I thought it might be helpful to look at PSA's forward plan as spelt out in the Chairman's address and summarise it on a time scale:
May 03: Share price 55c market cap $58m.
West Cameron existing wells 14 bcft and likely production of 5 bcft total for 2003. This implies production rates of Feb Mar will not be maintained but there will still be a healthy cashflow eg at US$5 that equates to an extra $26m to add to the $17m first quarter windfall. Full production expenses are still not clear.
July/Aug 03
2 wells West Cameron chasing 10 bcft net to Petsec. If successful they will bring reserves up to say 12 + 10 = 22 bcft worth at US$5 approx A$170m cashflow over the next few years. Less of course whatever the true production costs actually are, but given these wells will cost little to bring into production they are obviously the the key springboard for the planned future expansion and success must command a share price over $1?
Late 2003/early 2004:
Two well programme on Vermilion chasing 18 bcft net to Petsec. If successful, there is further 33 - 18 = 15 bcft mapped on this lease. Will require installation of production platform so sounds more expensive than West Cameron. ???A teeny bit of project finance in order by this stage.
Reserves would stand at say 10 + 10 + 18, equivalent to A$290m future cashflow at $US5. Share price would have to be $1.50+ by this stage if it came to pass.
By late 2004/ 2005 if all goes to plan!!:
Vermilion starts producing + I suppose drill for the extra 15 bcft still mapped on main Vermilion lease. + start drilling adjacent Vermilion leases for mapped extra 20 bcft.
+ plus by that stage they will have drummed up a whole stack of extra prospects to titillate us with. ??Share price $3 ??
I've ignored China.
What if all 2003 wells are duds, what then?
By Dec 2003 we should have
West Cameron 10bcft a teeny bit of cash (hopefully!) and severely dented confidence. That's still A$75m future cashflow which the market in its gloom will discount. Maybe we should say 5 bcft as the ecomonics dwindles as the wells run dry --- shareprice ???? (down but not out?)
Perhaps I should add that PSA have a historical success rate of about 90% in the GOM, but JCB states PSA indicated to him that the next two West Cameron wells are geologically higher risk than the first three. Hence no doubt his indecision at present.
In summary overall from start they have mapped:
16 + 10 + 33 + 20 = 77 bcft of which only the 16 is ostensibly "proved". At US$5 thats around $600m potential (or $700m potential at the current US gas price) less whatever production and development costs would be. Can't see much downside below 50c until failure of wells is proven! So if they dip below before July I think I shall buy some more.
