half the ipo price - are they worth it ?

OK, so Lakes spinoff GOP is now at a round half the price it IPOd at.

Commiserations to anyone who bought in at the IPO - between the GOP and the half a GOPO stapled to it, you are down about 40%.

GOP has 60m shares and call it 60m options - Annels and Co just gave themselves some more for free, there are 30m traded options, and a bunch of untraded ones Lakes, Annells and so on got for free (*).

OK, so at 10 cents, the company is worth $6m.

According to the last quarterly, they have $10, nearly $11 million in cash. Admin chews up $150k a quarter.

They are planning two strat test wells (yawn) and two shallow onshore drills 'Banjo' and 'Patrobus'. They mention they used airphoto, gravity, radiometric and magnetic analysis to identify the structures (wot ? No surface geochem ? No EM ? ). But no mention of seismic.

Now, sometimes I'll OK drilling without seismic, especially if you are being a cheapass and using "slimhole" drilling (ie using a much cheaper minerals rig with Blowout Preventers retrofitted - stuff the logs, cut cores, and if the oil's there, go get yourself a real rig). But honestly, you would prefer that they knew they had a like, actual structure to try and hit the top of ...

But me, I'm personally writing off Banjo and Patrobus right now.

BTW, there goanna need to rename Banjo - there's a old TAP et al well Banjo-1.

This takes us back to Gilbert-1.

Me, I wouldnt pay 2:1 for Gilbert-1.

But as a punter today, you arent. You can buy a GOP and a GOPO for about fourteen cents, so you are paying a shade less than 3:2, which is a much more reasonable price for a Bass Strait wildcat.

Alternatively, if Gilbert-1 misses, you've done your money, so you might be better off just buying options, on a fire-and-forget basis - accepting that if Gilbert hits, you make a motza, but if it misses, you've done your four cents an option. I havent done the numbers on what Gilbert coming in is worth to Lakes, EBR, MOG and whatever Gravity Capital are called these days.

OK, so lets go thru the IGs report in the prspectus.

He's calling at at 3.8:1, with a 60/40 chance of oil rather than gas.

The gas case first. If it's gas, it's likely to be uneconomic, as the deposit is just too small at 63 bcf maximum (cf Moby-1).

Thus, he's calling an oil hit at about 5:1, with reserves at 23 to 80 mmbl, with the median number at a round 56 mmbl.

You can monetise 20 mmbl of oil in Bass Strait (cf Beach and Anzon), so I'm not too worried about hitting subeconomic oil (although if it's a Zane Grey-style small oil deposit with a small gas deposit, thats trouble).

I can't see any huge holes in the IGs report, but the lack of definite seal is a worry - I'd put the oil hit chance at 10:1.

20 mmbl of oil at today's prices should be worth about A$300m, so I think the game is worth the candle (whats the market valuing the Anzon/Beach deposit at anyway ?).

But personally, I'd be laying off my bet during the excitement of the drill, as a Zane Grey style mixed target is a higher probability than pure oil.

On the plus side, GOP should have the money to complete the well.

But yeah, it's a worthwhile punt at these prices.

Ian Whitchurch

(*) Yes, there is a theme in this company.