I note Commsec are still rating INP as a Buy/Outperform as at...

I note Commsec are still rating INP as a Buy/Outperform as at 7/8/2008 with valuation $2.17 and 12 month val at $2.42
Apologies for the formatting.

Materials and Energy
7 August 2008, 4:54PM AEST
Innamincka Petroleum (INP)
Now in production!
INP now a producer
On 1 August 2008, INP started production from its Flax 1 oil well. INP just
failed to meet its expected July start-up date.
The Flax 1 well has been flowing at about 350 bbls/day of oil. INP’s first
load out of oil, trucking to the Moomba hub, was on 6 August.
Production to ramp up quickly
The expected production profile is:
Flax 3 has been fracc’d and will be brought on line in mid August,
Flax 4 has been fracc’d and will be brought on line by end August,
Flax 5 has just been fracc’d and is being flow tested; it is expected to
be brought into production in mid September,
Flax 6 is currently being fracture stimulated; the work-over rig will move
to Flax 6 after finishing at Flax 5 to bring Flax 6 into production by the
end of September,
Flax East will be brought into production in mid October, and
Flax 7 is expected to be producing by the end of October.
By the end of October, CommSec expects INP to have seven wells
producing oil with one well injecting gas.
Production should be over 1,000bbls/day in the December quarter.
Valuation and recommendation
INP is delivering largely as expected.
CommSec’s valuation remains $2.17 per share and we retain our BUY /
OUT PERFORM recommendation.
Equities Research Report | Innamincka Petroleum (INP)
7 August 2008, 4:54PM AEST 2
Production
CommSec expects that INP will be producing over 1,000bbls/day during the December
quarter. However, each of the eight wells will begin production at a relatively high rate and
then they will decline. At this stage we can only guess the production profile by looking at
STO’s Tirrawarra field, which is geologically analogous to INP’s Flax – Juniper fields.
Figure 1: Tirrawarra production profile
Source: Innamincka Petroleum, November 2007 presentation from PIRSA data
Figure 1 shows that the production profile from individual wells can be expected to be
variable.
Development
Development has been delayed from earlier projections due to a combination of external
events, such as:
heavy rains in May, and
difficulty in retaining skilled trades (eg. there are three welders on the flow lines, and one
just drove off).
Having achieved production, the next steps are:
drill two appraisal wells in the Juniper, which is likely to be October – November,
conduct extended production tests (EPT) on the Juniper appraisal wells to obtain data on
producibility and expected ultimate oil recovery, and
use EPT data, together will drill data and production under Enhanced Oil recovery (EOR)
in the Flax field to obtain a certified 2P reserves estimate.
CommSec is expecting a 2P Reserves estimate of 35 - 40Mbbls by about March 2009.
Equities Research Report | Innamincka Petroleum (INP)
7 August 2008, 4:54PM AEST 3
Cashflow
CommSec expects that INP still had $16m in cash at 30 June. CommSec’s current projections
are that INP:
will be marginally cashflow negative in the September quarter,
could have positive cashflow in the December quarter if the only drilling is the two
Juniper appraisal wells (i.e. no exploration or development wells are drilled).
By year end, CommSec expects that INP will have refined its development plan and that it will
begin an on-going process that will see a development well drilled every month.
CommSec’s projection is that INP’s cashflows will roughly cover this cost in 1H08, and then
increasing oil production ensures that development costs are covered by operations.
The other major capital item is the export pipeline, which will save on the cost of trucking
crude oil to the Moomba hub. In CommSec’s view, certified reserves will be necessary to
enable a financial institution to fund this without recourse to INP shareholders.
Conclusions
As Figure 2 shows, the INP share price has been soft.

In CommSec’s view, this is due to a combination of developments taking longer than originally
expected and disbelief that Flax-Juniper could be a major field. Both of these issues should
be resolved progressively over the next six months.
CommSec’s valuation remains $2.17, and recommendation BUY / OUT PERFORM