gore geochem

A quick clarification post in regards to the Gore survey as I believe some posters are clearly giving misleading information regarding its potential implications.

Now put simply the basis for Geochemical surface sampling comes from the idea hydrocarbons escape the structure via cracked seals, and then via different processes (ie pore pressure gradients, diffusion, buoyancy etc) rise to the surface and disperse over the potential target area. Gore states its sampling method reduces the risk of dry holes by 90%, however this does not mean it's a 90% (9/10) chance the well will be a success simply by applying the procedure. If this was the case it would basically be the holy grail of exploration!

First and foremost the structure needs to be defined through prudent geological/seismic interpretation and, geochemical sampling can then be applied as an additional non-critical tool to assess the presence of hydrocarbons once this primary interpretation has been carried out.

For a true representation of geochemical sampling a few other quick points that need to be know is:

1. Geochemical sampling alone does not prove nor have the ability to prove Johnstone being an economic discovery
2. Groundwater flows (among other things) can severely alter the trajectories of the hydrocarbon seepages
3. The sampling has the ability to entirely miss a seepage if spaced incorrectly, hence
4. Works best when calibrated to known nearby producing fields for optimum spacing and sample depth
5. The “grid” and pattern spacing is critical, and a misunderstanding/poor implementation can throw the ‘probability’ results
6. Magnitudes can be severely distorted and vary hence a threshold needs to be set to justify what exactly is classified as an anomalous reading
7. Anomalous readings via geochemical sampling only increase the chance of being vertically over a portion of the target. By randomly drilling in the fringe of the anomalous plotted area the increase in probability is around 10%, and by drilling directly over the “sweet spot” as defined by the plotted prospect banding results the probability increases to around 20%. Percentages are obviously diagrammatic pending the modelling applied.

One major issue I see with using Gore out at Johnstone is that the area is surrounded by potential salt layers thus leaving the doors open to risk of highly distorted results. Variables such as the permeability of the structure, salt and potential bacteria intrusions, groundwater interference and other environmental aspects etc all need to be assessed as they create more noise in the results. IMHO the application of Gore at Johnstone is simply a practice to test the presence of thermogenic seepages within the vicinity and may not even have a potential impact on the final drilling location (unless the results are that really that convincing).

Mind you the technique Gore uses where a geotextile absorbs traces of hydrocarbons is not new at all (geochemical sampling itself has been around for decades). Gore have simply refined the procedure with a technologically advanced geotextile and its method of interpretation with computer modelling. Mereenie and surrounding fields had sampling carried out many years ago, and if Trident are correlating their campaign for Johnstone to these historic results it may add more a little more weight – but I guess these “surrounding” fields are not exactly close so may prove irrelevant.

Generally Johnstone still holds a level of "wildcat" status (obviously not like Blamore or Simpson) however the risk has been reduced by having a few series of seismic campaigns carried out and extensive mapping/remapping over the years. The fact the structure falls within a known producing basin adds significant credibility but not enough for anyone to say it’s a 9/10 chance of success (as some posters here have made claim).

Just in addition to Johnstone, the NPV figure of $50 per share “conservatively” which I notice one particular poster pushing (the same saying Johnstone is a 9/10 chance of success) is also incorrect. There may be excessive speculation when/if oil is hit which will cause a rally, but suggesting $50 NPV is plain and simply wrong unless you make the assumption oil is worth $150 per barrel, and this is not conservative. Based on the current fully paid market cap (no options executed), being conservative at say $40 bbl all things equal, the figure is more realistically along the lines of $12.00 NPV and that said, a bulk in ground resource NPV is NOT a method of calculating shareprice performance. Without sounding like a broken record, true value will ultimately be calculated on production rates and NPAT with a PER applied and I’d assume it will be quite an aggressive PER.

Anyway that aside - Grange with regards to your question in the other thread, although Johnstone would provide near term monetisation through potential oil success, holders need to keep in mind that Ooraminna and Magee also provide this potential revenue stream aswell...... but indirectly.

I have always been a supporter of drilling for oil as opposed to gas targets but sometimes strategies have to change based on the surrounding circumstances and, if executed successfully they have the ability to deliver much better outcomes than initially expected. Johnstone is still a very high risk and expensive well to chase – IMO it would cost around $6-7m inclusive to drill this structure. Now given Ooraminna and Magee are historically proven technical successes they carry a significantly reduced risk profile and thus make them extremely attractive. Ooraminna in particular has further benefits again on the basis it’s a relatively shallow (c.1800m) and robust target of 1.9 TCF UGIIP, is cheaper to drill and easy to mobilise.

Put simply - Central has the ability to go out and re-test these less risky structures first which IMO would be a prudent move. If successful the shareprice could theoretically receive the much needed boost it requires, give the campaign further momentum and allow the potential of a c.$24m cash injection come June 2010 via holders converting their CTPOA. I doubt this figure will be overlooked as it potentially allows funding for a further 4-5 conventional wells, around 30 CBM’s or the purchase of the company’s own rig to accelerate the campaign whilst leaving the bulk of the $74m intact from the ACBO facility.

It really comes down to a strategic move – will they chase a higher risk and more expensive target such as Johnstone in the hope it will be successful, or will they look at previous technical successes that carry a reduced risk profile and are cheaper to test? If the company is able to get the options in the money, I’d see any significant and “free” cash flows as an opportunity to purchase a rig and accelerate the campaign. Current rigs in Australia just don’t cut it, especially to test the much deeper ie 4000m plays and I personally wouldn’t want to use Hunt Rig 2 to test Johnstone or Mt Kitty for that matter.

Must run, but all IMHO only and a little food for thought....