Ann: Rialto awards FEED for Gazelle Field Develop, page-2

re: Ann: Rialto awards FEED for Gazelle Field... Surprised there are no comments on this. Its mixed news in my opionion as clearly the FEED is great news but there has been a move away from production in the drilling campaign in 2013.

I don't know whether RIA are getting a bit ahead of themselves, but IMO they need to complete the production of Gazelle as a priority and probably look to appraise discoveries with only 1 exploration well in the next phase (if they have 5 wells drilled). They continue on about "fast trackl" development, but have yet to state when the remaining 2 production wells will be drilled.

They are going down the route of laying pipelines to the shore for both the liquids and the gas and as they are not that far from the shore would be disappointed with first oil in early 2014 now, being as they will have 2 of the 4 producers drilled and completed at the latest by the end of Q3 2012!!

This raises big issues around financing as currently they have enough money to get to the end of the year and drill this programme, it would have made a lot more sense, to be arranging a reserves based lending facility for the final 2 production wells and then the appraisal of Bubale and Addax, and then 1 exploration well, rather than 2 appraisal and 3 exploration with neither of the remaining 2 production wells now going ahead in the next phase. This is a big change from earlier in the year. The first presentation this year stated,

"Second two development
wells to be drilled in 2012/13
after FID"

That suggests to me that they were planned to be drilled in the next phase (post RBL financing) and then production should have probably followed in the 2nd half of 2013. This seems the most logical and conservative method to monetise the block, as this will start to generate cashflows for the company. The equivalent of 20k bopd at $90 / barrel would bring in circa $550m revenue for the full year net to RIA, but then obviously royalites / cos need to come out of there. Even so, the level of cashflow would be high. I would have thought this should have been the priority to follow through on this first prior to looking to appraise and explore the other targets, as that production would fund a lot of this going forward.

Disappointed that they appear to have changed their plans. Maybe I will give them a call and ask the reason why they are moving away from the production wells being completed in the next drilling programme (which would probably run for 6 months so when they would fit the next producers in, who knows!!) and also how they expect to finance a potential 5 well appraisal / exploration programme.