reply from jp $400000 pa

Dear Zahn
Good to hear from you again. Sorry for not responding sooner – when we are drilling I tend to find myself immersed in some of the geological operational matters which does take some of my time as well – to ensure we spend our limited money wisely and efficiently.

Progress on the reserve booking has been slower than I had anticipated – I share your frustration.
The Monslatt Block does not benefit from the proximity to the Moranbah Field that the Sapphire Block enjoys (and hence the award of modest 3P in Sapphire from that proximity).
Accordingly NSAI wants to see economic gas flow rates from the Monslatt Block before assigning reserves – and we have not yet achieved that. There is no question of the gas being in place, however, at the locations we have drilled to date, the coals have exhibited low permeability and we are attempting to try different techniques to drill and complete the wells we have, in order to see what works and what does not work to establish economic flow. I think it is important to ensure we get bona fide reserves by demonstrating economic gas flows, otherwise full value may not be attributable to Blue’s assets!

Things are not helped by the significantly increased regulatory approval process (for basic activities) together with the land access process that is now in place. This has added significant time to getting things done. Added to this is the shortage of available kit – rigs and frac crews etc (if you are not one of the big 4) - it is logistically challenging to conduct program these days.

The share price is also disappointing but Blue is not alone in that regard – the small cap sector has been hit hard over the last 12 or so months by negative press on landholder and environmental fronts with a concerted campaign against the industry in NSW and Qld that has a political overtone to it as well. The world economic climate is not assisting either. So most of what is happening in the market is beyond my control. However, the consistent downward trend in all CSG stocks was arrested briefly with the ESG/STO and BOW/AOE takeovers. This signalled to the market that the big LNG projects are short of gas and will require additional acreage/reserves to meet gas supply requirements on their trains. It also sparked the realisation with government and gas users that the domestic gas supply situation may well be in shortfall in the short and medium term.

The Board’s vision is to have 3000PJ of 3P by YE 2014, and I and my small team are working methodically to achieve this target in the most cost effective manner. Building that reserve base will generate a re rate of Blue. Research by industry analysts (check our website) indicates the current value differential.

As far as my salary is concerned, the Blue Energy Board sets this - not me. For the record, my salary has not changed since my appointment as CEO. The introduction of a Rights Plan for employees was approved by shareholders at the last AGM, and that has been the only variance in my package since appointment 18 months ago.
Also for the record – note the following competitor/peer group CEO packages – the average of which is $559,703



As for my personal investment in Blue – as a sign of confidence in Blue – if I did not believe that the company’s assets had merit and value, I would not have accepted the job nor remain in the job. I was not a founding Director of Blue and I have only a small holding which was purchased before my time as COO or CEO. This is not a dissimilar position to some others in the list above. I am of the personal view that it is critical to maintain an unambiguous position on share trading as a Senior Manager and Director - for both governance and ethical reasons. To this end, the linkage of a portion of my entitlements to the Company’s Rights Plan (rather than a personal holding) provides a more open, accountable and transparent way of measuring performance and uses more metrics than just share price.

Hope this helps


Regards

John Phillips
CEO & MD

t +61 7 3270 8800 | f +61 7 3270 8899
e [email protected] | w www.blueenergy.com.au