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Recommendation Speculative Buy
Overview
TEX is participating in the drilling of Snapper A2 (25%) in the Section 28 Field, St Martin
Parish, Louisiana. Drilling of the well is about to commence and is targeting a potential 1
million barrels of oil (mmbo) and 1.45 billion cubic feet (bcf) of gas. Should the well be
successful it has a potential value of $0.15 per TEX share. The well follows on from the
successful Snapper A1 (25%) well that the company participated in earlier in the year. That
well outlined recoverable volumes of 0.61 mmbo and 2.25 bcf of gas and is now in
production at a current rate of 1.3 mmcf of gas and 5 barrels of condensate per day.
Snapper A1 intersected approximately 11.9 metres of potential pay in four separate zones.
The well is currently producing only from the deepest of the four zones.
Since listing in November 2006, TEX has participated in the drilling of four wells. Three
have been successful and are now in production outputting a combined 1,860 mcf of gas
and 5 barrels of condensate per day. This equates to monthly cash flow of around $70,000
to the company based on its 25% interests.
In addition to Snapper A1 in Louisiana, the company participated in the drilling of three
wells in Colorado County, Texas. The first, Kant (25%), encountered sub-economic gas
shows and was subsequently plugged and abandoned. The next well, Thoroughbred
(25%), encountered gas charged sands at a depth of around 1,300 metres and is now
producing at the rate of 300 mcf of gas per day. Following the drilling of Snapper A1, the
company participated in the drilling of a third well in Texas. Garwood (25%) encountered a
number of gas charged sands of which the lowest has been completed and is currently
producing at the rate of 260 mcf of gas per day.
TEX has focused on established areas in the United States that have a high level of
activity. Texas and Louisiana, the initial operating areas of the company, are well
established petroleum provinces that consistently yield new discoveries. Due to the
pervasive infrastructure, the discoveries that TEX has participated in have been quickly
brought into production to feed a strong gas market, which has gas prices substantially
higher than those in Australia. TEX has chosen what it believes is the best available
prospects that were available from reputable operators with a demonstrated track record of
success. All of the prospects that the company has selected are mapped on 3D seismic
and are close to existing infrastructure.
In addition to Snapper A2, TEX plans to participate in the drilling of a further five wells in
Louisiana before the end of 2007. Three of these: Bayou Berard (15%), Parks North (10%)
and Snapper A3 (25%) are on the flanks of the same salt dome that produced the
structural trap upon which Snapper A1 was targeted. These three wells are targeting
potential combined recoverable volumes of up to 2.65 mmbo and 30.42 bcf of gas.
The remaining two wells will be drilled in Acadia Parish by operator Aspect Energy who
has participated in over 300 wells, with a success rate of 61%. Teche (10%) is targeting
between 11.3 bcf (P50) and 22.4 bcf (P10) of gas and Bandito (15%) is targeting between
20.3 bcf (P50) and 42.3 bcf (P10) of gas.
All up, the six wells to be drilled before the end of 2007 are targeting up to 3.65 mmbo and
condensate and 97 bcf of gas equivalent. The potential upper net value of these wells, if
successful, on a cents per TEX share basis are: Snapper A2 ($0.15), Teche ($0.12),
Bandito ($0.23), Bayou Berard ($0.15), Parks North ($0.14) and Snapper A3 ($0.15).
The company maintains an option to participate in the drilling of the Berwyn (10%) well in
Assumption Parish, Louisiana. The well is targeted at potential recoverable volumes of up
to 272 bcf of gas and 5.44 million barrels of condensate which collectively represent 305
bcf equivalent of gas. It is proposed that the well be drilled from a barge mounted rig in
Lake Verret where water depth is approximately 1.8 metres deep. The partners are
currently attempting to reduce anticipated drilling costs before committing to a
commencement date. A success at the upper level of potential would represent net value
per TEX share of $1.63.
Snapshot
Last Price Last Price
Market Cap (m) Market Cap (m)
52 Week High 52 Week High
52 Week Low 52 Week Low
Sector Sector
Investment Fundamentals
Cash reserves $5.2 million
Shares on issue 68.0 million
Options on issue 34 million 25 cent listed
6 million 20 cent escrowed
Directors Didier Murcia (Chairman)
Laurence Roe (Managing)
Michael Martin (non-exec)
Paul Lloyd (non-exec)
Major shareholders Laurence Roe 7.35%
Price Chart
Business Description
TEX is currently focused on building a hydrocarbon production
base and cash flow from prospects in Louisiana and Texas.
The company aims to balance low and medium risk drilling,
designed to build a revenue base, with higher risk and higher
impact drilling that has the potential to add significant value.
The company is actively targeting expansion of its interests to
include further states in the United States and also other
countries.
Analyst: Paul Gooday

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