first drill 23-8-04, page-3

hornet thoughts Hornet is definitely not in Merlin's farmin area, so whether or not we list isnt important to this drill.

This also means I also dont have a financial stake in any of the partners in the drill ... but I wish them good luck anyway :)

Some detail on Hornet is in VPE's Cooper Basin technical presentation, but it isnt detailed at all in Entek's Independant Geologists report, which is a bit odd.

It's a gas prospect, to the north-east of Toolachee. VPE are saying 'Potential 9.5 MMBOE', so applying my rough rules of thumb ... I reckon they're using 8:1 for gas:oil conversion, so thats 72 bcf gas tops. More realistically, it's likely to have a P50 or Best number in the 20-25 bcf range. I havent seen any Low/Best/High numbers for it detailed anywhere, so my SWAG will have to do.

It's a gas prospect surrounded by Santos gas fields, so IMO it's more likely than not to be there. Whether the sandstone is porous enough to produce where they drill is a second question (cf Nutmeg and Yarrow-2).

Call it 4 miles to the nearest Santos pipe, so with a 3 inch pipe at $50 000 an inch-mile, so if it has enough PSI/flow rate, thats $600K worth of pipe to feed it in to the Santos gas system to monetise it ... pretty doable between the partners.

In summary, Hornet looks like a reasonable, low risk gas prospect. I think VPE, ETE, ITC and RPM shareholders will be happy at the end of it, but it's hardly a company-maker for any of them and it wont provide the short-term cash flow that an oil prospect would.

Monetisable gas is valued at about $1m/bcf in the Cooper (as compared to A$15 and up for oil) , and the split in the well is ...

VPE 40
RPM 20
ITC 15
ETE 12.5
Tacnas 12.5

4% royalty to ACOC (the original permit owners)

Someone else can figure out the per-share impact, but it's not that impressive for a 20 bcf discovery ($8m doesnt go that far split a billion something ways).

Ian Whitchurch
Accelerated Farmins Australia
Prefloat Consultants to Merlin Petroleum
0421 864 278
[email protected]

This is not investment advice, and before investing in any of these stocks it is important to read and understand all documentation and seek professional advice.