The barriers and the time that it is going to take them to get there means I can be a patient investor and wait for them to acquit some of those risk factors before moving back in.

And if I can add some comments on your rationale:

1. Little to no water
This is only a +ve factor if they have the corresponding saturation in their seams as well as producability. Having dry coals I think produces a whole other set of technical challenges. Speaking to some guys from a company in North America they indicate that it is a bit of an art form. Is there such a thing as underbalanced lateral drilling (Huaneng???)?



2. Conventional gas possibilities
I think the well was only drilled with as a 4halfinch hole which limits their ability to drill to a deeper TD? I would hazard a guess that they will eventually announce some further drilling at KF or another site to better characterize the deeper reservoirs down there. It is pretty clear they are intently focused on testing this well before moving forward. I wouldnt be surprised to see them also consider using some shale gas production techniques if the reservoirs are too tight?

I am 100% with you on the conventional being where the game is at right now for MEL. I think there is only prospective value on that resource at the moment, that is until they can confirm production and reserves from the wells. This will have a multiplier effect on MEL as we can then also begin attributing value to the other conventional prospects. Signficant upside!

The leverage the gas pipelines and gas processing equipment will give you in terms of developing your much larger CSG resource could be significant. Again a multiplier effect as they are simultaneously reducing their capex barrier for CSG development. Better margins all round.



3. Selling off 50% of PEL16
Agreed absolutely.



What I am most focused on from MEL is the latter two bits you mentioned the farmout/JV and the conventional testing. They are both highly prospective.

I think the CSG option they have is excellent as it is already at an acceptable level of development (will benefit from export industry and carbon law) which I think underpins the current value in the company, rather than adds the massive upside potential that others have suggested. It really provides a low risk entry (with a MC of $143m) to massive upside with equally massive risk.

I hold and will accumulate more as their program is derisked. I am not currently trading MEL either. As far as investment goes, the get in early and get the upside definitely applies here. You wont see me sell BOW or ESG to get heavier on MEL though as I think their chance of success is better based on a better quality resource and other factors.

But, let me say it again as I said above, I am just an average punter. The only gas I am intimate with is the stuff I produce!!! Crass I know :(

Please DYOR.

Cheers,

SF