news break, page-204

whisky49...

"Surprising as it may seem SLB may know a little bit more about running a well than you and I."

And yet, the expert recommendation is to produce this zone at 466bbls/d...this is not from "you or I" and is not a guess...it is from an independent expert and was based on the specific details of the well.

I wonder what their recommendation might be now, given the producing zone has since been confirmed to continue for at least another 1.2km at the top of the formation trap to AT#5...my guess is they would lift their recommendation.

But that is just a guess.

Personally I would like to know the credentials of the people who decided not to follow the expert advice here...especially given the obvious confirmation that these rates ARE LIKELY TO BE APPROPRIATE based on the results of AT#5.

Whisky49, don't forget one cannot fully determine optimum production rates versus declines without plotting these relative to NPV models...more cash up-front is worth more to the Company today, but clearly will also be offset against faster decline rates and possibly less income tomorrow.

There is a point where maximum value is attained...and I respectfully submit this is at the...drum roll...466bbls/d rate the "experts" recommended.

This has been done a million times around the world so is not rocket science...the calculation is actually fairly simple maths...BUT...another consideration for CTR in all this is also the effects of dilution relative to any NPV models.

Production starting at 350bbls/d

At 350bbls/d, but with significant decline rates (0.08% per day), results in the following production profile;

Start production = 350 bbls/d
End year 1 production = 274 bbls/d
End year 3 production = 175 bbls/d

Income first year (CTR 60%) = $5.1m
The NPV (CTR 60%) = $21.3m

Production starting at 170bbls/d

At 170bbls/d, but with just one quarter the decline rate (0.02% per day), results in the following production profile;

Start production = 170 bbls/d
End year 1 production = 162 bbls/d
End year 3 production = 146 bbls/d

Income first year (CTR 60%) = $2.7m
The NPV (CTR 60%) = $19.9m

The difference in first-year income is $2.4m...or some 240m shares that did not need to be issued at 1c.

That's around 10% additional dilution that needs to be applied to any CTR NPV models to arrive at a per share value...but this is not only applied to the single, C17 formation reserves, this 10% dilution is applied to the entire value of the well and indeed the field.

A 10% loss of the project to shareholders due to dilution will eventually equate to more than the entire value of the C17 zone...indeed the entire well...so even if they somehow kill the well from over-producing this one section over a say a 12-24 month period, as long as they get that 1 good year out of C17 (and possibly 2...if not more), and if we go so far as to also assume all other formations in AT#4 produce nothing (not likely)...then the "risk" would still have been worth it.

It seems a no-brainer to me.

Notice also I did not use 466bbls/d...if they did that it would be an even bigger no-brainer.

As becomes clearly obvious from the above examples though, cash up-front improves NPV's, but also reduces need for dilution...so there is a clear double-whammy trade-off available here above and beyond normal NPV considerations.

Were these issues even considered?

Don't forget, most of the pay zones in AT#4 are actually still behind casing, so even if the worst case happened and they killed off C17 production to a trickle after just 2 years of production, they still have numerous alternatives, including the upper C17 zones to tap.

I have posted numerous NPV models historically for AT#4 and C17 alone...higher production, with faster decline rates = significantly less dilution and greater value.

There is a reason why the experts recommend 466bbls/d...this is the level at which maximum returns are achieved from production, after taking into account the variables of increased decline rates, risk of silting-up, waxing up, accelerating water production, formation damage, water cut, etc...

So what is the hold-up on production...why has it taken over 12 months to increase production by just 20bbls/d, in spite of no apparent material pressure loss, no water production and now, confirmation the field is extensive?

What's is really the problem?

Is production and associated income being delayed to benefit others at some future date...or facilitate a need for raising capital through the market today, with all the associated profit-fees?

Maybe, but...

It appears to me the problem may actually have something to do with the fact maximising returns from this well for CTR shareholders may not be fully aligned with maximising returns for certain "others".

Will 65m shares help the re-alignment?

Cheers!