Damo, not a bad thing to do at any stage. I always take the view that any share I hold is under review every day and particularly when new information comes to hand.
Stress tests for Neon for me would include (but not limited to):
1 Major production difficulty at NSA.
An unlikely event given we are replicating methodology tried and proven over decades in this location.
2 PV failure
Again unlikely given Husky's flow rates form this field 20 or so years back before shutting PV in due to low oil prices. And as for NSA the methodology required here is proven over decades.
3 Paloma failure
There is more risk associated with the depth we are at at Paloma. Not because its more risky in character but because there is less comparitive data available due to the limited drilling at depth historically. We are pioneering to some degree as was shown with the wrong completion techniques in PD-1. (although thought to be good practise at the planning stage)
The Monterey shale is a proven performer in areas near by so ultimately the probability of success at Paloma is quite high but not guaranteed.
What is unknown to us is just what the company already knows. You don't spend another $5M+ on PD-2 and P-3 without the view there is a high probability of success. And as Londoner said, theres a confidence and upbeat feel about Neon when you talk to them.
I don't expect every zone to be commercial but I personally feel we have a high POS on this one.
4/Sovereign risk
US fine, Indo not so, Vietnam fine as well. The CIA put out an international fact sheet on Sovereign risk and Vietnam is highly regarded as an international business centre.
5/ South Seas/ China escalation
I don't see this as a biggie. Perhaps lots of sabre rattling, diplomacy and hot air from politicians but we're all in the international trade arena together which makes war a real liability. China is changing daily as they embrace western lifestyles and more importantly ease censorship.
6/ Vietnam drill failure
Yep that would have a big impact. I recall Hardmans first success in Mauritania propelled the sp from low 30's to about $1.30 (don't recall exactly), but a month later the second well was a duster and the sp went back to about 40c even though they had banked a heap of oil.
Other projects are probably too far off to assess at this time and others like KMD are so under the radar they will probably be ignored in the event of failure but accrue a few cents for success.
NEN Price at posting:
35.5¢ Sentiment: LT Buy Disclosure: Held
