shares article - "from trash to treasure"

From trash to treasure
Last reviewed in November 2002, Cooper Energy (COE) has already delivered on its early promise, but there may be plenty more upside ahead.
Cooper raised $10 million and listed on the ASX in early 2002. It was formed to acquire and test some of the original Cooper Basin acreage in South Australia that Santos was forced to relinquish in 1999. Cooper is one of a small group of juniors demonstrating the age-old clichŽ that one man's trash is another man's treasure. Targets considered too small by Santos are yielding regular discoveries for the juniors.
The Cooper Basin is well-served by infrastructure - pipelines, roads and gas processing facilities - which means operating costs are low and development lead times for new discoveries are measured in weeks or months, not years. With the oil price trading around $US30 per barrel, even a small one million barrel discovery can be worth $A20 million to its owners.
Onshore wells in the Cooper Basin are an order of magnitude less costly to drill than offshore wells. Even small operators can afford the $1-1.5 million cost of a typical well. The flip-side is that onshore discoveries are generally an order of magnitude smaller than offshore discoveries, but the lower tax and royalty arrangements for onshore oil production mean these fields are particularly attractive targets for cash-strapped juniors. A useful rule of thumb is that onshore oil may have a net present value of $20 per barrel, while an offshore field may only be worth $5 per barrel.
Cooper Energy made its first discovery shortly after listing and participated in its second success at Christies in July 2003. That find was in production by October and is currently pumping around 500 barrels of oil per day. Christies is 25 per cent owned by Cooper and is thought to contain around 800,000 barrels of oil. Along with the earlier Sellicks discovery, which contains around 1.1 million barrels of oil, Cooper is now generating a cashflow of around $200,000 per month.
Cooper has interests in six permits. Following the success at Christies, the company drilled the Brighton, Worrier, Eucalyptus, Semaphore and Kiwi wells in quick succession. At Kiwi it discovered gas with minor condensate, while at the 30 per cent-owned Worrier, it discovered an estimated oil reserve of 3.4 million barrels, easily the biggest of Cooper's four finds. Worrier could add 700-1000 barrels of oil per day to Cooper's account when it is developed in early 2004.
The company has $4.5 million in cash, 85 million shares and around 54 million in-the-money options. With 1.4 million barrels of net oil reserves, Cooper's current market capitalisation around $25 million may only reflect the value of its production assets plus cash.
The company should achieve its aim of becoming a self-funded explorer this year, and with the prolific Cooper Basin constantly throwing up new prospects, leads and targets, there could be plenty more drilling action in 2004.