significant prospect upgrade here...

Looks like a pretty good deal to me.

The reports on the web site are naturally bullish…but given current drilling progress, they are beginning to look less so.

Low side estimates of 50bcf…which were interestingly risked at 80% success rate…give valuations in the $1 - $1.50 range. Personally, I reckon we are already past this.

Mid target range of 440bcf is now looking like a real possibility…risked at 19% success, something of this size puts $10-$12 on the stock

The high side target of 3tcf appears unlikely given not all targets have so far been successful…however on this issue, I am a little unsure whether the 3tcf target just comes from the two main targets, or whether it relates to the entire prospect. (References seem to be a little ambiguous here.)

In any event, with over 700ft of the first of the two major targets still to go, with confirmed gas shows (at significant pressure) towards the top of one, it would appear that we may need to start looking at high side possibilities…even if only to equate a “what if” scenario to our valuations.



As you can see in the attached chart, they have met success in 3 of the first 7 targets…but perhaps more importantly, have 50% success to date in their primary targets with 2 hits from 4 targets.

Significantly, they already have 4.3m pay in the first of their two major objectives (Barker Creek) and there is still over 210m of this formation to go. The Barker Creek formation falls within the Pennsylvanian carbonates, which host the giant Aneth Field (385 MMbo and 343 Bcf of gas) within the same basin.

Perhaps the most exciting however is the second major target in the Leadville (Mississipian) Formation, which hosts some equally serious accumulations on trend….such as the Lisbon Field, with a cumulative production to date of approximately 700 billion cubic feet (Bcf) of gas and 52 million barrels of oil (MMbo) plus 10 million barrels of condensate from Mississippian reservoirs.



Anyway…in all of this excitement, I get the distinct feeling the company is now starting to down play this find somewhat…they certainly have not changed their reporting “style”, in spite of what appears to be increasingly impressive results…lol…which perhaps is being missed by some who actually think they “talking it up”. To me, this is suggestive of a very significant find…lol…clearly no need to talk it up anymore.

A few clues to this…

From announcement 20-10-06…“ A 40 foot thick sandstone unit, with the top 16’ gas-bearing (390 units), marks the top of the Barker Creek member (11,016 feet).” Now…this has since been offered by the company as a likely producer (11016’-11030’ Barker Creek). The significance here in my mind is the 390 unit background gas reading for a potential commercial pay zone. In the same announcement, they state…” Since last report, a further six gas shows, of up to 790 units (one unit equals 100 ppm gas), have been intersected, five in sandstone units of the Barker Creek member.”

None of these additional zones (up to 790 units) have been included in the most recent announcement where 4 likely producing zones were listed, leading me to believe there is much more news to come.

We may have to wait for final testing however to get a real idea of the significance of many of the intersections they have hit. To date, we have a significant number of gas shows over many horizons, the most significant appear to be occurring the deeper we go…

9 Oct = 3 shows
12 Oct = 4 shows
16 Oct = 6 shows
20 Oct = 6 shows

That’s a total of 19 shows above and beyond many other “minor” shows…clearly some will be more significant than others…some commercial, some not.

We also have several minor oil shows and at least one decent accumulation, with a 6m oil column (4% porosity) requiring follow up analysis.

Compared to many drilling operations, they seem to be hitting an extraordinary number of “shows”…some of which are clearly commercial.

Most will tell you, such results are extremely encouraging for the potential of the lower (major) targets…and is also significant for the remainder of the permit, with what appears to be hydrocarbon shows in virtually every formation.

In light of this, the success already apparent in this well upgrades the likelihood of success in the Northern Satellite accumulation…in itself a significant target.



It is important to note…we are a still some way to gaining a realistic handle of the likely size of any success here…it does appear however, that they have achieved enough to date to warrant a referral to recent “broker” valuations, especially in light of the likelihood they have at least met their low side estimates.

Regardless however…it may or may not run up, down or sideways from here…but it is pretty clear to me they are finding the right stuff in the right jungle here, so my guess is for higher rather than lower prices long term, regardless of what it does at the hands of the traders.

Cheers!