There are many well researched individuals contributing to this stock. I cannot compete but still wish to provide my 2-bobs-worth for consideration.
Alas, I’m not a geologist, so I can only state an opinion based on the facts as I am able to ascertain them.
If we look at previous history regarding Gurame and its previous stakeholders, whilst we can say there is resource in place, the quality and commercial viability has been called into question before...
Back in November, 2008… Cooper Energy Limited advises that its wholly-owned subsidiary, Cooper Energy (Seruway) Pty Ltd, has elected to withdraw from the offshore Seruway Production Sharing Contract (PSC) in North Sumatra, Indonesia.
Cooper Energy acquired a 22.5% interest in the Seruway PSC in 2007 and drilled the Gurame-1X well earlier this year. Despite encountering some gas shows, the Gurame-1X well was unsuccessful. In addition to the Gurame-1X well the Seruway Joint Venture recently shot a 2D seismic survey over a number of gas discoveries on the Ibu Horst geological feature in the centre of the block.
Cooper Energy’s exploration team has just completed the integration of the results from the Gurame-1X well into the 2007 3D seismic and completed an interpretation of the recently acquired 2008 2D seismic. This review unfortunately indicates that the Seruway PSC has no commercially viable prospects.
In light of this result and the fact that CESL would be required to make a number of significant future cash call payments in US Dollars to the permit operator, Transworld, to retain its interest, Cooper has elected to exit from the PSC. Cooper’s Board believes this to be a prudent decision which is consistent with the Company’s risk management strategy for its international exploration portfolio.
The other non-operator, Salamander Energy, has also elected to exit from the PSC.
Salamander (separately in 2008)… “Gurame was discovered in 1968 and wells encountered oil and gas in several Middle Miocene reservoir horizons, although high CO2 content is expected to render certain of the reservoir horizons un-economic. Sweet (low CO2) gas was encountered in the Keutapang/Seurula formation.
A 100-square kilometer 3-D seismic program was conducted to further delineate the Gurame field discovery and to site the Gurame 1-X appraisal well. The survey delineated a large structural feature in which five wells have been drilled to date. The Gurame-1-X well was completed in April 2008. The well encountered hydrocarbons in two zones but the formation displayed low permeability characteristics and was found to be tight at this location.
On 21 April 2008 the Company announced that the Gurame-1X appraisal well in the Seruway PSC, Offshore North Sumatra encountered hydrocarbons but in a location where the formation displayed low permeability characteristics. The well was subsequently plugged and abandoned.”
To counter this, MEO advise that “Previous wells drilled on Gurame were located well down dip on the structure, outside of local closure but still recorded significant recoveries of oil and gas from within the Miocene Baong Sandstone and Belumai Formations. Definitive results from these wells were hampered by the fact that the wells were drilled highly overbalance due to the blow-out in the original 1968 ONS-A1 discovery well.”
In other words, the previous wells were incorrectly located.
Looking at the latest ASX releases and the Corporate video, it is obvious that MEO feel very confident in their assertion:
David Maughan – “We believe that the liquids are significant; that could be in the order of 100million barrels+ in place. In the upside case, if this well actually intersects some oil in it, it suddenly becomes an extremely major oil discovery….”
Jurgen Hendrich – “While MEO's business model is to farm out to cover drilling expenditure, the Seruway PSC offers a unique opportunity to evaluate a discovered resource (Gurame) with multiple existing wells. Under these exceptional circumstances, MEO is in the fortunate position of being able to consider retaining 100% interest through the drilling unless it receives a compelling farmin offer."
They didn't get a compelling offer, so they have decided to go for it.
The price (and hence the risk) is approx. 50% of MEO's cash balance ($25million) on drilling at Seruway, so this is significant.
It looks like the well is planned to spud some time in October – around the time when the results of Heron South 1 should be ready for release. Coincidence or good planning??
In conclusion, I can understand why several folks have commented they would have preferred the farmout and save $25million and forsake 50% territory. Me too, if truth be known.
However, this offer was not on the table and one can only assume that whatever offer was tabled, Jurgen and the board decided to go it alone with the Hercules rig available in the current year. Ballsy or just plain stupid? We await. Certainly won't be a dull final quarter for everyone aboard.
Like many other investors of MEO, my investment is currently in the red, but I continue to believe that the MEO organisation is well staffed and well run. There are quality assets which need proving, but if only one of them succeeds, there is significant upside. If both Heron and Gurame are dusters, the downside, whilst painful, is not in the same order of magnitude.
All in my opinion.
Most importantly, good luck to all holders - except those shorting :-)
MEO Price at posting:
20.0¢ Sentiment: Buy Disclosure: Held
