Different resources = Different Objectives

Hi all,

Great debates going on the other thread...especially over CNE's new resource estimates.

The first point to make here that CNE gave their independent experts a set of pre-estimate criteria, objectives and assumption ranges to use and consider in their review. During the analysis period, there will have been several iterations between the 2 parties as the assumptions, criteria and objectives were fine tuned. Given that matrix of variables, a set of resource numbers are generated.

The point is... there a quite a few subjective variables that are inputted by the client...CNE in this case. And these WILL be different to those used by FAR.

You have better odds of winning the $30m lotto than 2 Oilies using the same resource criteria, assumptions and objectives.

A couple of points to make here:

1) CNE dont have to and probably dont want to announce resources any bigger than they have to get financing for Phase 1 (their key resource objective)

2) When opening up a new resource industry in a developing country, it is always advisable that you (in this case CNE: the Operator) doesn't shift the 'greed' goal-posts too rapidly or too much. It can distract the Govt and may entice them to shift the set framework in which the JVA operates. I have personally seen this happen in several 3rd world countries. There really is a point at which the exploration company should shut up about how big they really think/know their discovery to be.

3) CNE, as operator, will have been talking with the Govt on a weekly basis with the consistent message: " We have enough there....Lets get a manageable 100,000 bbls/d operation up and running as soon as possible". Not "lets drill out Billions of bbls, take 10 years to develop a project whose complexity and size are still unknown (and really doesn't fit at all with a country that has no experience)..."

4) FAR, on the other hand, can and will have instructed RISK to consider vastly different objectives, criteria and assumption ranges.

5) This is because FAR don't really need their report for financing purposes (RLB banks will use the operators reports)....they need it for CORPORATE purposes. Vastly different.

6) This will probably be the only chance FAR will have, over the next 12-24mths, to upgrade the resource potential...to show-case their potential size and to set the base marker for FAR corporate valuations (as fas as SNE is concerned). Vastly different to CNE's objectives.

7) So I would expect the RISK report to be meaningfully different to CNE and I expect an upgrade on FAR's own numbers....not a decrease as some have suggested.

8) Keep your shirts on, stay cool. All is good.


Cheers,