I agree with mn and 1bp that PSA is likely to trade sideways for...

I agree with mn and 1bp that PSA is likely to trade sideways for a while but I suspect that it will do so only up until the Vermilion wells come into production in six weeks time.

Then when the new daily production rates (30-35 mmcf a day according to Ross Keogh) are announced maybe the market will sit up and take notice as it did when the West Cameron wells first produced.

Then there is the drilling program in the second half of this year with the first well targetting one of the already discovered shallow sands which extends into one of the newly acquired Vermilion leases

(The reserves in this sand are not included in Ryder Scott's estimate of the Vermilion reserves. They limited their estimate to what was in V 258. This partly explains the discrepancy between Ryder Scott's reserve estimates and those of Petsec in the annual report)

So the first well in the program is an accelerated development well and will enable the company to target optimally their access to the sand. To go to the extent of drilling this well signals that the company believes it is a profitable thing to do. This could add up to an extra 10 mmcf a day to production i.e taking production for the last quarter up to 40-45 mmcf a day.

Then it is on to the three programmed wells at Vermilion B which will be drilled from the Vermilion A platform and can be drilled without disrupting production at the platform.

In fact Fern said that they can complete the first well as the other's are drilled given the new drilling technology they are using (slim hole monobore technology ie. no need for production casing or expensive rigs to do completions and faster and less costly wells) This is the same technology used at West Cameron.

If the Vermilion B wells are sucessful they will be tied back to the Vermilion A platform so there won't be much of a delay bringing them into production.

If Main Pass is awarded it will be drilled in December/January (three wells). Problem here is that it is taking a long time for the MMS to award the lease so PSA's winning bid must be pretty close to what MMS thinks is fair value for the acreage.

If the PSA winning bid is not accepted it will go back into the pot for the next round of bidding. For this reason PSA was reluctant to reveal what they think they have at Main Pass because they may have to bid competitively for it again.

Some may see Petsec as lacking any big targets and therefore deestined to remain a small player. But that would be to misunderstand Fern's risk averse, highly conservative path to growth.

Fern was quite upfront in indicating PSA would continue to pursue the shallow, normal pressured smaller GOM sands with targets in the 5-10 bcf range and stay away from the high risk deep, high pressure plays (Novus has just bombed out on one of these and is the reason why High Island will be given back to the MMS)

Fern' said his immediate objective was to create a $250 million company and thought he could do so using the current growth strategy.

Fern expected gas prices to remain high and cited the fact that summer demand for gas was fast catching up with winter demand which would put enormous pressure on gas prices in the future. As it was demand currently outstripped supply and this situation was only likley to get worse.

Fern said industrial demand was growing rapidly (ie. electricity production) and a lot of new population centres were spreading in the south of the US where it was hot during the summer putting additional pressure on airconditioning).

Fern also said the huge computer centres required by internet related companies were also putting pressure on airconditioning needs as these complexes need to be be kept cool.

Fern said there were still plenty of leases available in the GOM for companies of Petsec's size. These were leases that were of no interest to the bigger US e&ps because they weren't large enough.

Petsec has a large data base, one of its best assets, and has managed to attract back one of its bests geos with knowledge and direct experience of Petsec's earlier work in the GOM.

The company has also been able to recruit some good staff made redundant by the big oil company mergers and who didn't want to leave Lafayette as a result of the big mergers moving their operations.

Fern also said that drilling activity in the United States failed to reflect the new reality of high oil and gas prices. This was a legacy from the late 90's when prices dropped so precipitously and some 80 companies went to the wall (as Petsec itself virtually did). People in the industry remained to be convinced that higher prices were here to stay. Consequently there were still some 25% of drilling rigs idle in the US.

I think the seven of us who went off to lunch after the AGM were pretty happy with the story so far.

One of the reasons for the markets failure to fully appreciate the cash flow is that few analysts follow PSA because it operates in the US and chases gas. A lot of analysts don't understand gas and those that do seem to think that the US market is just a bigger version of the AUstrlain market. It isn't. We are gas rich in Austrlai the US is gas poor.

Lastly and I apologise for the long post, I am staggered at the toal lack of media interest in Petsec. None of the mainstream media covered the AGM. This is partly a fault of the company but perhaps it reallt doesn't matter that much as a good story will be picked up eventually. At least there are some in the company who think they ought to be doing a bit more self promotion. That said Fern, Keogh and others made themselves available to answer questions until only miningnut was left. You don't often get that sort of cooperation from company execs.