Ann: Drilling Update Sugarloaf Shale Gas Project,, page-6

re: Ann: Drilling Update Sugarloaf Shale Gas ... Pisces,

thank you for those kind words.

The best guide for valuation of EKA against AUT is possibly provided by the NPV10 valuations of the wells in the different acreages calculated by GMP Securities (AUT broker).

Using their table of broad well classifications, an AUT price of 329c suggests an EKA price of 54c. Now that both companies are fully cashed up for the 2012 drilling programme, that is a reasonable comparison for the prices based solely on Sugarloaf NPV for EKA but there are further things (apart from PdA and Brioche) to take into account:

1. AUT is an index stock (and dual listed) and will command a premium over AUT.

2. I have not made adjustment for the potential dilution for the MacQuarie options/warrants because we have no details yet.

On the other hand, the acceleration of drilling on Sugarloaf coupled with the focus (deduced from MRO conference call comments) on the northern region of the acreage that yields high levels of liquids at high flow rates, will skew GMP's NPV10 valuations further towards Sugarloaf because the NPV discounts will be reduced by the accelerated development (and the EURs are greater for the wet gas/volatile oil wells).

But that is before PdA and Brioche, the undoubted wild card in the pack.

PdA will be easier to value once GeoResources gives an update to its shareholders. It is trialling a new frac design. If PdA is valued at the rate of 80% of Sugarloaf (figure plucked out of the air) PdA could add a further 20c or so to EKA at current AUT prices.

Brioche is all speculation. If it is valued just at the rate of 25% of Sugarloaf, it could add a further 40c to EKA's price at current AUT prices.

Thus, based on those assumptions and relative NPVs before taking account of the premium that AUT commands as a dual listed index stock, EKA might be worth 110c - 120c.

That is in line with a views expressed by other investors of EKA being worth over A$1.

That is all based on NPV10s assuming 80 acre spacings, previously assumed flow and decline rates and ignoring the Chalk.

GeoResources have made specific reference to the chalk in Fayette county, so PdA could be revalued upwards in line with Sugarloaf taking account of the closer spacing and the chalk reserves.

In its current corporate presentation (slide 17), GeoR refers also to the Austin Chalk in Burleson and Washington (where Brioche is). It hasn't drilled but its focus is on "growing acreage and production in liquids-rich areas of play".

Difficult to say much but the company is there and it was with GeoR that EKA struck a lease sharing arrangement for Black Jack Springs. Don't draw too much from that but ....you never know.

This is all very speculative.