low risk - high reward, page-24

Here's another report on NEN from Bell Potter date 1 May 2013.

Neon Energy (NEN) Confirmed drilling program in Vietnam
offers exceptional risk reward

One rig contract signed, another imminent
NEN has followed up the encouraging March Quarterly report with an announcement that the Songa Mercur semi-submersible rig has been contracted to drill in Block 120 offshore Vietnam, with a planned spud date in August 2013. We expect that a contract for a jack-up rig to drill the huge gas target in Block 105 will follow shortly, to be drilled June/July 2013. This is exciting news for NEN shareholders, as the company’s 25% interest in either well could generate significant upside in the success case.

No change to estimates
Our risked DCF/EMV valuation of NEN is unchanged at $0.62/share. This valuation is based on the mid case resource estimates independently provided by Netherland Sewell and Associates (NSA) and Bell Potter risking assumptions of 10% for Block 120 and 20% for Block 105. The unrisked success case for either prospect is around $1/share, using in ground values of $5/barrel or $0.50/mcf. If we used NSA’s “High” estimates of the same prospects, the valuation impact could be $3/share for each.

This is what we’ve been waiting for!
Our investment thesis for NEN has always been about the exploration potential in Vietnam. The upside is exceptionally high for a relatively small company, and the quality of the prospects are good too. The fact that two high impact wells have been confirmed for the next six months is exciting in our view.

Admittedly, conventional oil and gas exploration hasn’t grabbed many headlines in recent years, and Australian companies have been particularly disappointing on this front. But just because recent history has been poor, it doesn’t mean that future oil and gas exploration wells will fail too. We regard NEN’s upcoming drilling as the most attractive risk/reward exploration program by an Australian company for many years, and we reiterate the stock as a great Buy, keeping in mind the Speculative nature of the recommendation.


Bell have been keen on NEN for several years now.