2014

Hello All,

I haven't posted for some time but certainly have not taken my eye of the prize.

2014 will be a very big year for Armour. "Will" does not mean guaranteed success but does certainly mean a critical year in which Armour needs to position itself correctly.

I continue to believe all the global macro and domestic industry factors are in Armours favour. I remember the last great surge in share prices for energy juniors (QGas, Arrow, Pure, Sunshine etc) and it all started when the majors were coming to town and needed to put their thumb on supply before they could sign off on their respective LNG projects, such is the way of things. Premiums were paid as prime surat basin CSG was mostly and is tied up between Origin, Santos and AGL. As soon as the other players started cranking up their 2p reserves, that was money in the ground for BG,shell and co. They are not in the business of taking exploration risk when others can do it for them. So they started buying up these smaller companies.

Global energy companies spread their supply risk. Sure they can source cheaper gas from Kuwait and cheaper oil from Nigeria but they also need supply with lower sovereign risk. Australia has become the most expensive place in the world for them to do business and they are really pushing back now on costs but they need our risk profile and we have A LOT of untapped supply potential.

The reason I bring up this history is that I think it helps to explain what is happening now and what will likely happen in the future. Currently there are NOT enough 1p or even 2p reserves for the majors to produce for vey long, tough to say exactly how long but from what I read about 5 - 8 years given current trains. There WILL be a second round of M&A and it will be on a grand scale because the LNG terminals WILL need more supply, and I'm only talking Gladstone not potenital Northern Aust developments.

Now Origin and AGL have a problem in my opinion regarding the Surat Basin. This "Lock the Gate" movement is no little greeny offshoot, it's going to be real headache for them. So this puts a big ? on JV's with these guys not to mention problems for their own supply. It seems the industry needs a new frontier? It seems the majors would be waiting to see where and who can find success in areas without social and political barriers. I know I have rambled some but here is the punchline. Share prices in this space have largely done nothing because the Surat is too hard and no major discoveries have been made or booked to 2p elsewhere in Eastern Australia. There has been nothing yet to spark the 2nd wave of M&A and subsequently no look through value. Whichever junior gets it right will kill it!! I am certain of this!!

So we get back to Armour. Yes they have to sort out this years capex, yes they are still learning about the ground they are drilling but what junior energy explorer never had these issues, please someone tell me just one? I think the above picture I've painted is simply an exceptional environment for Armour to find themselves in. The risk reward here is spectacular and it is not being priced accurately by the current market.

Thanks for reading and best of luck to everyone in 2014!