agm outcomes

Ok ill try and get all my thoughts out in a clear and concise manner.

All in all i am very excited about the future of this company and if they can even 50% of the way towards their targets all shareholders will do very well.

PSC Renewal: From all account TEG will have the renewal contract on or before March 2011. They have had a verbal okay but have been told that the contract needs to be resubmitted in the same document format as the recently approved Medco renewal(neighboring block and production). This renewal also fits in with the time frame for the end of wet season and the start of the work over program. BPMIGAS have agreed to next years work programs and the costing of both civil and well workovers, so in essence this would not have been approved unless the PSC renewal was forthcoming.

As a side note Governor of Aceh was once a freedom fighter responsible for much of the past uprising in the area. TEG are in touch with the community and are funding schools programs and healthcare clinics with medicine as well as employing 55 local people as labor hire. The company seem to be doing the right thing by the community.

GAS Production and Sales: Current gas production has dropped of to between 5 and 6mmcf/d with increased water production. I asked the drilling engineer if this was expected and he said yes but they did not know when production would decline and he also commented that until they complete the work overs production would be low. Work over on A1 should be completed by April and this is currently flowing about 3.5mmcf/d, they expect this to flow at least 20mmcf/d once complete, in the past it flowed at 60mmcf/d. Workover on A2 is where all the excitement should be.

A2 was drilled and a well head attached back in the early 1990's. It was flowed at 60mmcf/d and still has gas leaking from it as you can see in the pic. The well was never connected to the main pipeline as it is 2km from the production plant and at the time workers had to drive around in Armour plated landcruisers to avoid being shot at. Needless to say security concerns would not allow a pipeline to be built to this well. As it stands the well has been plugged with concrete and this needs to be drilled out. During the workover new smaller stainless steel sleeves will be inserted to better control water production and silting. The team believe that there is no reason that this well will not flow 60mmcf/d.

A third well will be drilled adjacent to the existing A1 well(page 30 of the preso)and this if successful will be connected directly to existing production facilities.

All contracts have been prepared and a 1000hp drill rig secured which will be ready to move in March.

I spoke to John Towner at length and was told the following.
TEG is aiming to have at lease 100mmcf/d by the time of the next AGM. Each 10mmcf/d equates to $50,000 extra revenue per day. Current costs to run the facility are approx $500k per month. Workover program and connection of A2 to main facilities will be about $2-$3m. TEG intended to continue to pay a dividend and their dividend payout policy should be about 50% of profits, with the remainder used for exploration.

Simple maths says that even if TEG can demonstrate stable flow of 50mmcf/d this would equate to $250,000 revenue per day or $90,000,000 per annum after revenue split to Indo government of 68% leaves somewhere in the vicinity of 50-60m depending on costs. This on a PE of 10 would value to company at about $500,000,000 or about 30cps. John Towner also commented that none of the directors are sellers and they control about 80% of the shares, they are all happy to receive dividends. He made on last comment that was: by 2015 his aim for the company was to have revenues of $500,000,000, i took this with a big grain of salt, but im just passing on what i was told.

GAS Sales: At present the Arun LNG has 6 trains available for processing gas and only 2 are running due to limited supplies, while the Aceh Fertilizer plant is running at 15% capacity due to gas supply constraints. In essence there is a massive market ready for more supply.

Exploration: It seems TEG has scored a real coup by securing the exploration manager Joseph Oravetz who comes from 20 years working at Exon Mobil. See attached for details http://id.linkedin.com/pub/joseph-oravetz/12/221/790.

He seemed extremely exited about all the prospects of the area and spent time on the geology and geography that lends itself to significant further gas discoveries.He touched on the lack of drilling and the potential for further gas in the deep Meta Sediment Basement formations. PASE C1 ( p45) found 1203 feet of pay, however the formation was too tight to flow, so they will look up dip and try and fund a more fractured area that is conducive to better flow rates.

The Future: The companies key concern for the next 12 months is to get 3 wells flowing at least 100mmcf/d and then look at 2012 for a kick of of a large exploration drilling campaign.

Thats all i can think of for now. I look forward to everyones feedback and the interesting next 12 months.