Ann: Nido Secures Dragon Oil as Farmin Partner to, page-28

re: Ann: Nido Secures Dragon Oil as Farmin Pa... Strat, I reach a similar conclusion with slightly different workings.

On the cost of drilling…

Baragatan – previously 12.5m on a 50% WI
Assuming a 20% final WI, Nido pay 2mUSD of a 25m USD well. Then, if we take in to account the back costs - reimbursement of 2.18m less the “same terms” payment to PNOC leaves 1.635m net reimbursement to Nido. So the effective cash cost at 20% WI on a 25m drill is 365k.

Indo - The option to increase equity on the Lundin JVs is on the same terms as the initial 10% WI (ann of 28 June) so a move to 20% will be around 10m USD

It looks a given that the Indo equity option will be taken up at close to the maximum (agree with your take on “when we exercise this option”) so taking the various announcements at face value I would assume that our exploration outlay has moved from around 22.5m (12.5 +10) to 20.5m (365k +20)


For the prospects I have got
Balqis at 47mmbbls with COS 26%
Boni at 55mmbbls COS 7%
Gobi at 22mmbbls COS 24% (from the Lundin web site)
Baragatan at 151mmbbls at COS 34% (taken from Edison report)

I’ve put these numbers through a montecarlo at 50% SC63 + 10% Indo vs the assumed rebalance at 20% SC63 +20% Indo. It has its limitations but you will get the general idea (do your own calcs to verify).

Probability for discovery greater than or equal to (in mmbbls to Nido)
Before Now
1 65% 65%
2 65% 65%
3 55% 65%
4 55% 65%
5 43% 54%
6 40% 54%
7 36% 54%
8 35% 54%
9 35% 54%
10 35% 42%
20 34% 35%
30 34% 34%
40 34% 4%
50 34% 1%
60 34%
70 34%
80 11%

It is very much a trading off of blue sky versus an increased likelihood of something respectable if not earth shattering (although I am sure we’ll still be smiling if Baragatan comes in). As for a hypothetical cost of discovery, if you pitch your area of interest towards the 50% mark we’re much better served by the balanced equity position

I am sure a consideration in farming down would have been the next phase of work under the service contract. As I understand it phase 3 involves two wells – much easier to attract a farminee ahead of Baragatan than it would be after a (34% COS = 66% Chance of failure) dry well. I still would have preferred a cleaner single stage deal but this is what we have got...