Hi GuysI have made a research about the petroleum potential of...

Hi Guys

I have made a research about the petroleum potential of REY. I’d like to share and discuss it with you here. I’d be happy to be corrected if there is anything wrong, mistaken or missing.

The copy of this research has also been emailed to the people listed below yesterday and today;
- REY; Kevin Wilson MD
- REY; Charlie Lenegan Chairman
- Mathews Capital (Focus Asset Management, the biggest shareholder)
- Acorn Capital, (3rd biggest shareholder. Holding through JP Morgan Nominees); Barry Fairley, MD and David Ransom Portfolio Manager
- Euroz Securities; Greg Chessell who made the research note in March 2012 and shareholder.
- Gujarat NRE Mineral Resource Ltd. (India); Arun Kumar Jagatramka CEO 2nd biggest shareholder. Holding 90% of petroleum rights of REY’s tenements by its subsidiary company Gujarat NRE Oil Ltd. (India)


My aim is to get the petroleum potential of the company understood and assessed properly and the real value of the petroleum assets added to the company value as I am a REY shareholder. (This has been the deepest research I have made so far. I hope I am right as I am holding a considerable amount of shares)
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I think REY is holding the best tenements in Canning Basin. They might be even more prospective than Buru’s tenements. The size of the prospective area also looks to me that REY has more than double the size of Buru’s prospective area in Fitzroy Trough (Graben).

Even Buru can’t hide REY’s tenements in their presentations. That's how I have realised REY. Thanks to Buru.

Btw, anyone can use my graphics and maps in anywhere they like by only referring me as "Anatol". Its' all free like this research.

My findings are here as below.

- REY may have same, even better Buru's Ungani-like oil prone structures and wet gas accumulation (Laurel formation) in its tenements.

- REY might have more than 1 billion barrels of oil + liquids and 20 TCF recoverable gas in its two tenements at least like Buru has .

- REY's 10% petroleum share as free carried in these tenements might be valued min. $500m in next two years.

- REY management should wait for getting the best value for its petroleum rights from its permits, but should not make an agreement in a hurry.

- Accumulation seen on weekly charts of REY: You can see the accumulation on weekly charts See the price and momentum. negative divergence after Oct. 2011 when Buru announced Ungani discovery. I am sure someone thinks the same thing I am thinking about REY and accumulating its shares.

Is REY Management aware of what they have got?
Company has already demonstrated on their anns. yesterday that they are aware of the petroleum potential in its tenements. They said; "The Company is reviewing its intentions in respect of its interest in the leases"

But I am not sure if they know the real potential which I am thinking it is significant and world class.

From the company anns. yesterday;
"Other Projects within Canning Basin In January 2008, Gujarat NRE Mineral Resources Ltd paid $275,000 to Rey Resources and must spend $4.85 million over six years to earn a 90 per cent interest in two Petroleum Exploration Permits, EP 457 and EP 458 (refer Figure 4). The Company retains a 10 per cent interest in the permits, which is free carried until the grant of a petroleum production license. During the quarter Gujarat NRE, as operator, continued planning and permitting work for 2D seismic surveys planned to occur in 2012. Recent discoveries of petroleum and gas in surrounding EPs held by Buru Limited have, in the view of the Company, increased the prospectivity of EP 457 and EP 458. The Company is reviewing its intentions in respect of its interest in the leases."

Btw, we should know that ASX listed GNM does not own the petroleum exploration rights of REY's tenements. REY made the farmout agreement with the Indian company "Gujarat NRE Oil Pty Limited" through its parent company "Gujarat NRE Mineral Resources Limited" which is the Indian company again. Both of them are not listed companies in Australia. Therefore GNM has nothing to do in Canning Basin.

Who is negotiating now? What is next?

Gujarat, for meeting its obligations for holding the permit rights, has to make a seismic survey this year and then a drilling till end of next year. Otherwise their 90% rights will be returned to REY. (This is what REY’s MD Kevin Wilson said to me on our phone conversation last week).

I think Gujarat will make the farmout agreement with Buru or a major (Woodside, Conoco, etc. ). Maybe they are already negotiating. REY may keep the 10% until the production.

So, Gujarat is now sitting and maybe waiting for the punters to come to them, or with Buru or one the major O&G companies. We don't know when and what is going to happen.

Gujarat smartly didn't do anything because Buru was desperately drilling all around their tenements. When Buru would find something that would give them a clear picture of their tenements. Ungani is only 25km from their EP-457. Valhalla and Paradise well are very close too. So any well will be drilled on REY's tenements will be the appraisal of Buru's prospects. The spread of formation is same all in this area. They have hundreds of seismic lines. So they know the sediments and faults, everything. They only don't know what was down there and contains what type of HCs. So, Buru has already found the HCs in the formations and they proved the Laurel formation has a lot of tight gas which could be commercial. that was the point and now it is proven.

REY has very good coal assets as well
But it is understood that it will take some time for them to bring this project to life. What I am saying regarding to REY is, it is undervalued (even in regards to its coal assets) and it may find its real value if huge petroleum assets are well understood.

REY's 10% petroleum share as free carried in these tenements might be valued min. $500m in next two years

REY has only 10%. But what about if REY's tenements hold the most prospective area in Canning Basin! That 10% is share is free carried until the production. No cost for REY. If we think that Buru holds 50% of that area but has to spend 20% to 50%, REY 10% share is not small, because Buru is around $3 now. Then can we agree that 14c price of REY justifiable! No. it should be at least 30c IMO, maybe much more, something like 60c.

If we compare REY at 14c price with NSE which is 60c with no proven source rocks in hand and with little chance in Kidson basin, REY is too cheap with its additional coal assets. (I hold NSE shares btw, I believe they will over $1 till end of this year). REY has near-proven resources (Laurel formation) in its tenements. They have both Ungani like conventional prospects and Valhalla type tight gas prospects. In is extensive in the region as Buru said on their presentation. (Attention: it is regionally proven).

REY is very tightly held.
(After I bought it has been a bit tighter now(:-) )
58% of shares is hold by top 20 as of Sept. 2011. I think it is tighter now because it is being accumulated since Oct. 2011 when Buru announced the discovery in Ungani.
1) The biggest holder Focus Asset Management is actually Mathews Capital. An investment fund expert on energy stocks for a long time.
2) The second one is Gujarat.
3) The third one JP Morgan is holding for Acorn capital. Acorn holds NSE as well. They are the second smartest and active investment funds. Another investment fund expert on energy stocks for a long time again like Mathews Capital.

Accumulation seen on weekly charts of REY:
You can see the accumulation on weekly charts See the price and momentum. negative divergence after Oct. 2011 when Buru announced Ungani discovery. I am sure someone thinks the same thing I am thinking about REY and accumulating its shares. Therefore its shares should be much tighter than Sept. 30 2011 atm.

REY; The Big Hole At The Hearth Of Canning Basin and Buru Area of Interest
I have made an extensive research about NSE and other Canning basin players for a long time. I immediately directed and deepened my research in to REY’s permit’s after seeing Buru’s maps on their presentation on April 16. I said “wow, look a the big hole at the middle of Buru’s area of interest” All around it is drilled and prospective but no one talks about it.

See Canning Basin 3D Depth to basement map further below. REY’s tenements are right at the centre of the Basin not only at the middle of Buru Area of interest


Source: Buru, Corporate Presentation, Page 4, April 16 2012
Source: Click here

There are two types of petroleum resources in REY's tenements

1) Buru’s Ungani alike conventional oil prospects
This makes REY the biggest holder of Oil Window (see the graphics below)
Conventional oil prospects similar to Ungani oil field. REY holds even double size of area (than Buru)

2) Regionally extent Laurel Formation Wet Gas Accumulation like Valhalla & Yullero
Valhalla North-1 drilled of structure from Valhalla-2 well location and confirmed the regional extension of Laurel formation wet gas accumulation. The problem with Canning Basin before was the proven source rocks. Now, Buru has proven the potential of Laurel formation source rocks in Valhalla and Yullero Projects in the Fitzroy Trough. Now Buru will be drilling (deepening) Paradise-1 well again in two weeks time (mid-May) for proving the regional extension of Valhalla North-1 well. Paradise-1 well is 21km fare from Valhalla well but 8km far from REY’s EP-458 tenement.


Buru’s Ungani alike conventional oil prospects

Regionally extent Laurel Formation Wet Gas Accumulation like Valhalla & Yullero

The Proven Source Rocks : Laurel Formation and Basin Centered Accumulation
Buru says on their quarterly report anns on April 27 2011;
“Buru estimates a prospective resource in the immediate Valhalla area of at least 2 TCF of recoverable gas and the potential for tens of millions of barrels of associated liquids. Additional drilling is planned during the year to further define what could be a very large Basin Centered Gas Accumulation in the Valhalla area”


Buru says on all their presentations that Valhalla and Yullero are "very large Basin Centered Gas Accumulation". “Basin Centered” means it is wide spread sedimentary rocks, deepen at the middle of the basin (which is necessary for petroleum generation). The thickness of this formation, according to Buru, is about 1300m at total depth of 3356m. That is huge.

Now you look at the layer at the cross section below which Buru has found the oil in Ungani and Gas in Valhalla and Yullero. Ungani is conventional (trap) but Valhalla and Yullero is tight gas (shale alike) accumulations. They are in the layers shown, go for kilometers.

Valhalla and Yullero are in the Laurel formation which is formed in Carboniferous-Permian-Triassic layer. See that layer goes up to the surface at the edges of the basin, and there is not much chance for the players having tenements in that area. (GGX, Orion, etc)

You can see on that cross section that REY's tenements exactly in line as basin centered behind Yullero and Valhalla, in the same trend with even both of them.

Please also see the Canning Basin 3D Depth to basement map further below. REY’s tenements are right at the centre of the Basin not only at the middle of Buru Area of interest




Lets’ get a bit more technical now

Canning Basin Tenement Map
(My latest version)
You can see my understanding of Basin centered tight gas window, Oil window, and Wet Gas window on the map.

You can see here that REY’s tenements are half in the oil window and half in the tight gas window (at least). By the OBL holders can see that they have a share in the tight gas window.

Canning Basin 3D Depth to Basement Map.
See REY’s tenements are right at the centre of Fitzroy Trough (Graben) not only at the middle of Buru Area of interest.

You can also see the geological trend in Canning Basin is from NW to SE. Prospects are forming at this direction. This is same in Fitzroy Trough, Gregory Trough and Kidson sub-basins. You can see the same trend on Buru’s prospects and Leads map above.

Canning Basin Sediment Thickness Map; shows REY’s tenements are covering the tight gas area as well as the conventional oil trap and structures area.

Canning Basin Total Magnetic Intensity Map; shows REY’s tenements are covering Buru’s Ungani alike conventional oil trap structures

Let’s have a closer look to this structures below

Some information about Gujarat NRE Mineral Resources Ltd.

This is an Indian company. Its organizational chart is below. REY made the farmout agreement with the Indian company "Gujarat NRE Oil Pty Limited" through its parent company "Gujarat NRE Mineral Resources Limited" which is the Indian company again. Both of them are not listed companies in Australia. Therefore GNM has nothing to do in Canning Basin.

Gujarat knows the value of REY’s tenements.
This is from a presentation video on their web site.

Gujarat knows what to do.
This is from their web site again.

Good luck to everyone.
Cheers.