Basically the Arun plant has been running for 30 odd years but the gas supply is drying up. The plant has only one year left to go and there has been talk about it being a gas importing hub.
The future is still in the air and MEO saw the opportunity in the Seruway PSC that if gas could be found then there would be a fast track for early development because the infrastructure was there.
MEO bought into the PSC relatively cheaply but they had to fulfill the work obligation and drill a well before the end of 2013. MEO tried to fast track the Ibu Horst 3D for the farmout data room mid year.
There wasn't enough time to finalise a suitable farmout deal, for reason(s) we don't know, so they decided to go it alone at Gurame for the least expensive drilling option. During the drill they thought a production test was warranted, hence the cost escalation.
As ever MEO had the plan to buy into permits close to existing infrastructure, do the groundwork ready for farmout to de-risk the drilling costs. This time they had to lone drill the well which didn't flow. We don't know the reason for this or whether the reservoir has been damaged.
What MEO are left with is a big bill but more knowledge of the Boang and Belumai sands. Whether or not there is sufficient data to warrant persevering in this area we may or may not find out.
There are other leads in the Ibu Horst and the need for gas in the industries that have been built around the Arun plant.
But it is the same story wherever MEO have plans to progress. There is a need for a supply of gas so a continuous income is guaranteed rather than just relying on CRs and farmout deals.
Other O&G companies in the area of the Arun plant will also be looking at the existing infrastructure for early development of any gas, even high in CO2.
IMO.
#:>))
MEO Price at posting:
7.4¢ Sentiment: LT Buy Disclosure: Held
