a look into the future.....

As miningnut has pointed out there is still some bad news to come for Petsec this month. First half result is likely to be negative. The company will report in the last week of August.

But according to Keogh's presentation in Denver, the outlook for the full year is still for a profit of between US$5m and US$9 m compared to US$13 m last year.

The final result depends on production and prices in the second half. The outlook for production is OK one would have thought with Vermilion's two wells online and West Cameron back close to full production. They should also get a production boost from the development well to be drilled in September which could add 3-4 mmcf a day.

Natural gas prices are a bit of a wild card in that despite a cool summer and comfortable storage levels the price remains stubbornly high by comparison with historic levels. And this without any supply disruptions such as a hurricane or two (though that may be about to change).

With natural gas demand increasing in the US (especially for power generation) and supply decreasing I can only see further upward pressure on prices.

The China joint venture will be reporting soon on the future of the Beibu Gulf and the question is will they decide to walk away or develop the fields they have?

If the latter then Petsec will need to decide whether to stay with the JV or sell down its interests if they can. If they decide to walk away then there is another well they have to write off. China has been an unmitigated disaster for the stock. Why didn't we listen to "old man river"!!!

It remains to be seen whether Vermilion East and Main Pass will be drilled in September and December respectively as currently scheduled. I am getting very used to slippages in drill schedules and I think these two projects will fall behind as well. It is getting more difficult to contract rigs in the GOM and day rates are rising.

The Vermilion and Main Pass targets are low risk stacked sands so you would have to give them a good chance of bringing both into production. Vermilion East wells should come on line in first quarter of next year and Main Pass in the June quarter 2005.

So I think from the next half things should only improve for Petsec but as shareholders we are going to have to be patient. It will probably take another 12 months to get the shares back to this year's highs which reflected the high expectations of a successful China program. (I think the capital raising before Christmas was really nothing but a punt on China!!! )

One of the issues I think the managment needs to address is the lack of Australian institutional support for the stock. This is reflected in the the very small trading volumes and size of average trades which is less than $5,000.

I guess this is due to the bad experiences insto had in the late 90's when Petsec must have torn gaping holes in more than a few portfolios. It is hard to win people back to the stock after those sorts of experiences and even harder I suppose when instos look at the volatility of the stock this year.

But I have listened to a number of Petsec's fellow presenters at the Denver conference and very few of them seem to me to offer as much upside going forward as PSA. And very few of them have such a clean balance sheet ie. no debt.

But without insitutuional support the share price is prey to the whims of the traders who are pretty good at moving it up and down and making a buck out of those whose frustrations with the stock's volatility and management's attitude to investor relations has led them to lighten up whenever there is some strength to sell into.

Of course what we don't know is what the next deal might be. I had thought that Petsec might see if they could make something out of Chevron's declining but once huge gas field to the north of Vermilion 258 but with gas prices as they are the price Chevron is asking is apparently exorbitant. But interesting nevertheless that Petsec appears to have made the enquiry.

I suspect there may be other prospects on PSA's newly acquired Vermilion leases that are being assessed for future drilling but that is purely conjencture on my part. It is based oopn the decision to build a potentila 60 mmcf a day production capacity into the Vermilion platform.

Be grateful for others views and assessments.