Well I’m just trying to work out what Mackellar is worth. In the...

Well I’m just trying to work out what Mackellar is worth.
In the 31/1/2012 quarterly they said that the Greater Mackellar Structure has the following:
- 720 BCF low
- 1379 BCF PMean or P50
- 2124 BCF P10

After doing the seismic they adjusted this to 1,304 BCF PMean. The April 2013 Quarterly broke this down to: Pmean 1304 Bcf– 848 in the Gatton and 456 in the Ripley Road.

Now they said previously that when they drilled Kingfisher they saw 138 metres of gas charged sands in the Gatton and that they only drilled the top few metres of the Ripley Road (was it around 10 metres they drilled in the Ripley Road?). This was the zone that they had he flow of 3mmcfd from. They said on 29/10/2010 that the best performing sections of the Kingfisher well were in the bottom of the well and that a high potential zone at the very bottom was never tested.

So my read is that when they drill the Gatton – its pretty likely that they will see gas charged tight sands. Tight sands can be expensive to produce but with gas prices around $8 the Gatton would probably be commercial and would be a barn burner if gas prices were $18 Gj.

In the 29/7/2011 quarterly they gave some good information saying that Kingfisher had been drilled to 2090 metres but that there was another 500 meters of untested sedimentary pile in the Ripley Road below this and that THIS SECTION WAS NOT INCLUDED IN THE GIP ESTIMATE.

So my read is that the 456Bcf estimate for the Ripley Road in Rosella only includes the 10 metre section that they already drilled. If they drill it properly there is HUGE UPSIDE in rest of the 500 metre section – which also includes the Basal Bundamba and the Ipswich and Nymboida coal measures.

So whats Mackellar worth at $8 gas?:

KNOWN...
GATTON – 848 (PMean GIP Bcf) *$4(margin)*50% (probability)*10% (recovery)= $170 Million
RIPLEY ROAD – 456 (PMean GIP Bcf) *$6 (margin) *50% probability * 30% recovery = $410 Million

UNKNOWN UPSIDE......
LOWER RIPLEY ROAD, BASAL BUNDAMBA, IPSWICH & NYMBOIDA COAL MEASURES – Guess 500 metres of untested sedimentary pile???? - Its highly unlikely that there's no gas in the lower sections given that there's gas above. In the past (when the exploration team was in charge) they compared this to Queensland plays where the better quality sands are lower in the stratigraphy. So my wild and hairy guess – is five times the GIP estimate currently in the Ripley Road – say 2280 PMean. Lets give it a 5% probability and a 30% recovery so..
2280 * $6 * 5% * 30%= $205 Million.

So if you follow these numbers then you get to a quick and dirty estimate of: $580 million in the known sections of the Gatton and Ripley Road and $205 million upside in the lower sections.

With 450 million shares on issue that makes it $1.28 per share and 45c per share upside for the conventional alone. This is ignoring the CSG reserves which MEL management doesn’t seem to have much of a clue as to what to do with.

NO FINANCIAL ADVICE IS BEING PROVIDED HERE JUST SOME BACK OF THE ENVELOPE NUMBERS.

What I would like to see from the Company is some detailed information of what is being drilled - a map of the stratigraphy of the structure and what the are planning to drill compared to Kingfisher would be a start.