RGN-1 Future

I feel that people generally do not understand the notion of sunk costs. Cries of "we've spent this much, let's not spend any more on this duster" completely miss the point that spending a little more is the difference between having revenue (and therefore a return) or not.

Flow rates from the C sand are not going to set the world alight, but they aren't to be sneezed at either. The real issue is the water. It's starting to look like aquifer connectivity or a failed attempt at isolating a water producing zone. Regardless, provided the water can be handled (another upgrade to the water handling facilities?) the economics actually look quite good. Using Hartleys's broker report numbers as a base it is fairly reasonable to assume $6/gj for gas (potentially too low - more likely around $8 for a new contract) and $50/barrel for condensate. As such, based on the testing numbers we have so far:

Condensate revenue: 405 x 50 x 365 = $7.4 million per annum
Gas revenue: 1.29mmscfd = .5 PJ/y = $3 million per annum for 6.75 years based on C sand containg 45% of the 7.5 PJ resource.
Total revenue = $10.4 million per year

The gas will only require a 4km line to connect to the processing facility, and as such will results in minimal additional production cost. Condensate is less clear, as a solution will need to be found in relation to the water separation in order for the plant to remain reasonably efficient. I think they knew that they were in for some sort of water issue, given the upgrade, but didn't expect it to be a virtual waterfall. The water handling will be both the largest operational challenge, and the largest processing challenge.

To take into account any lower price received (doubtful), lower production rates, and costs I believe it would still be safe to assume a solid $8 million a year income from this well. This income is the difference between scraping by to repay MIN or being greatly free cash flow positive and mildly self funding. Essentially the gas pays for the well and the condensate is a lucrative bonus that can be used to pay down debt.

It will be a very quick turnaround if my assumptions above are correct - especially if a farm-in or up front financing for future projects can be arranged by the self imposed March deadline. I would not be surprised at all if MIN came forward with a Strike Energy/Orica style deal for EGO.