Objective View - I Hope

An injection of objectivity into the equation if I may:

$13.15 million owed by COI to Santos.

$8.00 million owed by COI to APLNG payable in instalments of $2.00 million PA – to be paid off in entirety should various ‘triggers’ occur.

$7.00 (ish) million COI has of available funds.

COI with 70% of main Mahalo Block – 100% of Mahalo North – 100% of Mahalo East. +++

COI’s Mahalo gas reserves 186 PJ of 2P – 321 PJ of 3P + working on Mahalo North gas reserves.

Mahalo North producing 1.7 MMcfd is a world class result for a single pilot well – with strong interest from users to purchase the gas.

COI management team has greater confidence in testing the potential of COI’s Mahalo East block (ATP 2061) – THIS WILL COST $$$.

Santos has until the end of this year to increase their percentage of the main Mahalo block to 42.86% interest in Mahalo at ‘pro-rate APLNG acquisition cost’ leaving COI with 57.14% but still there will be an $8 million loan outstanding to Santos.

Santos has the right buy into all of the Mahalo blocks up to 50% at a price to be agreed. This option I believe must be exercised by the end of this year.

So guys - COI has a shedload of in ground gas in one huge gas field that extends beyond the main Mahalo Block (COI 70%) into Mahalo North (COI 100%) and most likely continuing into Mahalo East (COI 100%) – that’s the good news.BUT COI needs a load of money to bring the existing in ground gas to production – to sink a well/s into Mahalo East plus and to meet ongoing financial liabilities – so let’s not be blinded by the recent FABULOUS result at Mahalo North which is better than any of us expected including our management team.

Where does that leave us shareholders/COI?

Should Santos exercise its option which if ‘done and dusted’ leaves Santos with a 50% interest in all the Mahalo blocks - this should provide COI with medium/long term funding requirements.

Should Santos not exercise its option – this leaves COI with 186 PJ of 2P – 321 PJ of 3P in the main Mahalo block + the reserves that will transpire from Mahalo North – BUT with limited funds to move forward.

So – What options does COI have should Santos not exercise their option?

Capital raise.

Capital borrowing against assets.

Farm-out JV with a third party – in exchange for a percentage of the Mahalo blocks – leaving COI with cash or a free-carry to production.

Sell Company/Mahalo block interests to a third party.

Those are the options as I read the situation.

Personally I can’t see Santos wanting to JV with COI to production – nor can I see Santos wanting to lose out on a percentage/all of the Mahalo block interests to a third party when they have ‘first dibs’. So to me - the only logical outcome to this evolving situation is for Santos buy out 100% of all the Mahalo blocks plus most likely COI in entirety.

The only question is at what price and when?

The only way to achieve what the shareholding majority will see as being an acceptable figure – is for our management team to line up realistic alternatives to Santos which will put COI in a stronger negotiating position. Without alternatives – us shareholders/COI are on the back foot.

Not meaning to throw water on the flames of excellent news – and the Mahalo North result couldn't have been better - but it doesn’t harm to look at this situation from outside of personal involvement as a shareholder – in my case investing in COI for at least as long as ‘Old Signie’ – and that’s a long old time!

Good luck all…