good news on the way, page-6

It has been a while since I have posted but without any new information there is nothing much to discuss. Like other MEOmites I am just waiting patiently.

I think there is good news on the way but there has to be a number of things to come together for the TS projects to be realised. Having $100m in the bank, and a management team not hurrying to come to any decisions, means that they have the SHs interests at heart IMO. I hope I am not reading it wrong.

In previous annual reports we have been given a glimpse of the complexities of the company's plans through metaphors such as a strategic game of chess or pieces of a jigsaw coming together.

The plays in the Carnarvon Basin are an important part of the company's future but it is only one piece of the jigsaw - a piece that doesn't fit at present and has been put aside for a while. The backing of a multi Tfc gas field and association with Petrobras would have been a bonus to MEO but the dry well at A#1, and previously Zeus, has left that area in limbo at present with the permit partners being left to decide where to go from here.

The strategic game of chess going on ATM is in regards to TS. I would like to put forward my take on the present situation with a couple of observations.

For the Tassie Shoal Methanol Project (TSMP) to work there needs to be a supply of gas high in CO2. MEO believes there is sufficient gas in Blackwood to supply one of two proposed TS refineries. This supply has to be proven. As MEO holds 100% of the permit (even after the potential farmout of Heron) they will need funds to prove the resource - or farmout the prospect.

The other potential supply for the TSMP is other stranded gas in the area. The area of most interest is the NT/P 48 permit which contains the Evans Shoal (ES) high CO2 gas field. NTP/48 also contains the government approved site for MEO's TS projects.

Researchers can look up the history of the permit but basically MEO, in a former life and make-up, was one of the permit partners. In 1998 MEO and Shell drilled Evan's Shoal and found gas, but it was high in CO2. The resource has an estimated 6.6-8Tcf recoverable reserve. The question is whether or not these reserves can sustain the cost of a pipeline to, and Methanol plant in Darwin. It was at this time MEO put forward the plans for the TS projects.

After Santos took over the permit MEO kept the Tassie Shoal portion but were left with NTP/68 for supply - but NT/P68 still needed to be explored.

Since then Santos had preferred the Darwin solution for a Methanol plant with associated pipeline. I am not sure whether or not the other ES permit partners (PPs) Petronas (25%) and Osaka (10%) are interested in Methanol production but Shell (25%) have indicated they will participate in costs of the recovery of the gas (upstream) for sale they will not participate in the pipeline or production of Methanol (downstream) costs.

In 2010 Santos put their 40% and operatorship of ES up for sale. This tells me that they did not like the economics of the project or were just interested in their other projects. Perhaps STO could not get the support of the othere ES PPs to participate in the costs. More about this later.

On May 18 2010, Magellan entered into negotiation with STO to buy their 40% and operatorship of the permit for $200m. They have received Oz FIRB government approvals but did have trouble with funding but its major SH, YEP, entered a legally binding commitment with MGN to provide the funding for the ES purchase.

This commitment was made 24 Dec 2010 when the original deadline for the purchase was set. The deadline was extended to 31 Jan but this was not met either so a new closing date, May 31, 2011, was agreed to. The latest MGN document has confirmed that the original $13.5m is now non-refundable and a further $10m deposit has been made towards the purchase price. This has been guaranteed by YEP as outlined in the amended funding agreement.

MEO management must be in a quandary regarding TS ATM, hence the lack of releases.

The Greater Heron farmin is due to be finalised. We haven't heard whether or not the data room is closed. One point which I have been pondering is the timing of the development of any Greater Heron (GH) gas. For the TS projects to work the idea is to have the methanol plant up and running for the CO2 waste from the Timor Sea LNG (TSLNG) plant to be processed through the adjoining Methanol plant. The ideal situation would be for the farmee to be interested in both LNG and Methanol but this may not be the case.

So, what is needed is a major partner to JV the GH gas field both upstream and, if sufficient quantities of LNG quality gas are found, downstream through the TSLNG project, similar to the doomed 2008 alliance with Clive Palmer.

In the mean time a guaranteed gas supply is needed for the TSMP. The ideal situation is to procure gas from ES. This could be from:

1 Direct third party purchase from the ES JV or
2 Buy into the permit from one of the present PPs such as 25% Shell (already suggested) or
3 If the Magellan sale falls over maybe buy STOs' 40% share and become the operator. This would leave the door open for a farmee willing to participate in the TSMP.

The unknown fact is the deal between Magellan, STO and the agreement with the other P48 PPS. MGN have had FIRB approval since 7 Jun 2010 and been guaranteed the funding since Dec 2010. The stumbling blocks must be to get the PPs on side to develop the wells and sound out the feasibility/cost/approval of a pipeline and methanol plant in Darwin.

I haven't worked out the figures but MGN may need all the ES gas to feed the land based plant in Darwin. To take part in developing the ES field the PPs will need to be convinced that the Darwin plant is a sure thing. Shell, for instance, who originally explored the permit with MEO may want a guaranteed income by selling their 25% gas to MEO for methanol production in the approved TSMP at TS (similar to CUE at 360-P).

MEO have money in the bank, but they want to use this wisely. They can't wait too long for the MGN/ES scenario to play out but they have shown they have the patience to give it time and I am sure they are keeping in touch with all parties.

Any guaranteed ES gas will mean the TSMP will be able to get underway, depending on funding etc. A large amount of planning has already been completed. MEO will also have Blackwood as a backup.

If we can't get a supply from ES, and the Barossa/Caldita gas remains destined for land based processing then the only way forward for MEO is to develop Blackwood, which is believed to have sufficient gas for on TSMP module. They will need a farmin partner for this to proceed.

In the following link

ASCI - Interview with Jurgen Hendrich.

We can see the CEO's train of thought regarding TS. Regarding the project partners the question was asked:

KS: Does MEO have sufficient cash to finance its projects or will it require additional capital raisings/borrowings? If not, where will MEO source additional financing from?

JH: MEO plans to secure one or more partners to complete appraisal drilling of its gas discoveries. These parties will also be expected to fund the majority of FEED studies and other costs ahead of FID. At that point, project finance for up to 70% of the capital expenditure will likely be sought, with MEO and its partners required to fund approximately the remaining 30% from cash reserves and/or new equity raisings.

Because there is the question of combined LNG and Methanol production it will be difficult to tie all this together. A potential LNG producer may not be interested in Methanol and vice-versa. A company like Petrobras would probably like to take over the LNG side of things including half the infrastructure costs. MEO have a 50/50 agreement with Air Products for the TSMP project but a supply of gas is needed. Dr Daz said some time ago that Air Products had no interest any more without a source. I don't think this is right but if so, and there is sufficient gas in ES, maybe Methanex (who are talking with MGN about the Darwin plant) may also be interested in taking part in the TSMP.

The LT fundamentals of MEO have always been quite complex which is why a strong management team is needed to finish this game of chess. LT investors also need to be resilient but aware of the difficulties management face and adjust their LT investments to suit.

Unlike Artemis there is gas surrounding TS. It is just a question of getting people on board to realise the vision.

Who knows what the good news will be. I am still confident it will come just like CS,

Bentley Capital,

and others.

But these are only my thoughts.

#:>))