all is not lost

But it is yet another kick in the guts.

Heron South

In the technical presentation at the AGM, DM did indicate low mud loss in the Elang Plover at Heron South(HS) which now confirmed by the low permeability and flow rates.

MEO were expecting higher porosity at HS so is it just a HS1 location problem or will the whole Elang/Plover in this area be tight?

The High CO2 is a surprise. This indicates older drier gas which may mean that the Elang/Plover reservoir at HS may have been isolated for some time.

Another indicator is the thick shale section, which was not so evident at Heron North, could be acting as a seal.

The indications were that the Elang/Plover was actively being fed at HS but other theories will need to be looked at by the G&Gs.

The fact remains that the Elang/Plover will not be naturally productive in this part of HS but the CEO indicates that they will be looking to see if there will be any variables in reservoir quality across HS.

Alternatively the JV will need to decide if there is enough gas in the tight sands to warrant stimulation.

We will have to wait and see.

The upper section in the Frigate sands still has to be tested. This will be able to be tested more thoroughly having a 7in liner in place and the use of TCP guns. If there is a better reservoir quality here then a 115m column of productive sands should keep Eni interested.

I expected this section to be high in CO2. I hope I am wrong but, again, we will have to wait and see. We will have the result in a few days.

Heron North

What this means for Heron North is problematical. The narrow section MEO were able to intersect was also tight. MEO indicated that the Elang/Plover gas at HN was low in CO2 which adds to my theory that HS is an independent reservoir. HN is possibly closer to the Graben feed. Is that feed from below?

Until the Plover is fully tested at HN the reservoir quality will not be fully known. It is up to Eni to decide whether or not to drill H4 within 60 days. They will certainly know what to expect there with 100+ days experience at HS1.

The Plover composition at HN may be different and, with a more stable well, be open to better testing.

Blackwood

This is not on the agenda in today's releases but it must be remembered that Eni will most likely (not confirmed yet) drill Blackwood 2 in 2013, even if they decide against H4.

Eni would have included Blackwood in the farmout should there be problems at Heron.

Having shot more seismic than was required in the farmout agreement Eni have indicated they are serious about locating whatever gas there is in NT/P68 to underpin, IMO, the Tassie Shoal projects.

It would be a neater solution for Eni and MEO to have sufficient gas in their own right to get the projects off the ground without having to resort to third party gas. This eliminates immediate negotiations with third party permit holders.

MEO have estimated sufficient gas in Greater Blackwood (prior to the Eni 3D shoot) to underpin at least one TSMP Methanol module.

Gurame SE-1XST

This is a better result for MEO, who hold 100% in the permit.

High background gas was encountered in the Lower Boang shale with natural fractures in the upper Belumai sands. This indicates two reservoirs of similar quality (permeability). History of the wells drilled in the area show good flow rates can be achieved provided care is taken.

They do not mention the Belumai carbonates but appear to have reached them on the graphic so, hopefully, they will be logged along with the Belumai sands. We will have to wait for the results.

The primary target was the Boang formation which, hopefully, has enough recoverable gas to allow early production.

The Boang will also be production tested within the next few days, hopefully with better results than the Elang/Plover at HS1.

MEO must be cautiously confident by raising the funds to complete a production test but there are no certainties in O&G exploration.

After the initial HS1 result we may be pleased with MEO's decision to drill Gurame alone should we have a positive show there.

The SP

Of course, with negative news, the SP will be torn to shreds. It is the nature of the market. A number of SHs would be looking at Heron South alone to be the making or breaking of the company but it is not he only iron in the fire, as we have discussed before.

MEO has failed to deliver so many times before so it is is not surprising that some jaded MEO investors may say enough is enough.

Of course there will be those who say "I told you so" but this is the result of only one of three production tests being undertaken, and there is also a well being drilled in Thailand, even though this has a low COS.

Nobody knows what is in the ground, even the big companies like PBR and Eni can get it wrong so to pull MEO management apart for a lack of success is a bit harsh. We have discussed why there is a need for CR exercises before but, basically, it is to keep the company going. Whether that is for Seismic, drilling, wages, whatever it is just sound business management. The detail we need to look at is the in the viability of a company's business plan.

What we need to look at is the potential upside of the company. The get rich quick will still be a little way off.

Even with a successful test at HS1 then the SP would still have been in the hands of traders but what today's events have meant is that there are those who are picking up cheap MEO shares with a definite potential upside from here.

My take on the situation

Like all other MEOmites I was hoping for a better result at HS1.

Also, like many other LT holders, I have a partner who keeps on asking "are we rich yet".

My answer is that we haven't found the gas just yet but we have discussed that this is a long term investment and we must put our trust in the management team to minimise the potential losses. Luckily I have a partner who puts her trust in me.

I have held MEO for many years on the basis of Tassie Shoals being a neat solution in the area. I have always said what we need is a supply of gas. Whether that comes from Heron, Blackwood, Evans Shoal or a third party permit in the Bonaparte region still remains to be seen.

After previous bad news we didn't have a fall back plan. This time it is different because, apart from NT/P68 not being done with yet, we still have Gurame, Thailand and the WA454 farmout to come in the near future.

MEO has always been a long term investment for me and nothing has changed my sentiment, especially at today's prices.

I am disappointed but not devastated.

All is not lost.

#:>))