It's a year old article (dec 2011)but I thought it might still be an interesting read for those who weren't aware of it excistence
The Sydney Morning Herald
For those interested in speculative oil and gas plays, Neon Energy is ticking the right boxes. Then again, if its share price heads further north, it will definitely raise the curiosity of every punter.
The company is exploring on-shore in California and off-shore in Vietnam. On Thursday it announced some intersections from its Paloma Deep prospect, in the San Joaquin Basin, California.
The results, “are the best possible that (Neon) could have hoped for”, according to Johan Hedstrom, the oil and gas man at Bell Potter.
Neon is currently producing oil out of the North San Ardo oil field, in the Salinas Basin, also in California. It has a reserve base of 3 million barrels of oil, generating about $9 million in cash a year. It also has $23 million of cash in the bank.
It is using this to grow the business, and is investigating possibilities in shale oil and gas extraction. And Paloma Deep is one of those prospects, with both conventional and shale potential.
Hedstrom says that the discovery could be us much as 30 million barrels of oil, 10 times bigger than its producing assets.
The company is working to prove up its find. If it is economic, the time to production should be very short - only a matter of months. This is because the prospect is located near Bakersfield, where oil fields were first found and developed in California, leading to the subsequent production of billions of barrels of black gold.
Neon’s shares (ASX code NEN) are 44 cents going in to today, and have only moved up a few cents since the announcement, which amazes Hedstrom: “This is a very exciting stage for the company and it’s really too small a share price rise for the potential.”
Part of the reason that investors don’t have Hedstrom’s optimism could be that we haven’t got flow rates (how many barrels a day can be produced) from the Paloma Deep conventional targets, and the shale targets are speculative. Shale potential is still very new in California, unlike the Midwest, USA.
Neon has said that the shale intervals at Paloma Deep appear to be low in clay, are brittle and have natural fractures. Doubts will remain until it shows economic viability, which should occur in the next six weeks.
Hedstrom’s valuation of $1 was done prior to the Paloma discovery. The Californian assets only account for 40 cents of the total. The majority relates to the company’s Vietnamese ventures.
The company has two exploration licences off the coast of Vietnam, the prospects of which can only be described as huge. Based on reports earlier this year, one of the prospects has the potential for 14 trillion cubic feet (TCF) of gas.
To give you an idea how big this is, when Woodside Petroleum first started producing from the North West Shelf it had a reserve base of 12TCF.
At this point, Neon is in talks with one of the big guns of the oil and gas world in order to farm some of the project out. This could mean it reduces its 50 per cent holding to 25 per cent, but doesn’t spend anything on its development.
It could be as soon as Christmas that we hear what a big player like Chevron thinks of its prospects.
