Whether it’s Santos – APLNG – or another party – gas is in short...

Whether it’s Santos – APLNG – or another party – gas is in short supply in the location where we have a shed load. If I were Santos I would bid us well shy of net asset value as commercially it makes no sense to do anything other than this when they are the only party ‘showing their hand’ at this time.

Likewise – we do no more than state our position regarding what we view as being a fair valuation whilst carrying on proving up more gas thus adding value to our asset base which in turn increases what a suitor will eventually have to pay – should we collectively decide to go down this route.

In this market – those on the acquisition hunt are looking for bargains knowing that so many target companies are strapped for cash and end up by having to sell out at a discount to net asset worth. COI on the other hand is in the fortunate position whereby not only do we hold the majority percentage in Mahalo with Santos and APLNG individually holding 10% less than us – we have some Institutional heavyweights on board as well as us PI’s most of whom bought in awaiting either the longer term rewards or the shorter term sell-out should the offer match our expectations.

In the mean time we have never struggled to raise cash – so our position can be viewed as being the cream floating on the milk.

It would be bonkers for Santos and/or APLNG not to at the very least try to buy us out of our 40% of Mahalo as they need gas to maintain market share.

At the end of the day a decision will have to be made as to whether it’s more cost effective to buy up proven gas which provides immediacy of fast tracking to production – or sinking costly holes in likely locations where the chance of failure is weighed more heavily against that of success – knowing that even if they did succeed that the timeline between locating a spot to drill and eventual production is measured in years plus there’s huge expenditure to reach that point.

At the moment the market is looking for ‘certainty and yield’ over 'risk verses reward' – and what we have is as close to ‘certainty’ as it comes.

Two outcomes here – the suitor/s raise their game to the point when the price that they offer is deemed to be acceptable to our BOD and they recommend the same to us shareholders – or – we continue increasing our 2P/1P and use that collateral to take us all the way to production. If the latter happens with the envisaged cost of production being at the lower end of the cost curve – we will be sitting pretty whereupon our market cap will be valued on yield plus the likelihood of increasing yield as more plays move towards production.

All good from where I’m sitting…