SB, apologies I've just caught up on previous posts and I missed this one.
As we now know TVD has been reached. The point I was trying to make in the earlier post was that whatever the lower zones contained (4-5) it wouldn't matter. It woudnt matter because zones 1-3 are commercial. The official line from NEN and the JV was a “discovery”, but from my perspective it is a commercial well. It must be understood that the company NEN is forced to err on the side of caution when making progress statements. I saw a post last week talking about MEO and the company’s experience in offshore drilling. I don’t own MEO and I have no interest in what they do. The experience of one company and their projects are completely different to the next. This is what sets companies apart and is the reason why you might invest in one versus the other. The point I am trying to make is that the O&G game is characterised by low probabilities. We are talking 0-20% of simply finding something to sell. No one, including me wants to invest in such a high risk proposition. Taking the technicals out, it therefore becomes a matter of “what do we know that would derisk the proposition?”.
I am not going to go over old ground but there are a couple of key take-outs that need to be understood:
1. The logging tools can measure most things, including well bore environment and/or what is ‘infront’ of the drill. The JV parties had an accurate idea as to what they were dealing with in zones 1-3 and at this point NEN declared the current readings as warranting a production test. This is really saying something, especially because Ken and Alan made the call. I rate these two guys as some of the smartest I’ve come across. Imagine being so confident of the preliminary readings that you were prepared to state the need for a production test. Most of the team at NEN can do their own calculations – even Ian Smith and Ben Newton, commericals and secretary respectively. Both ex-geos.
2. The above point aside, NEN have in their possession a SE Asia database that I would estimate to be worth millions of dollars. This includes the position and well characteristics of DongFang 13-2, the analogue to Cua lo-1 (ST). Among other things they know that zones 1-3 sit at the same depth as DongFang 13-2. Combined with all the information they have of the analogue, NEN believes that Cua Lo-1 will exhibit the same characteristics if not better due to the easterly position which is higher up in the sedimentary deposit. This is basic geology and has been proven.
I am not forgetting about zones 4-5, its just that they are less clear to us as we have nothing to compare them to. Zone 4 will provide for additional upside. Zone 5 is a write-off for this well and the upcoming production test. It’s a “poor” reservoir, which is something I can appreciate. The seismic shows faulting in this lower zone and is typical of an underlying diapir. Its possible that the reservoir is fault separated and hence NENs postulation that it may be proved by drilling at an offset. They may target this zone in the next appraisal well. Note: NEN is able to state which zone exhibits a good versus poor reservoir.
NEN have done their own calculations based on the logging data they have. They would have an indication of gas composition, and hence decision to progress the well and production test it. You wouldn’t proceed to this phase if indications were poor, much like the determination of zone 5 which was stated as “poor”. Similarly they would have indications of flow – anecdotal from the analogue but fact from high pressures experienced all the way down. The HPs, while difficult to handle will aid the production scenario.
This is how I see it, and it’s the only way I see it. The market as a whole will not understand what NEN has on its hands, its just not that sophisticated. A great example is the obsession with the Vietnam wells. This may sound like bullsht but I’m not that fussed with either well – I recognise that it is potentially transformational and have great confidence in them but its not the end of the world and it isn't driving my investment decisions. The share price is going to get smashed if either or all are failures, but the reality of it is that the near-term production capability of NSA, PV and Glau easily support the current (and more) share price. We don’t need to explore, we need permits to bring it online – watch this space (Dec quarterly). This is the other factor which sets us apart. We have a balanced portfolio, but it is almost always forgotten.
NEN Price at posting:
33.0¢ Sentiment: Buy Disclosure: Held
