follow up volume, page-64

Hi Strat,

I agree with your conclusion on the single well premium built in to their estimate for Baragatan. Just got to get it on with it now...

As for funding,
Looking at operating cashflows from the last four quarters (and excluding capex and debt servicing)
Average quarterly revenue 9,260
Average qtly exploration 897
Average production costs 4,431
Last quarter admin 1,668
Tax 900
Average Nett quarterly cash flow 1,364

June quarter expecting revenue and production costs from cargo 30 and 31 hence June quarter cf from operations increases in to the range 4,500 to 5,500 nett.
Oil price has eased so dropping revenue per cargo back by say 10% from Cargo 31 onwards. At 5,000 barrels a day, they are producing a 350,000 barrel cargo in around 70days so Sept and Dec should both see 1 lift (excluding additional flows from Galoc II. This gives a nett operating cashflow around 930 in both the Sept and Dec quarters excluding the impact of additional cash from Galoc II. Total cash flows from production from now until end of the year would be around 6,360 to 7,360. Lets call it 7m

Cash at end of quarter is 28.7m including 9mUSD drawn on the Standard Bank facility.
Remaining facility undrawn =21m USD.
So, funds available are
28.7m cash + 7m nett operating cash flow + 21m undrawn facility = 56.7m

Development cost remaining on Galoc II = 32.3
Drill Baragatan in SC63 = 10 to 12.5

Balance = 56.7- 32.3 -12.5 = 11.9m

Assumptions -
Production - two lifts in current quarter (as signalled in the quarterly) and one in each of Q3 and Q4.
Price - Oil price down around 10% from cargo 31 on.
Exploration - average of last 4 quarters ongoing
Admin - savings enacted in last Q carry forward
Tax - evenly spread over Q2 Q3 and Q4 at average rate of last 4 Quarters (reality is a bit more lumpy than this)
Debt facility - fully drawn against GalocII development by year end

So, with 12m on hand at year end (not including cashflows from Galoc II) they could probably manage 4.5m for Galoc North but the timing will be tight on funds coming from the Q4 lift. Once the oil starts to flow from Galoc II it all becomes a lot easier with around 4m a month free cash flow before debt servicing.

If it comes down to a choice between Galoc North (which we can come back to in the future) and a drill or drop decision on SC63 there is only one right call and they have made it.

It goes without saying that the real excitement with Baragatan is what a wet well would mean in terms of derisking nearby prospects like Pinta Flores - there is much more upside here than a 676mmbbl OIP target might suggest.

The other leg of the slowly building story is West Linapacan. The reserve announcement must be very close now. Apparently this will be funded either from cashflow or another reserve based facility. With a 22.28% share in an expected 12,000 barrels per day and an expected 100 to 140m development cost (our share 22m to 32m) I would be hoping for similar economics to Galoc. Think another 45m FCF per year…

I think we will be well placed to do some serious drilling over the next few years.