There is a fundamental reason the stock has'nt taken off just yet that the market seems to have little discussion on.
Thursdays announcement was for a "contingent resource" not a proven reserve. In todays tough global market good news is discounted heavily and indefinite news is often ignored.
Contingent resource means; (Society of Petroleum Engineers)
"Contingent Resources are those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from known accumulations, but which are not currently considered to be commercially recoverable.
Contingent Resources may include, for example, accumulations for which there is currently no viable market, or where commercial recovery is dependent on the development of new technology, or where evaluation of the accumulation is still at an early stage."
We fall in the later where our resource is still at an early evaluation stage.
So right now we have lots of potential but not a bookable asset. On our side are two main indicators that suggest contingent will become proven reserves. Firstly tha fact commercial flows were attained in Fruitvale/Lower Stevens and secondly the flow tests of the Antelope are as good as other producing wells in the field at time of discovery.
In a bull market this would be all that was needed to lift the sp, in this tough market the market goes hmmmmm, sounds good but we'll wait for the conversion to proven reserves.
Proven reserves are the asset backbone of an oil company. They add value in absolute terms and are fully recognised in the event of an asset sale or takeover albeit at a discounted rate to what might be achieved in a bull market.
PD-2 is fundamental to Neon in achieving the conversion to proven resource. Fortunately this is only three weeks away. There will need to be some testing but from earlier discussions I had with Neon they already have an independent certifier working with them to help assess the resource as results come to hand.
Conventional reservoirs are likely to be converted to reserves quickly. Unconventional reserves typically are proven as wells are drilled.
PD-1 in the upper untested zones and P3 could also add proven reserves.
NEN Price at posting:
31.0¢ Sentiment: LT Buy Disclosure: Held
