Thanks Onceover. An interesting, thought-provoking post.A few...

Thanks Onceover. An interesting, thought-provoking post.

A few questions:

1. The past couple of years has seen very good reserves replacement, with 1P and 2P increases far higher than the JV's (declining) production. Wouldn't any problems referred to be already factored in to the reserves figures - ie proven and possible reserves increases despite any known water/production decline problems?

2. If the oil is known to be there (in fact the known oil has been increasing), and drilling is relatively cheap, couldn't the JV simply drill more wells and not pump them as hard - eg 50 wells pumping 200 bopd vs 25 wells pumping 400 bopd? I realise this would impact profitability, but with such a low cost structure they have room to move. Or is it not as simple as that?

3. If the water problems are worse than was known at the time of the last reserves update, could this result in a reserves downgrade for those areas experiencing worse than previously known problems?

4. I am surprised they have been testing the boundaries of some of the production areas. It seems logical to me that you would drill an area from the inside out, not from the outside in. And that you would focus on production to generate cash flow to fund additional appraisal drilling. Or is this how it is generally done - ie determine areal extent, then infill?

I have always placed greater emphasis on the reserves increases, and less on the daily production rate, thinking that as long as the oil is in the ground, the JV will find a way to extract it economically (at low cost).

Presumably as they continue to drill more holes and better understand the project area they will be in a better position to optimise their drilling and production.

Or, again, is it not as simple as that?