close to half a mile of gas, page-85

I reread many of the announcements made by Sunset/Challenger over the last 18 months. May be a good reminder of the objective/opportunity/upside ahead. Mostly a "cut & paste" - My comments are ***

The (initial TC) well has been designed to test the primary opportunity which is potentially huge gas production from the vertically fractured Ellenburger Dolomite trapped on the largest of the known anticlinal closures. The well is also expected to intersect the secondary target which is some of the known Canyon Sands gas reservoirs deposited around and over the Ellrnburger structures.

Open Marine Ellenburger Dolostone (Ordovician Age) found along “Fractured Trend”;
Structural Traps sealed by Canyon/Wolfcamp Shales;
Production ranges 1-100 BCF/well

Well to determine net pay thickness. Next stage would be to stimulate this well or drill a horizontal well to maximise production rates.

Normalised analog field production records indicate 6 –20 BCF/Well, dependent on actual well spacing and gas column.

Single Well 10 BCF/Well NPV ~ US$10M/well


Canyon Sands - Provides average (but attractive economics) which enhance the primary Ellenberger Structure target. Avg. Well 1.5 BCF based on average ~150’ sand.
Single 1.5 BCF/Well NPV ~ US$1.0M


*** Read Slide 13 of the presentation re Unrisked Valuation.
http://www.asx.com.au/asxpdf/20101018/pdf/31t5kngt1c6qsh.pdf

Unrisked NPV(10) ~ US$280M for Ellenburger.

*** Cmonaussie discounts 80% to give $56M as “risked” - with 214M shares outstanding that would equate to 26cps. If we assume (as I think we should) all oppies get converted then it’s more like 17.5cps but with $20M extra in the bank. We know they have determined approx 1300 ft of net pay thickness, and note that in recent times the optimal production is coming from horizontal wells that maximise the intersection of the (naturally occurring) vertical fracture swarms. Out of that there appears to be a 280ft zone of fracturing/thrust faulting which looks very similar to other big producers. Notes that successful completion could yield 4-5Bcf per well.

So here then is the concern – that is at the low(er) end of the range and not the 10Bcf per well used in the unrisked valuation.

Lots of upside especially as PB appears eager to chase the CS-Hybrid next, if this well is completed as an Ellenburger producer.

May it be a big next 2 weeks for us!