ferrets stock to watch: roc oil company ltd

Ferrets Stock to Watch: ROC OIL COMPANY LTD
08:51, Wednesday, 28 June 2006

Sydney - Wednesday - June 28: (RWE Aust Business News)
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A LOCAL OIL EXPLORER TAKING A MAJOR STAKE IN OFFSHORE CHINA

OVERVIEW
********

Roc Oil Company Ltd (ASX:ROC) is a favourite of Ferret's mostly
through because of its potential and astute management.

Most of the management put their money into the company that
they believe in.

Yesterday Roc Oil pushed its prospects even further after
agreeing to acquire a 24.5 per cent operated stake in the Zhao Dong
Block in the Bohai Bay, offshore China, for a cash consideration of
$354 million.

The acquisition is via the purchase of 100 per cent of the shares
of Apache China Corporation LDC (ACC), a wholly-owned subsidiary
of the $US20 billion, Houston-based Apache Corporation.

The block is part of a prolific producing petroleum province
which offers considerable upside potential.

Gross production from the two producing fields in the block is
in the order of 30,000 barrels of oil per day (BOPD) (net ACC working
interest 7300 BOPD) and gross proved and probable remaining reserves are
around 61 MMBO (net ACC working interest 15 MMBO).

The company poses its own question on what is the rationale for
this and then answers itself.

It will will deliver a number of technical, commercial and
strategic benefits which will have a very positive impact on Roc.

Specifically:

* Net proved and probable oil reserves will double from 15 MMBO
to 30 MMBO.

* Production will increase by more than 150 per cent from about
4,500 BOPD to about 12,000 BOPD. Exposure to very significant upside
potential has already been identified and/or inferred, in the form of
more or less continuous appraisal, development and close-in exploration
drilling opportunities through to 2011 and beyond.

* Production diversification whereby during 2H 2006, Roc will be
producing oil from four fields, three of which it will operate, in three
different countries.

* By 2Q 2007, when Roc's two non-operated oilfields in the North
Sea will have come on stream, the company will have oil production from
six fields in four countries.

* Roc's operating profile will be significantly increased. The
company will be operating approximately 40,000 BOPD gross joint venture
production offshore Australia and China.

The company will also be operating an additional oilfield
development and a separate oilfield appraisal program, both offshore
China and its other exploration operations elsewhere in the world.

In an operated gross production sense, Roc will be the third
largest foreign operator in China.

FINANCING THE DEAL
******************

Roc will finance the purchase via a 12-month loan provided by
the Commonwealth Bank.

At CBA's request, an independent engineering review of the
assets was undertaken by Australian-based RISC Pty Ltd.

Subsequent to completion, Roc, which is currently debt free,
will have a debt to total assets ratio in the order of 0.5 and a debt to
current market capitalisation ratio in the order of 0.4.

Roc expects to put a suitable oil price hedging arrangement in
place that will reflect the magnitude of the transaction as well as the
need to protect the downside oil price risk while at the same time
retaining an appropriate amount of exposure to the oil price upside.

The transaction has an effective date of July 1 and is
expected to close in the second half of 2006, after satisfaction of a
number of conditions precedent, which reflect normal government and
industry practices.

The Block, which covers 27.5 sq kms, is located in very shallow
water close to shore in the Bohai Bay, offshore China, about 200 km
southeast of Beijing.

Within the Block there are two producing oil fields (C and D)
and part of a third field (C4) which is due to be developed in 2007 and
come on to production in 2008.

ACC operates the planned C4 development in which it has an
11.575 per cent unitised interest.

Since production commenced in 2003, towards 20 MMBO has been
produced from the C and D fields and there is an estimated 61 MMBO of
gross proved and probable reserves yet to be produced.

Production, which is currently through 26 wells, will be
augmented by a multi-well drilling program, targeting appraisal,
development, extended reach and close-in exploration opportunities,
which is underway and expected to continue over the next several years.

An indication of the quality of the petroleum system is provided
by the fact that, within the Block, 27 different stratigraphic levels,
ranging in age from Palaeozoic to Tertiary, are known to contain oil.

In the activity update of June 13, the company reported results
from three separate hydrocarbon columns encountered by the Beibu gulf
block 22/12 at the Wei-6-12S-1 oil discovery offshore China.

It produced oil flows from all test zones and a total collective
stabilised rate of up to 5,750 barrels of oil per day (BOPD).

The next step in appraising the commercial potential of the
field will be drilling the first side-track well, Wei 6-12S-1Sa, which
is designed to locate and core the relevant reservoir intervals.

SHARE PRICE MOVEMENTS
*********************

Shares of Roc Oil yesterday rose 13c to $3.93. Rolling high for
the year has been $4.29 and low $1.89. The company is still to pay a
dividend. Earnings per share is 24.50c and is a reasonable p/e ratio of
16.04. The company has 216 million shares on issue with a market cap of
$820.9 million.

Roc's CEO Dr John Doran stated that:

"When completed, the acquisition, which Roc first identified in
2001, will have a profound effect on the company.

"The transaction is a great example of the efficiency of the
industry food chain.

"For Apache, with its $US20 billion market capitalisation and
two billion barrels of proved reserves, the asset may have become less
material.

"For Roc, a much smaller company, the transaction will provide a
substantial boost to its reserve and production trajectory.

"This is also the next logical growth step.

"Quite apart from the fundamental quality and upside promise of
the assets, the deal delivers a number of other benefits ranging from
reserve and production growth in a designated core area to increased
technical and operating mass.

"Apache has been an outstanding operator of the Zhao Dong Block
and Roc will be looking to deliver more of the same by retaining the
existing operating structure," Dr Doran declared.

The acquisition will complement Roc's other operations at the
Cliff Head Oil Field Development, offshore Western Australia, which is
just being completed, and in the Beibu Gulf, offshore China, where Roc
has just started an aggressive appraisal program relating to its recent
oil discovery.

With this operating capacity being an important component of the
transaction, the timing of the Zhao Dong deal could hardly have been
better.

Placing the acquisition in an Australian industry context is an
interesting exercise.

Market-watchers in Australia are increasingly talking about a
potential consolidation of the independent oil and gas sector.

BACKGROUND
**********

Roc Oil is one of Australia's leading independent oil and gas
companies with 216 million shares on issue and a market capitalisation
in the order of $821 million as at the beginning of May.

Roc listed on the Australian Stock Exchange in 1999 and the
Alternative Investment Market of the London Stock Exchange in 2004.

The Sydney-based company has a strong operating emphasis, an
international focus and a worldwide workforce of about 100 full time and
part time employees and consultants.

The company's assets are grouped into four main regions: the UK,
both onshore and in the North Sea; West Africa; China; Australia all of
which are associated with proven petroleum systems, two of which were
recognised as such as a result of exploration drilling by Roc and its
co-venturers.

As a result of the company's encouraging exploration results,
Roc has participated in the development of a field offshore Mauritania
and is operating the development of a field in the offshore Perth Basin,
Western Australia.

Roc also has two other fields under development in the North
Sea.

Roc's sequence of drilling successes includes discovering
commercial oil in each of its first exploration wells in Mauritania and
Australia; and potentially commercial oil in China.

In June 2004, Roc made its debut as a deep water drilling
operator when it drilled, on schedule and below budget, Bravo-1, located
in 1,500m of water, offshore Equatorial Guinea, West Africa.

In the next 18 months Roc will participate in multi-well
exploration, appraisal and development drilling programmes in, around
and on trend from its recent discoveries offshore Mauritania, Western
Australia and China and as well as in the North Sea.

This year Roc began producing oil at the Chinguetti Oil Field,
Mauritania and at the Cliff Head Oil Field, Western Australia, in May.

ENDS