Re Cooper messing up and short term technical problems.1/. They...

Re Cooper messing up and short term technical problems.

1/. They drilled though the top of the reservoir / formation without realising it, thus missed the oil shows in the oil based mud they were using. This is relying too much on the 3D seismic for depths. They should have switched to a water based mud well before the reservoir, it would have cost a tiny bit more, but worth it.


2/. Most modern day drilling companies do LWD (logging while drilling), so that they get info re oil / water / gas as they drill “in real time”. It costs a little bit more but worth it.
http://en.wikipedia.org/wiki/Logging_while_drilling

Instead they had planned to do the cheaper Wireline Log, which has failed because the wall of the well are unstable (which is great for oil migration, you just have to drill around to find it). Some voids/ fractures will have water, whilst other voids/fractures can be loaded with oil.

Hence why Cooper are now collecting fluid samples. Why? Because Cooper announced before they drilled into the reservoir that they were selling Tunisia regardless of the well results. Cooper is a very conservative IOC that is effectively run by Lawyers and Bankers, who replaced the previous CEO Mike Stott (who instigated Tunisia) with their CEO. The “minute” they started drilling Tunisia their share price dumped, hence the decision to sell Tunisia.

And the buyer will be Dragon Oil who own 55% of this block already (with +$2,000 million in cash) and this is Dragon 1st and only operation outside of their main asset in Turkmenistan. They also have a service contract in Iraq and exploration acreage in Afghanistan, all years away.

I strongly suspect Dragon is now telling Cooper what to do with this well. They have far more experience operating rigs in the Caspian, which is also a Carbonate Reservoir.
http://www.slb.com/services/technical_challenges/carbonates.aspx

Carbonates are well understood and hold 60% of the world’s oil reserves, but this is Coopers first experience of such, hence the mistakes over the last 3 weeks. You know I bet their director of geology was not even on the rig when they drill into the reservoir, more than likely looking at a 3D seismic image on his PC screen and making decisions from his office chair in Adelaide. But I bet he is there now!

So what’s next, the fluid sample are to help Cooper get a better sales price from Dragon to verify the depth of this reservoir. Then we are back to the real action, the horizontal section.



Horizontal Section.
The plan is to drill again from the El Baria formation and re-enter the Abiod Reservoir from a different location and angle (see page 6 on link below) and this time they will be using a water based mud … and then we will see the oil shows.
http://www.firstenergy.com/UserFiles/File/Cooper_Flyer.pdf

Hope they don’t close down this link but it’s the Cooper flyer re Tunisia that Dragon bought into and has great info on this block / well in Tunisia. I am surprised Cooper never made it available on their web site. Its c 7mb and slow to down load but great. Hence I am confident we will see a dramatic turn-around during the horizontal section.

There is oil there. The 1990 HW-2 was a straight vertical well, no horizontal section, but the oil was there, the logs don’t lie. This is a carbonate structure which can be complicated and I think this one is. There are a lot of fractures here thus the oil can migrate anywhere in these voids and the 580m horizontal section is long enough to hit it.



So what’s next
20m barrels is what I am targeting, (could still be 200m), I think breakeven is 5m. Barrels in Tunisia are at $10 to $20, but say $10, so Jacka 15% of $200m is $30m (c.50% more that Jacka’s market cap at present).

I am sure Dragon also know if they drill a 2nd and 3rd well etc (their way) they will find 200m - 400m barrels in this block (and they need the production diversification). However before that Copper will sell their interest to Dragon, thus Dragon will have 85% … and its for sure Dragon will want to mop up Jacka 15% (this is a nuisance for Dragon) to have 100%. Even if this well is a disappointment Dragon will buy, they don’t walk away from short term problems.

The other wonderful thing is, Dragon buying Cooper’s 30% will provide a valuation on Jacka’s 15% immediately. It will also help Jacka’s share price, and give Jacka the option of negotiating a stronger position or something else or something else. Jacka will have a lot more options.

Buying Jacka 15% for $30m it will be petty cash for Dragon. But I think Dragon will have to offer more than $30m, DNO (also with plenty of cash) now have their sights on Tunisia (and particularly Somaliland with Genel … so watch this space).




Finally re Cash
Jacka are OK, last week they said they have enough cash to finish this well. They raised $10m in January. Overheads are nothing c$250k per quarter. No near term obligations for the 2 Nigerian assets, which they could sell for $20m each = $40m (c 200% of Jacka’s market cap … this is absolutely mad stuff). The management could do a lot better re PR, but I think they are learning now!


Jacka is a 1 year hold for $0.30 and 2 years for +$0.75, so at $0.08 I can take the short term fluctuations. Actually no harm if it drops even further. Next year we will not get the bounce in valuation, but still very acceptable.