pan orient release tonight, page-12

Hi Cad,

As I said, this is only my own analysis, for my own decision purposes.

But I have been uncomfortable with these reserves for some time. They are only of value if you can reliably produce them without undue difficulty, and without unanticipated problems or costs. So when CVN drill one hole into a reserve area and get a good oil flow and then another very close to it and get nothing, as they have, I start to question the overall produceability/integrity of their reserves.

Equally, when we are suddenly told that the field has been producing 50% water, and that the natural 'flush production declines', are actually an intentional choking back of wells to try and reduce water influx, I start to get a very different picture of what has actually been going on for the past 18 months, and the difficulties that the company has been having in converting its reserves into production.

So yes, they have been increasing their reserves, but there are obviously unanswered questions about the quality and produceability of those reserves.

Not all oil reserves are equal. They may all be classified as 'reserves', but they are not all of the same quality.

Some will be easy to extract and highly profitable, whilst others will flow very slowly and poorly, and others will be accompanied by large quantities of water and an endless series of technical challenges.

Some will have very valuable, easily-produced, sweet, light oil, held in uniformly porous, consistently permeable, broad sedimentary units.

Others may have heavy, waxy, hard-to-extract, lower value oil, held in inconsistent, unpredictable, difficult reservoirs, with only intermittent porosity and discontinuous permeability.

CVN's oil reserves are thick and waxy, lower in value, difficult to produce, held in complex, inconsistent, fractured zones within otherwise largely impermeable volcanic rock, and they are accompanied by large quantities of water.

This must have been apparent to the operators all along, but has not been widely telegraphed to the investors, who up until now have been led to believe that the past 18 months' production declines have been due to a simple focus on exploration rather than production. And this does leave me wondering what other unknowns may have been lurking beneath the surface.

With regard to simply drilling a lot more production wells, and producing them at lower rates, I agree, that this would seem to be the obvious solution to the problem. However, the oprators have been attempting to address the production decline for over a year now, and I am sure that this is exactly how they have been trying to do it, but with very little success to date. So the solution can't cannot be that easy. There are obviously other problems as well.

I won't go on. As I said, these are only my thoughts. But it's put me off the story. That, and the all-too-easily-dismissed country risk factors, which run far deeper than anybody here seems to realise.

One final thought though..

That 4,000bopd well: what do we think it would be producing now? 3,500bopd, after slow steady decline as originally predicted? Or did it water out a year ago? And was that why production fell so suddenly and so irrecoverably? And if it did water out, or decline catastrophically, shouldn't we have been told?

Please excuse me if I drop the thread from here, as I am busy with other things out in the real world.

With regards,