from pure speculation todays australian

Juniors learn about life the hard way


Robin Bromby | March 31, 2008

Plugging away

INVESTORS, not surprisingly, are starting to get very hard-headed about the more speculative end of the resources sector. Moby Oil & Gas (MOG) on Tuesday announced that the Coelcanth-1 well in the offshore Gippsland Basin, in which Moby has a 16.66 per cent interest, came up dry. Down its shares went by 45 per cent to 6.6c.

But even when there's no news, the bottom can fall out of a share price these days, as Eureka Energy (EKA) found out on Wednesday when $525.00 worth of its stock went through at 10.5c, representing a 25 per cent decline on the day. Eureka has a large gas play in Texas where a related company, Aurora Oil & Gas (AUT), also has a stake. Eureka does not have gas to surface yet but a neighbour, ConocoPhillips, does. When and if the two Australian companies come up lucky, there are pipelines and other infrastructure already in place.

What is becoming apparent about the large number of Australian oil and gas juniors now plugging away (literally in some cases) in the US is that investors are starting to get anxious about whether these plays are actually going to make money. With all the old fields in the US, it seemed like money for old rope to go in with modern technology and pump out a bit more oil or gas. The cost was low, given the vast pipeline networks and ready buyers.

It didn't quite work out that way. Louisiana Petroleum, now Erongo Energy (ERN), found that out. Buying into production is one thing; making it pay is another -- and this is now what increasing numbers of investors want to see.

Eureka options exercisable at 20c expire today. With the company share price closing at 12.5c on Friday, Eureka is resigned to kissing goodbye to the $8 million that would have been tipped into its bank account had the options been exercised. But it has enough money for at least two more wells, and some good news from those could give an altogether different outlook.