panic sellers, page-4

Tolhurst report from this morning......

MEO shares sold off into the mid 20-cent range this morning. We are now back to where we were 18month ago in terms of the share price. However the company has made a massive progress operationally over the same time. Exploration, appraisal – and at times even production drilling are high risk, expensive activities and our High Risk rating is a reflection of that.

That Epenarra failed to flow gas to surface does not mean that the structure will not flow when tested under optimal conditions. That Plover test could not take place at this location does not mean there is no gas in Plover nor that it would not flow. While clearly disappointing – and the share price action very much reflects the disappointment, we suggest that in valuing MEO at under $100m - as current price suggests – the investors are acting emotionally rather than rationally. The company has circa $60m in cash (or about $0.16 a share), with a rig slot and a partner (Petrofac) in place to continue the appraisal drilling. We remind the investors that the Epenarra structure has in excess of 1000 sq km aerial closure – given this size one single well can not answer all the questions.

In face of such a dramatic price collapse, we can only reiterate the facts and the facts are that the company is sitting on two approved gas-to-liquids projects, and on a significant potential resource. It has funding in place for the next appraisal well. While the latest results do not negate the potential of the gas resource, they clearly add time before the resource is confirmed and clearly the company will need to seek more funds for additional drilling (beyond the next well).