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Contents Mosaic Oil (MOS) 1 Eastern Star Gas (ESG) 3 Essential Petroleum Resources (EPR) 4 Pancontinental Oil & Gas (PCL) 2 Molopo Australia (MPO) 3 Adelaide 08 8359 2722 Melbourne 03 9256 8700 Brisbane07 3221 3500 Mornington 03 5975 6666 Perth 08 9322 5899 Cairns 07 4051 4122 Geelong 03 5229 2016 Hobart 03 6223 1600 Southport 07 5532 1311 Sydney 02 9253 8700 Toll Free 133 788 ABN 25006390772 Website www.bellpotter.com.au Email [email protected] Mosaic Oil (MOS) BUY Increasing production base to triple revenue 21¢Vol 3. No.630.08.02ResourceFocusOver the last twelve months, Mosaic Oil has focussed on, and established control of the poorly explored Permian Gas play in the southeastern part of Queensland. The company owns two blocks of permits in this region on the western side of the Surat/Bowen Basins-a northern block of 300 square kilometres, and a southern block of 1,100 square kilometres. In the northern block, Mosaic has had success in 6 of its last 7 wells and discovered two small oilfields (Spring Grove and Downlands), and the large Churchie gasfield. Churchie-3, drilled in June 2002, flowed on test at over 20 million cubic feet per day (mmcfd). The gas is rich in liquids-condensate and LPG-that effectively doubles the revenue stream of a pure methane flow. Mosaic also owns local pipeline infrastructure, a gas treatment and LPG plant that can treat gas volumes of 40 mmcfd. This plant currently has spare capacity of 15 mmcfd. Churchie Permian Complex (Mosaic 49% and Operator) Churchie was discovered in July 2001 with traditional drilling techniques. Two early wells flowed at rates of around 1 mmcfd, but were considered to have suffered well bore damage due to reservoir invasion by drilling fluids. Churchie-3 was drilled using nitrogen instead of drilling mud, and flowed at 20 mmcfd. The Churchie reservoir system covers about 90 square kilometres, although within this area there may be bald areas. The company estimates the complex may contain 100 billion cubic feet (bcf) of gas and 3 million barrels of condensate. The system is dipping to the southeast and with depth the gas becomes progressively richer in liquids. The condensate and LPG content ranges from 30 barrels (bbls) and 3.5 tonnes per mmcf respectively to 100 bbls and 6 tonnes per mmcf in the southern Noorindoo area. This liquid richness increases the revenue stream compared with a dry gas stream. We estimate that for gas containing 40 bbls/mmcf condensate and 4 tonnes/mmcf LPG the expected revenues are doubled. We estimate that a gasfield of 100 bcf with liquids content of this order is worth between $75 million and $100 million net to Mosaic, or 24 cents to 32 cents per fully diluted share. Downlands Project (Mosaic 83.3%) Mosaic believes there is an oil rim around the Downlands gasfields. Downlands-3 encountered 5 metres of net oil pay, and is completed as an oil producer. This well implies a recoverable reserve of around 2 million barrels of oil, with a value to Mosaic of around $33 million, or 10 cents per share. Drilling Programme The success at Churchie has prompted the drilling of two further tests of the Permian in this area. Norkam-1, four kilometres south of Churchie, is currently drilling and using a nitrogen system, rather than conventional drilling muds, to minimise formation damage. The second, Tinker-5, is located near Silver Springs and will also be drilled with nitrogen. Oil has been discovered in the lower sections of six wells in the Tinker area and could be associated with one of three sand bodies, all with different areal extent. Other Projects The re-entry of the Waggamba well is planned in the current fiscal year, for the possible recovery of 6 bcf of gas and associated liquids. At Silver Springs, the company estimates that 30 bcf of gas has been bypassed and can be located by seismic re-processing and modern re-mapping. Mosaic has a 7.5% interest in the offshore permit WA208 where large sand fans are the primary target. The company holds a 28.6% interest in a retention lease on the Kimu gasfield in PNG. This field may become commercial if the PNG-Qld pipeline is built. Financial Mosaic had cash available of $5.3 million at the end of June 2002 and no net debt. INVESTMENT DATA Share Price 21¢ Issued Capital Ordinary Shares Contrib. Shares (unlisted) Unlisted Options Fully Diluted 289.8 m 19.8 m 5.0 m 314.6 m Market Capitalisation $60.9 m 52 Wk Low/High 12.5¢ / 32.5¢ Peter Cameron [email protected] Share price chart MOS Junior Oil & Gas Updates $0.10$0.20$0.30$0.40Sep-01 Dec-01 Mar-02 Jun-02 Sep-02
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Bell Potter Securities Research Page 2 with excellent upside potential from exploration endeavours from a new play in an old area. On the basis of existing reserves and potential production profiles, the company appears significantly undervalued. Pancontinental Oil & Gas (PCL) Speculative Buy Huinga production testing now in progress in New Zealand 5.8¢Current revenue of around $10 million per annum is likely to increase three-fold in 2003 when Churchie production commences, which will minimise the requirement to raise funds from the market. We consider Mosaic a well managed junior, Pancontinental Oil & Gas offers a wide diversity of exploration exposure relative to its market capitalisation. It is exploring in New Zealand, Australia, and has interests offshore Malta and offshore Kenya. The Maltese and Kenyan areas do not require significant immediate funding. One inevitable aspect of such wide ranging exploration is the requirement to raise exploration dollars, but given that the company's drilling programme is justified, the management sound, and the results encouraging, we believe the leverage available to exploration success justifies the investment. A current example is the drilling of the Huinga-1B well in the Taranaki Basin of New Zealand. Huinga-1B (PCL 6.6%) The Huinga prospect is located on the prospective eastern margin trend, established by the Rimu and Kauri discoveries, in the Taranaki Basin in New Zealand. The Huinga-1B well has been drilling since April, and after encountering a number of drilling problems that do not impact on the geological results of the well, intersected a minimum 237 metre gross hydrocarbon column. The well reached total depth still within the hydrocarbon zone. This column occurs over two geological formations-the Murihiku metasediments and the Kapuni sandstone-that exhibit different reservoir characteristics. The Murihiku is a fractured reservoir, whereas the Kapuni is a conventional sandstone reservoir. In the Taranaki Basin, oil and gas are produced at commercial rates from Kapuni reservoirs, as well as from fractured limestones of the Tikorangi formation. Many large oil and gas fields throughout the world produce from fractured reservoirs. Initial testing of the zone was attempted before the well was cased, and both gas and oil were recovered but the test tool was blocked by silts and sands from the hole. The hole has subsequently been cased and prepared for an extended production test. An initial clean-up flow across both reservoir zones will attempt to recover much of the drilling fluid lost to the formation during the drilling operations and allow an improved oil flow. Flow and pressure data will also indicate if acid remedial work is required. After these clean-up flows, a specific test of the Murihiku zone for a period of seven days will commence. A similar test of the Kapuni will follow. Expected higher permeability in the Murihiku zone is likely to provide a higher flow rate than the Kapuni. The testing programme will then involve several short flow and shut-in periods to collect pressure data, and longer flow periods to evaluate productivity and reserve data. If the initial testing is positive, the total test period may continue to the end of October 2002. The production test data will also assist in determining the possible total thickness of the (minimum) 237 gross oil column, given that neither an oil/water contact, nor a clear indication of a gas/oil contact has been established to date. This ambiguity also provides a significant upside to the potential reserves of the discovery. The pre-drill reserve estimates for this prospect ranged between 46 and 67 million barrels, worth between 20 and 30 cents per share to Pancontinental, when valued at a conservative net A$10 per barrel. We see upside potential in both the reserve volume and net oil price. Note: Other Participants Bligh Oil (BLO) and Australian Worldwide Exploration (AWE)are also listed Australian participants in the Huinga-1B well. At current share prices, Bligh (15¢) offers similar leverage to Pancontinental for upside potential and is thus also rated a Speculative Buy. The higher market capitalisation, AWE, is a less leveraged but lower risk entry. We have a Buy recommendation on AWE (70¢). INVESTMENT DATA Share Price 5.8¢ Issued Capital Ordinary Shares Options Fully Diluted 127.8 m 25.0 m 152.8 m Market Capitalisation (Undiluted) $7.4 m 52 Wk Low/High 3.0¢ / 6.9¢ Share price chart PCL Mosaic Oil (MOS) (continued) Increasing production base to triple revenue2.04.06.08.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Bell Potter Securities Research Page 3 production test prior to larger scale field development. Molopo has entered into a sales contract with a local cotton drying operator to take its share of the gas produced from the extended production test. OCA is already producing CBM gas from over fifty wells in nearby project areas within ATP564, which lies close to infrastructure and the gas pipeline to Gladstone. Molopo's share of a similar fifty well development at Mungi or Harcourt could provide the company with annual production of the order of 1.5PJ, and provide revenue of the order of $4.5 million per annum. This level of production could be achieved within three years of successful appraisal. Ultimately, just these two projects could sustain a 100 well development for a 25 year period. Molopo has at least seven other identified prospects within its Bowen Basin inventory awaiting initial test drilling, and two prospects awaiting production testing. We see considerable upside potential from further exploration, appraisal and development drilling over the next twelve months. INVESTMENT DATA Share Price 3.6¢ Issued Capital Ordinary Shares Listed Options Unlisted Options Fully Diluted 245.0m 80.9 m 10.4 m 336.3 m Market Capitalisation (Undiluted) $8.8 m 52 Wk Low/High 1.6¢ / 4.5¢ Molopo Australia is a well funded junior, currently undertaking significant appraisal activities of coalbed methane (CBM) projects in the Bowen Basin of Queensland. It is also appraising its CBM project in Luilin, China, and undertaking CBM exploration in the Bowen Basin, Queensland and the Gloucester Basin of NSW. In its Bowen Basin CBM activities during the last year the company has: sold 25% of its 50% interest to Helm Energy Australia LLC for US$1.5 million cash and US$3.5 million exploration, appraisal and development funding, announced proven and probable reserves of over 80 petajoules (PJ) of gas in its ATP564 prospects, farmed-in for a 25% interest to the Mungi prospect in PL94, estimated to have recoverable reserves of over 100PJ, farmed-in for a 25% interest to ATP602, containing the Timmy prospect, that could have reserves of the order of 230 PJ. Current interest relates to appraisal drilling of the Mungi and Harcourt projects. In partnership with the leading CBM operator in Australia, Origin Energy subsidiary Oil Company of Australia (OCA), Molopo is drilling both vertical wells and innovative horizontal completion wells, to test for relative gas productivity. Both these prospects have flowed gas previously and the new wells will be placed on extended Eastern Star Gas (ESG) Speculative Buy Gas supply to country NSW will crystallise value 13¢ Molopo Australia (MPO) Speculative Buy Appraisal activity offers significant upside 3.6¢Eastern Star Gas has recently announced an increased interest in PEL238, NSW, taking its interest to 81.5%. This permit includes the Coonarah Gasfield, which contains proven and probable reserves of 11.3 petajoules (PJ). The field was discovered in 1993 and was the first commercial gas discovery in NSW. The permit also contains the Wilga Park and Bohena gas discoveries. We consider it likely that further commercial reserves will be established in this permit. Eastern Star's additional 61.5% interest is being acquired from a private company associated with three of its Directors, and is conditional on shareholder approval (other than the related parties). The interest will be acquired by the issue of 30 million shares to the vendor plus a 3% royalty on future production other than from Coonarah. The company is also seeking to acquire the remaining 18.5% interest from other titleholders on similar terms. PEL 238 covers an area of 9,100 square kilometres of the Permo-Triassic Gunnedah Basin, in north central NSW. The Coonarah gasfield lies approximately 20 kilometres west of the regional centre of Narrabri, and the Wilga Park and Bohena gasfields lie 7 kilometres west and 27 kilometres southwest of Narrabri respectively. A large number of leads and prospects have been mapped from limited seismic coverage in the area surrounding Coonarah and Bohena. The commercial development of the Coonarah gasfield is currently being finalised. It is envisaged that a 6 inch steel pipeline will transport gas to Narrabri where a 6 megawatt gas fired power station will be constructed. Eastern Star has an agreement with Country Energy, INVESTMENT DATA Share Price 13¢ Issued Capital Ordinary Shares* Options 20¢ Options 30¢ Fully Diluted 113.5 m 25.0 m 20.1 m 158.6 m Market Capitalisation (Undiluted) $14.8 m 52 Wk Low/High 10.0¢ / 17.5¢ * assuming issue of 30 million shares for acquisition of additional interest in PEL238 Share price chart MPO 0.02.04.06.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Share price chart ESG the US gulf coast. Native Title Agreement, PEP151While the offshore provides high exposure exploration activity, it should not be forgotten that Essential Petroleum has a dominant position in the onshore basin. One of the company's most exciting onshore plays-oil exploration in the Portland Trough-has moved a step closer to being drilled with the signing of the Native Tile Agreement with the Gunditjmara People in western Victoria. Essential Petroleum holds 100% of PEP151, which contains a number of oil prospects. These include the Cobbobonee prospect with an estimated recoverable reserve potential of 40 million barrels, and the Glenaulin prospect with an estimated recoverable reserve potential of 21 million barrels. Seismic surveying can now commence over these prospects in the summer of 2002/2003, with drilling expected later in 2003. With exploration activity commencing in both the offshore and onshore Otway Basin, we see little downside risk to Essential Petroleum at current levels. In fact, with at least one onshore well to be drilled later this year, market attention on the offshore Otway through 2003, and the possible drilling of Cobbobonee later in 2003, we see a number of opportunities for significant share price appreciation. Essential Petroleum Resources (EPR) Speculative Buy Acreage and agreement successes prepare for the future 15.5¢IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS: Because this document has been prepared without consideration of any specific client's investment objectives, financial situation or needs, a Bell Potter Securities Limited securities adviser should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended. Additional Disclosure: Within the past 24 months, Bell Potter Securities Ltd acted as Underwriter in the IPO of Essential Petroleum Resources and received a fee. Essential Petroleum has achieved two milestones in the last week that, while not impacting immediate drilling plans, lay the foundation for potential near term exploration upside. Award of Vic/P50 Essential Petroleum has been the successful bidder for the offshore Otway block Vic/P50, which lies immediately to the south of its existing block Vic/P46. The company has won the bid against a number of international and major Australian oil and gas companies. The offshore Otway Basin is receiving unprecedented exploration focus by Australia's major explorers, including Santos, Woodside Petroleum and Origin Energy. Essential Petroleum now holds a strategic acreage position, both in the offshore and the onshore Otway Basin. The company's offshore acreage is flanked to the east by two blocks, also awarded in the recent round, held by Santos, Inpex and Unocal. We believe Essential's 100% owned acreage position in the offshore will, when appropriate, be readily farmed-out to cover the expense of offshore drilling. We see Essential Petroleum in a very leveraged position to future offshore Otway activity, even on adjacent blocks. The company has mapped four distinct play types in these two blocks, providing a range of exploration opportunities, including Waarre Formation prospects similar to the Thylacine and Geographe discoveries of Woodside and Origin. Essential Petroleum is also pursuing large turbidite plays, extending into deeper water, equivalent to the deepwater margin plays being explored offshore West Africa, South America, and the regional NSW power authority, to sell locally generated electricity. Direct gas sales to local industrial users is also anticipated. Eastern Star is exploring elsewhere in NSW for both conventional gas and coalbed methane gas, and is also undertaking coalbed methane tests at Oak Park, west of Melbourne. W e b e l i e v e t h e i m m i n e n t commercialisation of the Coonarah gasfield fully underwrites the current share price, and that likely additional reserve additions in adjacent nearby discoveries provides low risk upside. In addition, any exploration success in other project areas adds speculative appeal. INVESTMENT DATA Share Price 15.5¢ Issued Capital Ordinary Shares Options Unlisted Options Fully Diluted 68.0 m 26.2 m 13.1 m 107.3 m Market Capitalisation (Undiluted) $10.5 m 52 Wk Low/High 12.5¢ / 29.0¢ Share price chart EPR Eastern Star Gas (ESG) (continued) Gas supply to country NSW will crystallise value $0.00$0.10$0.20$0.30Sep-01 Dec-01 Mar-02 Jun-02 Sep-02$0.10$0.12$0.14$0.16$0.18$0.20Sep-01 Dec-01 Mar-02 Jun-02 Sep-02This is the html version of the file http://www.pancon.com.au/files/4_reps/broker/300802.pdf.
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Contents Mosaic Oil (MOS) 1 Eastern Star Gas (ESG) 3 Essential Petroleum Resources (EPR) 4 Pancontinental Oil & Gas (PCL) 2 Molopo Australia (MPO) 3 Adelaide 08 8359 2722 Melbourne 03 9256 8700 Brisbane07 3221 3500 Mornington 03 5975 6666 Perth 08 9322 5899 Cairns 07 4051 4122 Geelong 03 5229 2016 Hobart 03 6223 1600 Southport 07 5532 1311 Sydney 02 9253 8700 Toll Free 133 788 ABN 25006390772 Website www.bellpotter.com.au Email [email protected] Mosaic Oil (MOS) BUY Increasing production base to triple revenue 21¢Vol 3. No.630.08.02ResourceFocusOver the last twelve months, Mosaic Oil has focussed on, and established control of the poorly explored Permian Gas play in the southeastern part of Queensland. The company owns two blocks of permits in this region on the western side of the Surat/Bowen Basins-a northern block of 300 square kilometres, and a southern block of 1,100 square kilometres. In the northern block, Mosaic has had success in 6 of its last 7 wells and discovered two small oilfields (Spring Grove and Downlands), and the large Churchie gasfield. Churchie-3, drilled in June 2002, flowed on test at over 20 million cubic feet per day (mmcfd). The gas is rich in liquids-condensate and LPG-that effectively doubles the revenue stream of a pure methane flow. Mosaic also owns local pipeline infrastructure, a gas treatment and LPG plant that can treat gas volumes of 40 mmcfd. This plant currently has spare capacity of 15 mmcfd. Churchie Permian Complex (Mosaic 49% and Operator) Churchie was discovered in July 2001 with traditional drilling techniques. Two early wells flowed at rates of around 1 mmcfd, but were considered to have suffered well bore damage due to reservoir invasion by drilling fluids. Churchie-3 was drilled using nitrogen instead of drilling mud, and flowed at 20 mmcfd. The Churchie reservoir system covers about 90 square kilometres, although within this area there may be bald areas. The company estimates the complex may contain 100 billion cubic feet (bcf) of gas and 3 million barrels of condensate. The system is dipping to the southeast and with depth the gas becomes progressively richer in liquids. The condensate and LPG content ranges from 30 barrels (bbls) and 3.5 tonnes per mmcf respectively to 100 bbls and 6 tonnes per mmcf in the southern Noorindoo area. This liquid richness increases the revenue stream compared with a dry gas stream. We estimate that for gas containing 40 bbls/mmcf condensate and 4 tonnes/mmcf LPG the expected revenues are doubled. We estimate that a gasfield of 100 bcf with liquids content of this order is worth between $75 million and $100 million net to Mosaic, or 24 cents to 32 cents per fully diluted share. Downlands Project (Mosaic 83.3%) Mosaic believes there is an oil rim around the Downlands gasfields. Downlands-3 encountered 5 metres of net oil pay, and is completed as an oil producer. This well implies a recoverable reserve of around 2 million barrels of oil, with a value to Mosaic of around $33 million, or 10 cents per share. Drilling Programme The success at Churchie has prompted the drilling of two further tests of the Permian in this area. Norkam-1, four kilometres south of Churchie, is currently drilling and using a nitrogen system, rather than conventional drilling muds, to minimise formation damage. The second, Tinker-5, is located near Silver Springs and will also be drilled with nitrogen. Oil has been discovered in the lower sections of six wells in the Tinker area and could be associated with one of three sand bodies, all with different areal extent. Other Projects The re-entry of the Waggamba well is planned in the current fiscal year, for the possible recovery of 6 bcf of gas and associated liquids. At Silver Springs, the company estimates that 30 bcf of gas has been bypassed and can be located by seismic re-processing and modern re-mapping. Mosaic has a 7.5% interest in the offshore permit WA208 where large sand fans are the primary target. The company holds a 28.6% interest in a retention lease on the Kimu gasfield in PNG. This field may become commercial if the PNG-Qld pipeline is built. Financial Mosaic had cash available of $5.3 million at the end of June 2002 and no net debt. INVESTMENT DATA Share Price 21¢ Issued Capital Ordinary Shares Contrib. Shares (unlisted) Unlisted Options Fully Diluted 289.8 m 19.8 m 5.0 m 314.6 m Market Capitalisation $60.9 m 52 Wk Low/High 12.5¢ / 32.5¢ Peter Cameron [email protected] Share price chart MOS Junior Oil & Gas Updates $0.10$0.20$0.30$0.40Sep-01 Dec-01 Mar-02 Jun-02 Sep-02
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Bell Potter Securities Research Page 2 with excellent upside potential from exploration endeavours from a new play in an old area. On the basis of existing reserves and potential production profiles, the company appears significantly undervalued. Pancontinental Oil & Gas (PCL) Speculative Buy Huinga production testing now in progress in New Zealand 5.8¢Current revenue of around $10 million per annum is likely to increase three-fold in 2003 when Churchie production commences, which will minimise the requirement to raise funds from the market. We consider Mosaic a well managed junior, Pancontinental Oil & Gas offers a wide diversity of exploration exposure relative to its market capitalisation. It is exploring in New Zealand, Australia, and has interests offshore Malta and offshore Kenya. The Maltese and Kenyan areas do not require significant immediate funding. One inevitable aspect of such wide ranging exploration is the requirement to raise exploration dollars, but given that the company's drilling programme is justified, the management sound, and the results encouraging, we believe the leverage available to exploration success justifies the investment. A current example is the drilling of the Huinga-1B well in the Taranaki Basin of New Zealand. Huinga-1B (PCL 6.6%) The Huinga prospect is located on the prospective eastern margin trend, established by the Rimu and Kauri discoveries, in the Taranaki Basin in New Zealand. The Huinga-1B well has been drilling since April, and after encountering a number of drilling problems that do not impact on the geological results of the well, intersected a minimum 237 metre gross hydrocarbon column. The well reached total depth still within the hydrocarbon zone. This column occurs over two geological formations-the Murihiku metasediments and the Kapuni sandstone-that exhibit different reservoir characteristics. The Murihiku is a fractured reservoir, whereas the Kapuni is a conventional sandstone reservoir. In the Taranaki Basin, oil and gas are produced at commercial rates from Kapuni reservoirs, as well as from fractured limestones of the Tikorangi formation. Many large oil and gas fields throughout the world produce from fractured reservoirs. Initial testing of the zone was attempted before the well was cased, and both gas and oil were recovered but the test tool was blocked by silts and sands from the hole. The hole has subsequently been cased and prepared for an extended production test. An initial clean-up flow across both reservoir zones will attempt to recover much of the drilling fluid lost to the formation during the drilling operations and allow an improved oil flow. Flow and pressure data will also indicate if acid remedial work is required. After these clean-up flows, a specific test of the Murihiku zone for a period of seven days will commence. A similar test of the Kapuni will follow. Expected higher permeability in the Murihiku zone is likely to provide a higher flow rate than the Kapuni. The testing programme will then involve several short flow and shut-in periods to collect pressure data, and longer flow periods to evaluate productivity and reserve data. If the initial testing is positive, the total test period may continue to the end of October 2002. The production test data will also assist in determining the possible total thickness of the (minimum) 237 gross oil column, given that neither an oil/water contact, nor a clear indication of a gas/oil contact has been established to date. This ambiguity also provides a significant upside to the potential reserves of the discovery. The pre-drill reserve estimates for this prospect ranged between 46 and 67 million barrels, worth between 20 and 30 cents per share to Pancontinental, when valued at a conservative net A$10 per barrel. We see upside potential in both the reserve volume and net oil price. Note: Other Participants Bligh Oil (BLO) and Australian Worldwide Exploration (AWE)are also listed Australian participants in the Huinga-1B well. At current share prices, Bligh (15¢) offers similar leverage to Pancontinental for upside potential and is thus also rated a Speculative Buy. The higher market capitalisation, AWE, is a less leveraged but lower risk entry. We have a Buy recommendation on AWE (70¢). INVESTMENT DATA Share Price 5.8¢ Issued Capital Ordinary Shares Options Fully Diluted 127.8 m 25.0 m 152.8 m Market Capitalisation (Undiluted) $7.4 m 52 Wk Low/High 3.0¢ / 6.9¢ Share price chart PCL Mosaic Oil (MOS) (continued) Increasing production base to triple revenue2.04.06.08.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Bell Potter Securities Research Page 3 production test prior to larger scale field development. Molopo has entered into a sales contract with a local cotton drying operator to take its share of the gas produced from the extended production test. OCA is already producing CBM gas from over fifty wells in nearby project areas within ATP564, which lies close to infrastructure and the gas pipeline to Gladstone. Molopo's share of a similar fifty well development at Mungi or Harcourt could provide the company with annual production of the order of 1.5PJ, and provide revenue of the order of $4.5 million per annum. This level of production could be achieved within three years of successful appraisal. Ultimately, just these two projects could sustain a 100 well development for a 25 year period. Molopo has at least seven other identified prospects within its Bowen Basin inventory awaiting initial test drilling, and two prospects awaiting production testing. We see considerable upside potential from further exploration, appraisal and development drilling over the next twelve months. INVESTMENT DATA Share Price 3.6¢ Issued Capital Ordinary Shares Listed Options Unlisted Options Fully Diluted 245.0m 80.9 m 10.4 m 336.3 m Market Capitalisation (Undiluted) $8.8 m 52 Wk Low/High 1.6¢ / 4.5¢ Molopo Australia is a well funded junior, currently undertaking significant appraisal activities of coalbed methane (CBM) projects in the Bowen Basin of Queensland. It is also appraising its CBM project in Luilin, China, and undertaking CBM exploration in the Bowen Basin, Queensland and the Gloucester Basin of NSW. In its Bowen Basin CBM activities during the last year the company has: sold 25% of its 50% interest to Helm Energy Australia LLC for US$1.5 million cash and US$3.5 million exploration, appraisal and development funding, announced proven and probable reserves of over 80 petajoules (PJ) of gas in its ATP564 prospects, farmed-in for a 25% interest to the Mungi prospect in PL94, estimated to have recoverable reserves of over 100PJ, farmed-in for a 25% interest to ATP602, containing the Timmy prospect, that could have reserves of the order of 230 PJ. Current interest relates to appraisal drilling of the Mungi and Harcourt projects. In partnership with the leading CBM operator in Australia, Origin Energy subsidiary Oil Company of Australia (OCA), Molopo is drilling both vertical wells and innovative horizontal completion wells, to test for relative gas productivity. Both these prospects have flowed gas previously and the new wells will be placed on extended Eastern Star Gas (ESG) Speculative Buy Gas supply to country NSW will crystallise value 13¢ Molopo Australia (MPO) Speculative Buy Appraisal activity offers significant upside 3.6¢Eastern Star Gas has recently announced an increased interest in PEL238, NSW, taking its interest to 81.5%. This permit includes the Coonarah Gasfield, which contains proven and probable reserves of 11.3 petajoules (PJ). The field was discovered in 1993 and was the first commercial gas discovery in NSW. The permit also contains the Wilga Park and Bohena gas discoveries. We consider it likely that further commercial reserves will be established in this permit. Eastern Star's additional 61.5% interest is being acquired from a private company associated with three of its Directors, and is conditional on shareholder approval (other than the related parties). The interest will be acquired by the issue of 30 million shares to the vendor plus a 3% royalty on future production other than from Coonarah. The company is also seeking to acquire the remaining 18.5% interest from other titleholders on similar terms. PEL 238 covers an area of 9,100 square kilometres of the Permo-Triassic Gunnedah Basin, in north central NSW. The Coonarah gasfield lies approximately 20 kilometres west of the regional centre of Narrabri, and the Wilga Park and Bohena gasfields lie 7 kilometres west and 27 kilometres southwest of Narrabri respectively. A large number of leads and prospects have been mapped from limited seismic coverage in the area surrounding Coonarah and Bohena. The commercial development of the Coonarah gasfield is currently being finalised. It is envisaged that a 6 inch steel pipeline will transport gas to Narrabri where a 6 megawatt gas fired power station will be constructed. Eastern Star has an agreement with Country Energy, INVESTMENT DATA Share Price 13¢ Issued Capital Ordinary Shares* Options 20¢ Options 30¢ Fully Diluted 113.5 m 25.0 m 20.1 m 158.6 m Market Capitalisation (Undiluted) $14.8 m 52 Wk Low/High 10.0¢ / 17.5¢ * assuming issue of 30 million shares for acquisition of additional interest in PEL238 Share price chart MPO 0.02.04.06.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Share price chart ESG the US gulf coast. Native Title Agreement, PEP151While the offshore provides high exposure exploration activity, it should not be forgotten that Essential Petroleum has a dominant position in the onshore basin. One of the company's most exciting onshore plays-oil exploration in the Portland Trough-has moved a step closer to being drilled with the signing of the Native Tile Agreement with the Gunditjmara People in western Victoria. Essential Petroleum holds 100% of PEP151, which contains a number of oil prospects. These include the Cobbobonee prospect with an estimated recoverable reserve potential of 40 million barrels, and the Glenaulin prospect with an estimated recoverable reserve potential of 21 million barrels. Seismic surveying can now commence over these prospects in the summer of 2002/2003, with drilling expected later in 2003. With exploration activity commencing in both the offshore and onshore Otway Basin, we see little downside risk to Essential Petroleum at current levels. In fact, with at least one onshore well to be drilled later this year, market attention on the offshore Otway through 2003, and the possible drilling of Cobbobonee later in 2003, we see a number of opportunities for significant share price appreciation. Essential Petroleum Resources (EPR) Speculative Buy Acreage and agreement successes prepare for the future 15.5¢IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS: Because this document has been prepared without consideration of any specific client's investment objectives, financial situation or needs, a Bell Potter Securities Limited securities adviser should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended. Additional Disclosure: Within the past 24 months, Bell Potter Securities Ltd acted as Underwriter in the IPO of Essential Petroleum Resources and received a fee. Essential Petroleum has achieved two milestones in the last week that, while not impacting immediate drilling plans, lay the foundation for potential near term exploration upside. Award of Vic/P50 Essential Petroleum has been the successful bidder for the offshore Otway block Vic/P50, which lies immediately to the south of its existing block Vic/P46. The company has won the bid against a number of international and major Australian oil and gas companies. The offshore Otway Basin is receiving unprecedented exploration focus by Australia's major explorers, including Santos, Woodside Petroleum and Origin Energy. Essential Petroleum now holds a strategic acreage position, both in the offshore and the onshore Otway Basin. The company's offshore acreage is flanked to the east by two blocks, also awarded in the recent round, held by Santos, Inpex and Unocal. We believe Essential's 100% owned acreage position in the offshore will, when appropriate, be readily farmed-out to cover the expense of offshore drilling. We see Essential Petroleum in a very leveraged position to future offshore Otway activity, even on adjacent blocks. The company has mapped four distinct play types in these two blocks, providing a range of exploration opportunities, including Waarre Formation prospects similar to the Thylacine and Geographe discoveries of Woodside and Origin. Essential Petroleum is also pursuing large turbidite plays, extending into deeper water, equivalent to the deepwater margin plays being explored offshore West Africa, South America, and the regional NSW power authority, to sell locally generated electricity. Direct gas sales to local industrial users is also anticipated. Eastern Star is exploring elsewhere in NSW for both conventional gas and coalbed methane gas, and is also undertaking coalbed methane tests at Oak Park, west of Melbourne. W e b e l i e v e t h e i m m i n e n t commercialisation of the Coonarah gasfield fully underwrites the current share price, and that likely additional reserve additions in adjacent nearby discoveries provides low risk upside. In addition, any exploration success in other project areas adds speculative appeal. INVESTMENT DATA Share Price 15.5¢ Issued Capital Ordinary Shares Options Unlisted Options Fully Diluted 68.0 m 26.2 m 13.1 m 107.3 m Market Capitalisation (Undiluted) $10.5 m 52 Wk Low/High 12.5¢ / 29.0¢ Share price chart EPR Eastern Star Gas (ESG) (continued) Gas supply to country NSW will crystallise value $0.00$0.10$0.20$0.30Sep-01 Dec-01 Mar-02 Jun-02 Sep-02$0.10$0.12$0.14$0.16$0.18$0.20Sep-01 Dec-01 Mar-02 Jun-02 Sep-02This is the html version of the file http://www.pancon.com.au/files/4_reps/broker/300802.pdf.
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Contents Mosaic Oil (MOS) 1 Eastern Star Gas (ESG) 3 Essential Petroleum Resources (EPR) 4 Pancontinental Oil & Gas (PCL) 2 Molopo Australia (MPO) 3 Adelaide 08 8359 2722 Melbourne 03 9256 8700 Brisbane07 3221 3500 Mornington 03 5975 6666 Perth 08 9322 5899 Cairns 07 4051 4122 Geelong 03 5229 2016 Hobart 03 6223 1600 Southport 07 5532 1311 Sydney 02 9253 8700 Toll Free 133 788 ABN 25006390772 Website www.bellpotter.com.au Email [email protected] Mosaic Oil (MOS) BUY Increasing production base to triple revenue 21¢Vol 3. No.630.08.02ResourceFocusOver the last twelve months, Mosaic Oil has focussed on, and established control of the poorly explored Permian Gas play in the southeastern part of Queensland. The company owns two blocks of permits in this region on the western side of the Surat/Bowen Basins-a northern block of 300 square kilometres, and a southern block of 1,100 square kilometres. In the northern block, Mosaic has had success in 6 of its last 7 wells and discovered two small oilfields (Spring Grove and Downlands), and the large Churchie gasfield. Churchie-3, drilled in June 2002, flowed on test at over 20 million cubic feet per day (mmcfd). The gas is rich in liquids-condensate and LPG-that effectively doubles the revenue stream of a pure methane flow. Mosaic also owns local pipeline infrastructure, a gas treatment and LPG plant that can treat gas volumes of 40 mmcfd. This plant currently has spare capacity of 15 mmcfd. Churchie Permian Complex (Mosaic 49% and Operator) Churchie was discovered in July 2001 with traditional drilling techniques. Two early wells flowed at rates of around 1 mmcfd, but were considered to have suffered well bore damage due to reservoir invasion by drilling fluids. Churchie-3 was drilled using nitrogen instead of drilling mud, and flowed at 20 mmcfd. The Churchie reservoir system covers about 90 square kilometres, although within this area there may be bald areas. The company estimates the complex may contain 100 billion cubic feet (bcf) of gas and 3 million barrels of condensate. The system is dipping to the southeast and with depth the gas becomes progressively richer in liquids. The condensate and LPG content ranges from 30 barrels (bbls) and 3.5 tonnes per mmcf respectively to 100 bbls and 6 tonnes per mmcf in the southern Noorindoo area. This liquid richness increases the revenue stream compared with a dry gas stream. We estimate that for gas containing 40 bbls/mmcf condensate and 4 tonnes/mmcf LPG the expected revenues are doubled. We estimate that a gasfield of 100 bcf with liquids content of this order is worth between $75 million and $100 million net to Mosaic, or 24 cents to 32 cents per fully diluted share. Downlands Project (Mosaic 83.3%) Mosaic believes there is an oil rim around the Downlands gasfields. Downlands-3 encountered 5 metres of net oil pay, and is completed as an oil producer. This well implies a recoverable reserve of around 2 million barrels of oil, with a value to Mosaic of around $33 million, or 10 cents per share. Drilling Programme The success at Churchie has prompted the drilling of two further tests of the Permian in this area. Norkam-1, four kilometres south of Churchie, is currently drilling and using a nitrogen system, rather than conventional drilling muds, to minimise formation damage. The second, Tinker-5, is located near Silver Springs and will also be drilled with nitrogen. Oil has been discovered in the lower sections of six wells in the Tinker area and could be associated with one of three sand bodies, all with different areal extent. Other Projects The re-entry of the Waggamba well is planned in the current fiscal year, for the possible recovery of 6 bcf of gas and associated liquids. At Silver Springs, the company estimates that 30 bcf of gas has been bypassed and can be located by seismic re-processing and modern re-mapping. Mosaic has a 7.5% interest in the offshore permit WA208 where large sand fans are the primary target. The company holds a 28.6% interest in a retention lease on the Kimu gasfield in PNG. This field may become commercial if the PNG-Qld pipeline is built. Financial Mosaic had cash available of $5.3 million at the end of June 2002 and no net debt. INVESTMENT DATA Share Price 21¢ Issued Capital Ordinary Shares Contrib. Shares (unlisted) Unlisted Options Fully Diluted 289.8 m 19.8 m 5.0 m 314.6 m Market Capitalisation $60.9 m 52 Wk Low/High 12.5¢ / 32.5¢ Peter Cameron [email protected] Share price chart MOS Junior Oil & Gas Updates $0.10$0.20$0.30$0.40Sep-01 Dec-01 Mar-02 Jun-02 Sep-02
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Bell Potter Securities Research Page 2 with excellent upside potential from exploration endeavours from a new play in an old area. On the basis of existing reserves and potential production profiles, the company appears significantly undervalued. Pancontinental Oil & Gas (PCL) Speculative Buy Huinga production testing now in progress in New Zealand 5.8¢Current revenue of around $10 million per annum is likely to increase three-fold in 2003 when Churchie production commences, which will minimise the requirement to raise funds from the market. We consider Mosaic a well managed junior, Pancontinental Oil & Gas offers a wide diversity of exploration exposure relative to its market capitalisation. It is exploring in New Zealand, Australia, and has interests offshore Malta and offshore Kenya. The Maltese and Kenyan areas do not require significant immediate funding. One inevitable aspect of such wide ranging exploration is the requirement to raise exploration dollars, but given that the company's drilling programme is justified, the management sound, and the results encouraging, we believe the leverage available to exploration success justifies the investment. A current example is the drilling of the Huinga-1B well in the Taranaki Basin of New Zealand. Huinga-1B (PCL 6.6%) The Huinga prospect is located on the prospective eastern margin trend, established by the Rimu and Kauri discoveries, in the Taranaki Basin in New Zealand. The Huinga-1B well has been drilling since April, and after encountering a number of drilling problems that do not impact on the geological results of the well, intersected a minimum 237 metre gross hydrocarbon column. The well reached total depth still within the hydrocarbon zone. This column occurs over two geological formations-the Murihiku metasediments and the Kapuni sandstone-that exhibit different reservoir characteristics. The Murihiku is a fractured reservoir, whereas the Kapuni is a conventional sandstone reservoir. In the Taranaki Basin, oil and gas are produced at commercial rates from Kapuni reservoirs, as well as from fractured limestones of the Tikorangi formation. Many large oil and gas fields throughout the world produce from fractured reservoirs. Initial testing of the zone was attempted before the well was cased, and both gas and oil were recovered but the test tool was blocked by silts and sands from the hole. The hole has subsequently been cased and prepared for an extended production test. An initial clean-up flow across both reservoir zones will attempt to recover much of the drilling fluid lost to the formation during the drilling operations and allow an improved oil flow. Flow and pressure data will also indicate if acid remedial work is required. After these clean-up flows, a specific test of the Murihiku zone for a period of seven days will commence. A similar test of the Kapuni will follow. Expected higher permeability in the Murihiku zone is likely to provide a higher flow rate than the Kapuni. The testing programme will then involve several short flow and shut-in periods to collect pressure data, and longer flow periods to evaluate productivity and reserve data. If the initial testing is positive, the total test period may continue to the end of October 2002. The production test data will also assist in determining the possible total thickness of the (minimum) 237 gross oil column, given that neither an oil/water contact, nor a clear indication of a gas/oil contact has been established to date. This ambiguity also provides a significant upside to the potential reserves of the discovery. The pre-drill reserve estimates for this prospect ranged between 46 and 67 million barrels, worth between 20 and 30 cents per share to Pancontinental, when valued at a conservative net A$10 per barrel. We see upside potential in both the reserve volume and net oil price. Note: Other Participants Bligh Oil (BLO) and Australian Worldwide Exploration (AWE)are also listed Australian participants in the Huinga-1B well. At current share prices, Bligh (15¢) offers similar leverage to Pancontinental for upside potential and is thus also rated a Speculative Buy. The higher market capitalisation, AWE, is a less leveraged but lower risk entry. We have a Buy recommendation on AWE (70¢). INVESTMENT DATA Share Price 5.8¢ Issued Capital Ordinary Shares Options Fully Diluted 127.8 m 25.0 m 152.8 m Market Capitalisation (Undiluted) $7.4 m 52 Wk Low/High 3.0¢ / 6.9¢ Share price chart PCL Mosaic Oil (MOS) (continued) Increasing production base to triple revenue2.04.06.08.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Bell Potter Securities Research Page 3 production test prior to larger scale field development. Molopo has entered into a sales contract with a local cotton drying operator to take its share of the gas produced from the extended production test. OCA is already producing CBM gas from over fifty wells in nearby project areas within ATP564, which lies close to infrastructure and the gas pipeline to Gladstone. Molopo's share of a similar fifty well development at Mungi or Harcourt could provide the company with annual production of the order of 1.5PJ, and provide revenue of the order of $4.5 million per annum. This level of production could be achieved within three years of successful appraisal. Ultimately, just these two projects could sustain a 100 well development for a 25 year period. Molopo has at least seven other identified prospects within its Bowen Basin inventory awaiting initial test drilling, and two prospects awaiting production testing. We see considerable upside potential from further exploration, appraisal and development drilling over the next twelve months. INVESTMENT DATA Share Price 3.6¢ Issued Capital Ordinary Shares Listed Options Unlisted Options Fully Diluted 245.0m 80.9 m 10.4 m 336.3 m Market Capitalisation (Undiluted) $8.8 m 52 Wk Low/High 1.6¢ / 4.5¢ Molopo Australia is a well funded junior, currently undertaking significant appraisal activities of coalbed methane (CBM) projects in the Bowen Basin of Queensland. It is also appraising its CBM project in Luilin, China, and undertaking CBM exploration in the Bowen Basin, Queensland and the Gloucester Basin of NSW. In its Bowen Basin CBM activities during the last year the company has: sold 25% of its 50% interest to Helm Energy Australia LLC for US$1.5 million cash and US$3.5 million exploration, appraisal and development funding, announced proven and probable reserves of over 80 petajoules (PJ) of gas in its ATP564 prospects, farmed-in for a 25% interest to the Mungi prospect in PL94, estimated to have recoverable reserves of over 100PJ, farmed-in for a 25% interest to ATP602, containing the Timmy prospect, that could have reserves of the order of 230 PJ. Current interest relates to appraisal drilling of the Mungi and Harcourt projects. In partnership with the leading CBM operator in Australia, Origin Energy subsidiary Oil Company of Australia (OCA), Molopo is drilling both vertical wells and innovative horizontal completion wells, to test for relative gas productivity. Both these prospects have flowed gas previously and the new wells will be placed on extended Eastern Star Gas (ESG) Speculative Buy Gas supply to country NSW will crystallise value 13¢ Molopo Australia (MPO) Speculative Buy Appraisal activity offers significant upside 3.6¢Eastern Star Gas has recently announced an increased interest in PEL238, NSW, taking its interest to 81.5%. This permit includes the Coonarah Gasfield, which contains proven and probable reserves of 11.3 petajoules (PJ). The field was discovered in 1993 and was the first commercial gas discovery in NSW. The permit also contains the Wilga Park and Bohena gas discoveries. We consider it likely that further commercial reserves will be established in this permit. Eastern Star's additional 61.5% interest is being acquired from a private company associated with three of its Directors, and is conditional on shareholder approval (other than the related parties). The interest will be acquired by the issue of 30 million shares to the vendor plus a 3% royalty on future production other than from Coonarah. The company is also seeking to acquire the remaining 18.5% interest from other titleholders on similar terms. PEL 238 covers an area of 9,100 square kilometres of the Permo-Triassic Gunnedah Basin, in north central NSW. The Coonarah gasfield lies approximately 20 kilometres west of the regional centre of Narrabri, and the Wilga Park and Bohena gasfields lie 7 kilometres west and 27 kilometres southwest of Narrabri respectively. A large number of leads and prospects have been mapped from limited seismic coverage in the area surrounding Coonarah and Bohena. The commercial development of the Coonarah gasfield is currently being finalised. It is envisaged that a 6 inch steel pipeline will transport gas to Narrabri where a 6 megawatt gas fired power station will be constructed. Eastern Star has an agreement with Country Energy, INVESTMENT DATA Share Price 13¢ Issued Capital Ordinary Shares* Options 20¢ Options 30¢ Fully Diluted 113.5 m 25.0 m 20.1 m 158.6 m Market Capitalisation (Undiluted) $14.8 m 52 Wk Low/High 10.0¢ / 17.5¢ * assuming issue of 30 million shares for acquisition of additional interest in PEL238 Share price chart MPO 0.02.04.06.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Share price chart ESG the US gulf coast. Native Title Agreement, PEP151While the offshore provides high exposure exploration activity, it should not be forgotten that Essential Petroleum has a dominant position in the onshore basin. One of the company's most exciting onshore plays-oil exploration in the Portland Trough-has moved a step closer to being drilled with the signing of the Native Tile Agreement with the Gunditjmara People in western Victoria. Essential Petroleum holds 100% of PEP151, which contains a number of oil prospects. These include the Cobbobonee prospect with an estimated recoverable reserve potential of 40 million barrels, and the Glenaulin prospect with an estimated recoverable reserve potential of 21 million barrels. Seismic surveying can now commence over these prospects in the summer of 2002/2003, with drilling expected later in 2003. With exploration activity commencing in both the offshore and onshore Otway Basin, we see little downside risk to Essential Petroleum at current levels. In fact, with at least one onshore well to be drilled later this year, market attention on the offshore Otway through 2003, and the possible drilling of Cobbobonee later in 2003, we see a number of opportunities for significant share price appreciation. Essential Petroleum Resources (EPR) Speculative Buy Acreage and agreement successes prepare for the future 15.5¢IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS: Because this document has been prepared without consideration of any specific client's investment objectives, financial situation or needs, a Bell Potter Securities Limited securities adviser should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended. Additional Disclosure: Within the past 24 months, Bell Potter Securities Ltd acted as Underwriter in the IPO of Essential Petroleum Resources and received a fee. Essential Petroleum has achieved two milestones in the last week that, while not impacting immediate drilling plans, lay the foundation for potential near term exploration upside. Award of Vic/P50 Essential Petroleum has been the successful bidder for the offshore Otway block Vic/P50, which lies immediately to the south of its existing block Vic/P46. The company has won the bid against a number of international and major Australian oil and gas companies. The offshore Otway Basin is receiving unprecedented exploration focus by Australia's major explorers, including Santos, Woodside Petroleum and Origin Energy. Essential Petroleum now holds a strategic acreage position, both in the offshore and the onshore Otway Basin. The company's offshore acreage is flanked to the east by two blocks, also awarded in the recent round, held by Santos, Inpex and Unocal. We believe Essential's 100% owned acreage position in the offshore will, when appropriate, be readily farmed-out to cover the expense of offshore drilling. We see Essential Petroleum in a very leveraged position to future offshore Otway activity, even on adjacent blocks. The company has mapped four distinct play types in these two blocks, providing a range of exploration opportunities, including Waarre Formation prospects similar to the Thylacine and Geographe discoveries of Woodside and Origin. Essential Petroleum is also pursuing large turbidite plays, extending into deeper water, equivalent to the deepwater margin plays being explored offshore West Africa, South America, and the regional NSW power authority, to sell locally generated electricity. Direct gas sales to local industrial users is also anticipated. Eastern Star is exploring elsewhere in NSW for both conventional gas and coalbed methane gas, and is also undertaking coalbed methane tests at Oak Park, west of Melbourne. W e b e l i e v e t h e i m m i n e n t commercialisation of the Coonarah gasfield fully underwrites the current share price, and that likely additional reserve additions in adjacent nearby discoveries provides low risk upside. In addition, any exploration success in other project areas adds speculative appeal. INVESTMENT DATA Share Price 15.5¢ Issued Capital Ordinary Shares Options Unlisted Options Fully Diluted 68.0 m 26.2 m 13.1 m 107.3 m Market Capitalisation (Undiluted) $10.5 m 52 Wk Low/High 12.5¢ / 29.0¢ Share price chart EPR Eastern Star Gas (ESG) (continued) Gas supply to country NSW will crystallise value $0.00$0.10$0.20$0.30Sep-01 Dec-01 Mar-02 Jun-02 Sep-02$0.10$0.12$0.14$0.16$0.18$0.20Sep-01 Dec-01 Mar-02 Jun-02 Sep-02This is the html version of the file http://www.pancon.com.au/files/4_reps/broker/300802.pdf.
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Contents Mosaic Oil (MOS) 1 Eastern Star Gas (ESG) 3 Essential Petroleum Resources (EPR) 4 Pancontinental Oil & Gas (PCL) 2 Molopo Australia (MPO) 3 Adelaide 08 8359 2722 Melbourne 03 9256 8700 Brisbane07 3221 3500 Mornington 03 5975 6666 Perth 08 9322 5899 Cairns 07 4051 4122 Geelong 03 5229 2016 Hobart 03 6223 1600 Southport 07 5532 1311 Sydney 02 9253 8700 Toll Free 133 788 ABN 25006390772 Website www.bellpotter.com.au Email [email protected] Mosaic Oil (MOS) BUY Increasing production base to triple revenue 21¢Vol 3. No.630.08.02ResourceFocusOver the last twelve months, Mosaic Oil has focussed on, and established control of the poorly explored Permian Gas play in the southeastern part of Queensland. The company owns two blocks of permits in this region on the western side of the Surat/Bowen Basins-a northern block of 300 square kilometres, and a southern block of 1,100 square kilometres. In the northern block, Mosaic has had success in 6 of its last 7 wells and discovered two small oilfields (Spring Grove and Downlands), and the large Churchie gasfield. Churchie-3, drilled in June 2002, flowed on test at over 20 million cubic feet per day (mmcfd). The gas is rich in liquids-condensate and LPG-that effectively doubles the revenue stream of a pure methane flow. Mosaic also owns local pipeline infrastructure, a gas treatment and LPG plant that can treat gas volumes of 40 mmcfd. This plant currently has spare capacity of 15 mmcfd. Churchie Permian Complex (Mosaic 49% and Operator) Churchie was discovered in July 2001 with traditional drilling techniques. Two early wells flowed at rates of around 1 mmcfd, but were considered to have suffered well bore damage due to reservoir invasion by drilling fluids. Churchie-3 was drilled using nitrogen instead of drilling mud, and flowed at 20 mmcfd. The Churchie reservoir system covers about 90 square kilometres, although within this area there may be bald areas. The company estimates the complex may contain 100 billion cubic feet (bcf) of gas and 3 million barrels of condensate. The system is dipping to the southeast and with depth the gas becomes progressively richer in liquids. The condensate and LPG content ranges from 30 barrels (bbls) and 3.5 tonnes per mmcf respectively to 100 bbls and 6 tonnes per mmcf in the southern Noorindoo area. This liquid richness increases the revenue stream compared with a dry gas stream. We estimate that for gas containing 40 bbls/mmcf condensate and 4 tonnes/mmcf LPG the expected revenues are doubled. We estimate that a gasfield of 100 bcf with liquids content of this order is worth between $75 million and $100 million net to Mosaic, or 24 cents to 32 cents per fully diluted share. Downlands Project (Mosaic 83.3%) Mosaic believes there is an oil rim around the Downlands gasfields. Downlands-3 encountered 5 metres of net oil pay, and is completed as an oil producer. This well implies a recoverable reserve of around 2 million barrels of oil, with a value to Mosaic of around $33 million, or 10 cents per share. Drilling Programme The success at Churchie has prompted the drilling of two further tests of the Permian in this area. Norkam-1, four kilometres south of Churchie, is currently drilling and using a nitrogen system, rather than conventional drilling muds, to minimise formation damage. The second, Tinker-5, is located near Silver Springs and will also be drilled with nitrogen. Oil has been discovered in the lower sections of six wells in the Tinker area and could be associated with one of three sand bodies, all with different areal extent. Other Projects The re-entry of the Waggamba well is planned in the current fiscal year, for the possible recovery of 6 bcf of gas and associated liquids. At Silver Springs, the company estimates that 30 bcf of gas has been bypassed and can be located by seismic re-processing and modern re-mapping. Mosaic has a 7.5% interest in the offshore permit WA208 where large sand fans are the primary target. The company holds a 28.6% interest in a retention lease on the Kimu gasfield in PNG. This field may become commercial if the PNG-Qld pipeline is built. Financial Mosaic had cash available of $5.3 million at the end of June 2002 and no net debt. INVESTMENT DATA Share Price 21¢ Issued Capital Ordinary Shares Contrib. Shares (unlisted) Unlisted Options Fully Diluted 289.8 m 19.8 m 5.0 m 314.6 m Market Capitalisation $60.9 m 52 Wk Low/High 12.5¢ / 32.5¢ Peter Cameron [email protected] Share price chart MOS Junior Oil & Gas Updates $0.10$0.20$0.30$0.40Sep-01 Dec-01 Mar-02 Jun-02 Sep-02
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Bell Potter Securities Research Page 2 with excellent upside potential from exploration endeavours from a new play in an old area. On the basis of existing reserves and potential production profiles, the company appears significantly undervalued. Pancontinental Oil & Gas (PCL) Speculative Buy Huinga production testing now in progress in New Zealand 5.8¢Current revenue of around $10 million per annum is likely to increase three-fold in 2003 when Churchie production commences, which will minimise the requirement to raise funds from the market. We consider Mosaic a well managed junior, Pancontinental Oil & Gas offers a wide diversity of exploration exposure relative to its market capitalisation. It is exploring in New Zealand, Australia, and has interests offshore Malta and offshore Kenya. The Maltese and Kenyan areas do not require significant immediate funding. One inevitable aspect of such wide ranging exploration is the requirement to raise exploration dollars, but given that the company's drilling programme is justified, the management sound, and the results encouraging, we believe the leverage available to exploration success justifies the investment. A current example is the drilling of the Huinga-1B well in the Taranaki Basin of New Zealand. Huinga-1B (PCL 6.6%) The Huinga prospect is located on the prospective eastern margin trend, established by the Rimu and Kauri discoveries, in the Taranaki Basin in New Zealand. The Huinga-1B well has been drilling since April, and after encountering a number of drilling problems that do not impact on the geological results of the well, intersected a minimum 237 metre gross hydrocarbon column. The well reached total depth still within the hydrocarbon zone. This column occurs over two geological formations-the Murihiku metasediments and the Kapuni sandstone-that exhibit different reservoir characteristics. The Murihiku is a fractured reservoir, whereas the Kapuni is a conventional sandstone reservoir. In the Taranaki Basin, oil and gas are produced at commercial rates from Kapuni reservoirs, as well as from fractured limestones of the Tikorangi formation. Many large oil and gas fields throughout the world produce from fractured reservoirs. Initial testing of the zone was attempted before the well was cased, and both gas and oil were recovered but the test tool was blocked by silts and sands from the hole. The hole has subsequently been cased and prepared for an extended production test. An initial clean-up flow across both reservoir zones will attempt to recover much of the drilling fluid lost to the formation during the drilling operations and allow an improved oil flow. Flow and pressure data will also indicate if acid remedial work is required. After these clean-up flows, a specific test of the Murihiku zone for a period of seven days will commence. A similar test of the Kapuni will follow. Expected higher permeability in the Murihiku zone is likely to provide a higher flow rate than the Kapuni. The testing programme will then involve several short flow and shut-in periods to collect pressure data, and longer flow periods to evaluate productivity and reserve data. If the initial testing is positive, the total test period may continue to the end of October 2002. The production test data will also assist in determining the possible total thickness of the (minimum) 237 gross oil column, given that neither an oil/water contact, nor a clear indication of a gas/oil contact has been established to date. This ambiguity also provides a significant upside to the potential reserves of the discovery. The pre-drill reserve estimates for this prospect ranged between 46 and 67 million barrels, worth between 20 and 30 cents per share to Pancontinental, when valued at a conservative net A$10 per barrel. We see upside potential in both the reserve volume and net oil price. Note: Other Participants Bligh Oil (BLO) and Australian Worldwide Exploration (AWE)are also listed Australian participants in the Huinga-1B well. At current share prices, Bligh (15¢) offers similar leverage to Pancontinental for upside potential and is thus also rated a Speculative Buy. The higher market capitalisation, AWE, is a less leveraged but lower risk entry. We have a Buy recommendation on AWE (70¢). INVESTMENT DATA Share Price 5.8¢ Issued Capital Ordinary Shares Options Fully Diluted 127.8 m 25.0 m 152.8 m Market Capitalisation (Undiluted) $7.4 m 52 Wk Low/High 3.0¢ / 6.9¢ Share price chart PCL Mosaic Oil (MOS) (continued) Increasing production base to triple revenue2.04.06.08.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Bell Potter Securities Research Page 3 production test prior to larger scale field development. Molopo has entered into a sales contract with a local cotton drying operator to take its share of the gas produced from the extended production test. OCA is already producing CBM gas from over fifty wells in nearby project areas within ATP564, which lies close to infrastructure and the gas pipeline to Gladstone. Molopo's share of a similar fifty well development at Mungi or Harcourt could provide the company with annual production of the order of 1.5PJ, and provide revenue of the order of $4.5 million per annum. This level of production could be achieved within three years of successful appraisal. Ultimately, just these two projects could sustain a 100 well development for a 25 year period. Molopo has at least seven other identified prospects within its Bowen Basin inventory awaiting initial test drilling, and two prospects awaiting production testing. We see considerable upside potential from further exploration, appraisal and development drilling over the next twelve months. INVESTMENT DATA Share Price 3.6¢ Issued Capital Ordinary Shares Listed Options Unlisted Options Fully Diluted 245.0m 80.9 m 10.4 m 336.3 m Market Capitalisation (Undiluted) $8.8 m 52 Wk Low/High 1.6¢ / 4.5¢ Molopo Australia is a well funded junior, currently undertaking significant appraisal activities of coalbed methane (CBM) projects in the Bowen Basin of Queensland. It is also appraising its CBM project in Luilin, China, and undertaking CBM exploration in the Bowen Basin, Queensland and the Gloucester Basin of NSW. In its Bowen Basin CBM activities during the last year the company has: sold 25% of its 50% interest to Helm Energy Australia LLC for US$1.5 million cash and US$3.5 million exploration, appraisal and development funding, announced proven and probable reserves of over 80 petajoules (PJ) of gas in its ATP564 prospects, farmed-in for a 25% interest to the Mungi prospect in PL94, estimated to have recoverable reserves of over 100PJ, farmed-in for a 25% interest to ATP602, containing the Timmy prospect, that could have reserves of the order of 230 PJ. Current interest relates to appraisal drilling of the Mungi and Harcourt projects. In partnership with the leading CBM operator in Australia, Origin Energy subsidiary Oil Company of Australia (OCA), Molopo is drilling both vertical wells and innovative horizontal completion wells, to test for relative gas productivity. Both these prospects have flowed gas previously and the new wells will be placed on extended Eastern Star Gas (ESG) Speculative Buy Gas supply to country NSW will crystallise value 13¢ Molopo Australia (MPO) Speculative Buy Appraisal activity offers significant upside 3.6¢Eastern Star Gas has recently announced an increased interest in PEL238, NSW, taking its interest to 81.5%. This permit includes the Coonarah Gasfield, which contains proven and probable reserves of 11.3 petajoules (PJ). The field was discovered in 1993 and was the first commercial gas discovery in NSW. The permit also contains the Wilga Park and Bohena gas discoveries. We consider it likely that further commercial reserves will be established in this permit. Eastern Star's additional 61.5% interest is being acquired from a private company associated with three of its Directors, and is conditional on shareholder approval (other than the related parties). The interest will be acquired by the issue of 30 million shares to the vendor plus a 3% royalty on future production other than from Coonarah. The company is also seeking to acquire the remaining 18.5% interest from other titleholders on similar terms. PEL 238 covers an area of 9,100 square kilometres of the Permo-Triassic Gunnedah Basin, in north central NSW. The Coonarah gasfield lies approximately 20 kilometres west of the regional centre of Narrabri, and the Wilga Park and Bohena gasfields lie 7 kilometres west and 27 kilometres southwest of Narrabri respectively. A large number of leads and prospects have been mapped from limited seismic coverage in the area surrounding Coonarah and Bohena. The commercial development of the Coonarah gasfield is currently being finalised. It is envisaged that a 6 inch steel pipeline will transport gas to Narrabri where a 6 megawatt gas fired power station will be constructed. Eastern Star has an agreement with Country Energy, INVESTMENT DATA Share Price 13¢ Issued Capital Ordinary Shares* Options 20¢ Options 30¢ Fully Diluted 113.5 m 25.0 m 20.1 m 158.6 m Market Capitalisation (Undiluted) $14.8 m 52 Wk Low/High 10.0¢ / 17.5¢ * assuming issue of 30 million shares for acquisition of additional interest in PEL238 Share price chart MPO 0.02.04.06.0Sep-01 Dec-01 Mar-02 Jun-02 Sep-02cents
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Share price chart ESG the US gulf coast. Native Title Agreement, PEP151While the offshore provides high exposure exploration activity, it should not be forgotten that Essential Petroleum has a dominant position in the onshore basin. One of the company's most exciting onshore plays-oil exploration in the Portland Trough-has moved a step closer to being drilled with the signing of the Native Tile Agreement with the Gunditjmara People in western Victoria. Essential Petroleum holds 100% of PEP151, which contains a number of oil prospects. These include the Cobbobonee prospect with an estimated recoverable reserve potential of 40 million barrels, and the Glenaulin prospect with an estimated recoverable reserve potential of 21 million barrels. Seismic surveying can now commence over these prospects in the summer of 2002/2003, with drilling expected later in 2003. With exploration activity commencing in both the offshore and onshore Otway Basin, we see little downside risk to Essential Petroleum at current levels. In fact, with at least one onshore well to be drilled later this year, market attention on the offshore Otway through 2003, and the possible drilling of Cobbobonee later in 2003, we see a number of opportunities for significant share price appreciation. Essential Petroleum Resources (EPR) Speculative Buy Acreage and agreement successes prepare for the future 15.5¢IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS: Because this document has been prepared without consideration of any specific client's investment objectives, financial situation or needs, a Bell Potter Securities Limited securities adviser should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended. Additional Disclosure: Within the past 24 months, Bell Potter Securities Ltd acted as Underwriter in the IPO of Essential Petroleum Resources and received a fee. Essential Petroleum has achieved two milestones in the last week that, while not impacting immediate drilling plans, lay the foundation for potential near term exploration upside. Award of Vic/P50 Essential Petroleum has been the successful bidder for the offshore Otway block Vic/P50, which lies immediately to the south of its existing block Vic/P46. The company has won the bid against a number of international and major Australian oil and gas companies. The offshore Otway Basin is receiving unprecedented exploration focus by Australia's major explorers, including Santos, Woodside Petroleum and Origin Energy. Essential Petroleum now holds a strategic acreage position, both in the offshore and the onshore Otway Basin. The company's offshore acreage is flanked to the east by two blocks, also awarded in the recent round, held by Santos, Inpex and Unocal. We believe Essential's 100% owned acreage position in the offshore will, when appropriate, be readily farmed-out to cover the expense of offshore drilling. We see Essential Petroleum in a very leveraged position to future offshore Otway activity, even on adjacent blocks. The company has mapped four distinct play types in these two blocks, providing a range of exploration opportunities, including Waarre Formation prospects similar to the Thylacine and Geographe discoveries of Woodside and Origin. Essential Petroleum is also pursuing large turbidite plays, extending into deeper water, equivalent to the deepwater margin plays being explored offshore West Africa, South America, and the regional NSW power authority, to sell locally generated electricity. Direct gas sales to local industrial users is also anticipated. Eastern Star is exploring elsewhere in NSW for both conventional gas and coalbed methane gas, and is also undertaking coalbed methane tests at Oak Park, west of Melbourne. W e b e l i e v e t h e i m m i n e n t commercialisation of the Coonarah gasfield fully underwrites the current share price, and that likely additional reserve additions in adjacent nearby discoveries provides low risk upside. In addition, any exploration success in other project areas adds speculative appeal. INVESTMENT DATA Share Price 15.5¢ Issued Capital Ordinary Shares Options Unlisted Options Fully Diluted 68.0 m 26.2 m 13.1 m 107.3 m Market Capitalisation (Undiluted) $10.5 m 52 Wk Low/High 12.5¢ / 29.0¢ Share price chart EPR Eastern Star Gas (ESG) (continued) Gas supply to country NSW will crystallise value $0.00$0.10$0.20$0.30Sep-01 Dec-01 Mar-02 Jun-02 Sep-02$0.10$0.12$0.14$0.16$0.18$0.20Sep-01 Dec-01 Mar-02 Jun-02 Sep-02
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