Good post on iii board - headed Understanding the industry you...

Good post on iii board - headed Understanding the industry you invest in... poster Dhatrader

For you all

First and fore-mostly, my personal view is that this RNS is a wonderful result. From discovery to having a completed facility within 8 weeks is a testament to the mgt team. Many here i believe post unrealistic targets and expectations on what the share price will do.

The volumes in the market have reduced from last year and hence massive spikes up are less frequent and only ground-breaking finds will drive such a rise. To say that '10p here we come' is a misguided view on every RNS release. All it does is set-up disappointment across the board with panic sellers on every time news releases.

Learning about the industry: Unfortunately there is view that once you provide your first flow-rate you should immediately provide an update on reserves. When a well is being drilled and especially and exploration well, you pump considerable mud at a pressure that exceeds the pressure of the oil/gas reservoir - if you dont keep a pressure balance then a kick of gas and well can result in hazardous situation up on the surface. The mud also keeps the drill-bit lubricated.

We all know mud can get very sticky and prevent proper flow. However, with modern science, engineers have been able to develop drilling mud that has a density very similar to water and hence as it is pumped down into the well, it does create a skin or layer of sorts around the producing zone. When the well is perforated, the producing fluids starts to push this mud back out the well.......this is called the well clean-up.

So the update provided two things:

a) First the well is still cleaning up and 3.2 MMSCFD may only be the starting figure. That also only on 6/64th inch choke. Plus we get 290bbl/day of oil ;-)
b) 72hrs of data will provide further data on well performance and hence overall reserves potential.

Generally when you do a well-test for an extended period - you measure data both prior to the test and after. The data is then fed into models that can provide an estimate of reserves. The reason i say estimate is that one well can not accurately determine the boundaries of the field size. Only extensive appraisal wells will. However, the initial estimate of reserves will provide the real catalyst on what the economics are.

The other great result is that without fraccing the reservoir, we have been able to produce such good results in the upper-zone. it provides us immediate cash-flow. It will be interesting to see how long they produce before fraccing the well. Fraccing costs can be expensive the mobilising a small rig for that exercise is not very time-consuming. The initial flow-rates can often be very impressive as you literally blast open the formations to allow gas to flow.

If they believe other zones have similar potential and all commingle to produce 10 MMSCFD plus some bonus oil then we got a great earner to expand and take more acreage in the area or start saving for the Georgia programme and future Puntland commitments. All that leads to is low dilution.

Its a great result. The SP is not showing it but i am very happy with it!

Sometimes the markets is very irrational. We have been provided regular positive updates and company has stuck to its timelines but markets take some time to really appreciate the discovery.

Cheers,

Dhatrader