research and analysis + exciting shale info

The company currently has three main focuses, Backreef/Selene, CSM/Shale Gas in the lease next door and Offshore Victoria. There seems to be a bit of a split between the Backreef investors and the CSM/Shale guys. Victoria at the moment derisks somewhat either of these earlier plays. Activity windows for these 3 projects are as follows:

BackReef/Selene
Earliest possible drill slated for June in previous announcements, latest possible spud date would be around October 15. Any activity on this front is likely to begin imminently as they need to drill BackReef this year or they'll have to focus on CSM/Shale and Selene.

CSM/Shale
Prospectivity Assessment is currently underway and will almost surely come back positive with coal seams already discovered and shale evident in surrounding drill cores. Drilling BackReef in a few months will provide more CSM and Shale data as well as targeting the deeper oil prospect. With BRU and NSE and the rest of the Canning talking Shale, it's likely we'll see a lot of general interest here this year.

Offshore Victoria
The JV has a commitment to drill by September next year, which although very LT for many here is coming up surprisingly fast for those of us who have been in it for a while. If this was the only focus of the company I'd probably be positioning a bottom drawer BESBS play in a few months.


As BackReef is the most imminent I'll tackle it first. It's 4.5km from the most successful find in the region, Blina. Buru is just starting their drilling program and as our area is the most proven prospective area, it's where they're starting hoping for some safe early runs on the board.



I post the figure from the Investor Presentation only to quiet the people that don't like talking about cent shares becoming dollar shares, as though somehow a small cap becoming worth $1B via the discovery of a couple billion worth of oil means the shares are only allowed to go from 6c to 12c and then only over 6 months because that's how bank shares move. (do they think ANZ wouldn't triple if fairies left gold worth twice their mktcap in their main office?.. Well actually that would allow them to lend incredibly more and with less risk, so maybe much more than triple, but you get the point.) These are the non spec oiler people that also seem to forget Fortescue moving from 3c to $12 in a couple of years but we've had this conversation over the past month or so. I just wanted to show what the company says before breaking it down, so I'm not accused of ramping. A drill can give you a fairly good guess at what you've got in the field, but you need to do further drilling to test area extent, porosity changes etc throughout it to get the full picture. It takes a few years to prove up a field and a lot of expensive drilling. That all needs to be taken into account, but the discovery value matrices give you a framework to enter these early guesses on. For instance, once EGO was showing that the sp had increased to 50% of what a potential find could be worth to the company before the drill actually hit the dirt. That's when you sell - it's like successfully finding a half sized field of oil without any of the dropped drillbits and bad cement jobs!



I've got two sets of figures here, a Medium Case (270mmbbl) and Low Case (141mmbbl). OBL use 12.5% as their drill risk, but even though it's not a total wildcat being essentially part of an oil field (it's the "back" ;)) the drill itself isn't a slam dunk so I'm taking it down to 10% in medium and 7% in low. Sorry they're small btw, I hate those scrolling images that are too big to see that push the text out.
In the top set I've assumed that CBO's 25% has been used for a JV or Cap, and in the bottom I've raised $3M for the drill with a cap raising of 60M shares at 5c with an attaching 1 for 4 option bringing dilution to 75M. You can argue how attractive that is, but with the options it's a 2c discount.
You can see that even in the low case we have a discovery value per share of $4.31 so I personally don't mind any which way we move forward, it would be hard to see this thing not hitting a couple of dollars on a successful drill even with a cap raising.

So how do we move forward? Of the 90% of BackReef, OBL has 65% and CBO 25% meaning that CBO is 27.8% of the group so there is a lot of funding margin there. The OilCans didn't sell but they were a bad offer compared to the heads, far less leverage and illiquid. If they could be made very favorable maybe we could potentially shift a lot more. CBO's share equates to 61,839,757 of OBL's total issued equity. Like the recent conversions, 61M @ 4c works out to 2.47M which is ball park for a drill and without diluting OBL at all. Maybe this would make it more attractive to a JV? Maybe we've got to look at partial funding rather than relying on full CBO take up or BRU paying 90% of the drill costs for 30% of the drill. BRU have 30% back in rights in the case of a success. Surely if they partially funded the drill they could add to the back in rights with a take up of cheap CBO? 90% of the drill cost for ~50%? 60% for 40% etc. We still have plenty of leverage, we need to get this thing happening.

At any rate as soon as we know the drill is going ahead there should be a fairly massive sp increase. The Low Case with a cap raising shows a risk adjusted sp of 30c, depending on what the market risks it and values the drill I'd expect us to be nudging at least 15-20c in the lead up to the drill which would be a nice 2-300% for anyone lucky enough to grab some shares in the cap. We're trading at a discount right now because the drill isn't funded as of yet. We're waiting on confirmation of a JV or drill funding to see some real gains... and of course the main show where we all retire.


Ok you CSM/Shale guys, you've probably skipped all that BackReef stuff to see some potential goodies. I've spent a few days trawling through countless geology and drill core reports and although I've mostly ignored the CSM for this post (although I did do a bit of looking at the coal companies in the region) because they already discuss that a bit in their releases I thought I'd relay some stuff that hasn't been announced yet and that's the shale prospectivity which they are currently looking at alongside the CSM stuff. Ok throughout the basin the Laurel and Anderson shales should both range around 20-30M thick. There is a fair amount of data as most drills in the immediate area come into contact with them. But the big one, and somewhat less known is the Noonkanbah Formation. Now I'll have to make it clear here, I'm not a geologist. I don't want to state for sure that this is the case, but from these reports it certainly seems that Noonkanbah is A. Hydrocarbon rich and B. THICK. The Noonkanbah was 346M thick in Valentine. I don't know exactly what proportion of that is shale but it was 195M in Cycas-1. It's a basin wide seal which means it's throughout OBL's drill reservation. Oh the best part? It's only 580M under the ground in Valentine, making it very shallow. It's a very recent formation when compared to the Devonian and Ordovician shales. *If* it's suitable for shale gas we could be onto a winner here. There is still the 50-60M of Anderson and Laurel shales, if you went deep, the Gogo and Clanmeyer although I've left these out as you'd probably have to find where they were closer to the surface and I couldn't find anything as of yet on the very shallow Blina shale which is above Noonkanbah. Also this point probably needs clarifying, this reservation is separate to the BackReef license, so it doesn't need to be drilled this year. Although it's right next to it and any CSM and shale work will be done on both areas (probably DR9 as well) it's not affected by Buru etc. Anyways, got my fingers crossed I'm reading these reports right and that the shales are right for gas.





Ok quick one because It's late, underpinning all this Canning work is the Offshore Victoria drilling hopefully starting next year. I've just leave these figures from the Investor presentation with you. They don't take into account any options, and we don't know yet exactly how the JV is moving ahead with equity, but even if you knock two thirds off these you're doing pretty damn well no matter what happens in the Canning.



Remember don't take my advice, DYOR.