The way I read it, what is up for farm-out negotiations at Rafa Deep is the Rafa structure and other close-by analogues to Rafa Deep in one package, which will require further analysis and interpretation. I am not persuaded yet that Rafa is >1Tcf - I don't think they have given any such indication - but they have mentioned these other nearby structures (plural) which potentially are part of the same farm-out package and that is where collectively the resource could be much greater than 1Tcf. Rafa would appear to be wet gas with a substantial condensate production being likely. The delays here make sense to me. What the bedwetters don't seem to fully appreciate is that commercialising large gas deposits in such a remote area with limited infrastructure and with only a small potential local market is very complicated and very expensive and has a very long lead time with only a handful of likely large-scale customers - that is a shallow market that needs locked-in long term forward contracts. Hence they are assessing a variety of commercialisation paths at different resource sizes and rates of production.
Thus, I share the apparent excitement of company representatives that there is a prospect of a separate shallow oil prospect that appears to be quite sizeable. Commercialising an oil prospect, even in such a remote area, is much simpler because there is a more liquid market with greater market depth and short lead times. This has already been shown by Buru. There is the added prospect that the volumes would be large enough to support a non-exclusive market pathway via a small modular (tea kettle) refinery which could be located on the main road producing transport fuels, where a proportion of revenue could be at retail prices (i.e. >$300/bl) with the balance wholesale prices from across the north-west. These are not large facilities, have a short lead time and are not too expensive. This pathway could also help improve the economics and longevity of the Ungani Cluster (including Ungani, Ungani West, Ungani Far West & Ungani North).
There is the prospect that finding and developing the oil could greatly strengthen the hand of BRU in relation to the far more challenging talk of commercialising a cluster of large gas resources where the reservoir structure(s) could also be complicated.
Management's task is to do the best they can with what they find, which is what is unfolding before us.
I think many punters here don't have much of a clue about the complexity and challenge of such matters and resort to all sorts of conspiracy theories about incompetent or deceptive management. I think they probably should be investing elsewhere with stuff they know better and feel more comfortable with.
BRU Price at posting:
9.9¢ Sentiment: Buy Disclosure: Held
(20min delay)
