Hi laughingnumbat,Good questions. Here are answers based on...

Hi laughingnumbat,

Good questions. Here are answers based on information released to date. TSV's interest could be worth 20c per share on 'reasonable' assumptions. The assumptions assume the reservoir is at the lower end of independent geological estimates. Assumptions, costings and relevant ASX releases are detailed below.

Occam I have an off-topic question if you can email me on joelbaby[at]hotmail.com


"1. Fraccing and tight gas were not a mystery when wapet drilled the original wells."

Since Warro#1 & #2 were drilled in 1977-78 it has been shown that the fluids used during drilling and stimulation had a detrimental impact on the reservoirs production performance. Petrographic and clay mineralogy studies by CoreLab in 1999, indicate that the Warro sandstones are susceptible to formation damage by water based drilling fluids, and that the stimulation treatment used in Warro-2 failed due to the use of water based transport fluids and inadequate proppants.

It is now 30 years since these two wells were drilled and tested. During this time there have been significant advances in drilling and stimulation technology.

Ely are conducting the frac operations, and they developed considerable experience in this field over the years.


2. Gas Price and specs

- Price: Long term contract prices in WA have risen from $2/Gj to $8/Gj currently. The outlook is that they will continue to stay high, taking into account an economic recession.

Alcoa will be the major purchaser of the gas, with some going into the broader market in South West WA.

- Specs:
The energy conversion ratio is 1.14Gj per Mcf. The conversion ratio has been conservatively assumed to be 1.10 in Latent's economic modelling.

The gas is of pipeline quality, requiring minimal processing.


3. Well cost and stimulation cost
$8.3million per well, with the first evaluation wells costing around $15million each.
TSV will not need to pay for first 2-3 evaluation wells and 3D seismic program.
Thereafter, TSV share in costs is approximately 10%.

4. Number of wells needed to deliver a marketable volume of gas

Approximately 20 wells to produce 100-150MMcf/day.

Schlumberger indicated that the following initial flow rates could be achievable:

Vertical Wells: 5-7MMcf/day, recovering 6Bcf over 20 years.
Horizontal Wells: 15-20MMcf/day, recovering 26-42Bcf over 20 years.


5. Do the maths (Part 1. - Funding Stages)

Currently we are in stage 1 of the project (TSV is free carried).

Stage 2 will require TSV to raise approx $9m via a debt/equity hybrid. See remarks on brokers below.

Stage 3 will require TSV to raise 10% of $280million over 5 years via debt funding. Alcoa have a 65% interest. My personal opinion is that Alcoa's interest in the project combined with their offtake significantly enhance any debt funding prospects.


6. Do the maths (Part 2 - Gaffney Cline $2.2B NPV)

The Gaffney Cline report estimates a range of contingent resources for Warro including 2C recoverable gas of 1.14 Tcf (Trillion cubic feet) and 3C recoverable gas of 2.11 Tcf. Latent’s economic analysis of the Warro Gas Field attributes an NPV to the project of $655m on conservative 'base case' assumptions and $2.2 billion on 'reasonable' assumptions.

There are a number of assumptions which you can view on the Latent Petroleum report. This is available on the 17 March 2008 ASX release.

Main assumptions are outlined in the Executive Summary below:

- Reasonable Case NPV 10% = $2.2 billion
- Gas price $7.50 GJ
- Initial well cost of $8.30 million
- Initial production rate per well of 5 TJ/day and recovery of 5.1 Bcf per well
- Production plateau of 150 TJ/day
- Total recovered gas of 1,909 Bcf




7. Do the Maths (Part 3 - Broker Involvement)

Assuming the reasonable case scenario, this valued TSV's share in the project at approximately 20cents per share.

The Gaffney Cline report is at the lower end of recoverable gas estimates - 1.9Tcf. Independent geological assessments have indicated that the field could contain between 4 and 7 Tcf of natural gas-in-place. The Schlumberger work indicates that about 50% of this is potentially recoverable.


The project beginning to attract interest NOW because a successful flow test result would significantly de-risk the project. This would make TSV appealing to a broader variety of investors. Patterson's(??) is the main broker who will be keeping their clients informed of developments. Currently Patterson's has concentrated on their sophisticated investor base, but this would potentially change upon a successful flow test.


Let me know your thoughts on this laughingnumbat,


Joel