so where to from here?

After today’s disappointing (yet probably not surprising) share price behaviour, I’ve tried to again piece together what is going wrong. The conclusion I reached was the same as when I first read this week's update, failures are continually being swept under the (ever bulging) rug but materially nothing has changed and most importantly (to me), the delays are deeply concerning as is the unpardonable handling of the information flow.

Last year, CVN repeatedly lead us to believe that they could achieve a 3000 BOPD target by end of December 2012. The importance of this target is that most of the increase would have flowed directly to CVN’s bottom line, $36m in net cash flow per annum. This is clearly more than bread and butter, its a substantial business.

The 3000 BOPD target was to be made up of 1400 from existing production, 500 from the shut in ALRO wells, 800 from coordinated development (and water flooding) of the WBEXT 1b Fault Block and 300 BOPD from the volcanics. Furthermore, we have all been awaiting the all-important “Oil Development Plan”, the holy grail of Towngas’s contributed wisdom.

There are several things made clear in the latest update, some from explicit discussion but true to CVN form, most of it from complete omission:

1) Underlying production is falling but remains around 1200 BOPD (thanks IceyDoctor)

2) Half of shut in production has been restored but the issue is now revealed to be somewhat more sinister than simply a paperwork issue and centres around a dispute over the rights for the oil itself. In a regime like Thailand this is clearly a greater concern than we were lead to believe, but maybe it will be resolved. 200-250 BOPD is not immaterial but nor is it the main issue.

3) The volcanics have simply been ignored. Based on CVN’s dreadful form, its probably safe to assume this program was a failure, or there would be more comforting nonsense. CVN previously trumpeted that this program reflects revised technical work undertaken by Towngas. I also acknowledge that the failure of this program was successfully predicted by posters here.

4) The fabled ODP rates no mention at all, so perhaps this is to be handballed to Schlumberger, or more likely any form of strategy and targets will simply now be abandoned.

5) This leaves finally the most material contribution, the 800 bopd from the sandstone development. This was to be completed by our operator last year and now we discover that it doesn’t appear to have even started. Nor does it appear to be as straightforward as first thought, although the oil is evidently there, its just contained in more, thinner intervals. Whilst the big capex has already been expended, we now simply have to wait 6 months longer for a result than we were told.

If I had to revise the target based on this information, by June we should be looking for around 2000 BOPD, assuming some success on the sandstones, continued natural decline and some success with the remaining shut in ALRO wells.

This still represents material cash flow to CVN to underpin the larger company making plays late this year and early next year. This strategy of funding day-to-day expenses whilst chasing larger Joint Ventured targets remains a valid business model (NEN, PSA, CUE are a few oilers who spring to mind).

I have concluded two things from all of this: The Thailand asset is becoming increasingly less likely (in my opinion) to be the company maker CVN has lead us to believe but will remain a material source of revenue underpinning a much higher valuation than is currently the case.

Secondly; CVN share price is unlikely to rise under management who cannot honestly and competently handle the information flow to the market with anything remotely resembling integrity.

I haven’t said anything new here that hasn’t been said before, but I feel better for getting it off my chest. Like many of the posters here, I wont be selling at these levels but I wont be buying any more either.

Last year we bounced off 5c in anticipation of the development program which we still dont know the results from. Bit hard to do that again.

G’luck