Recap time:
FAR EAST CAPITAL REPORT
“Cousin of Caspian”
Energy Exposure at an "Option Price"
MHL has exposure to two out of three of our preferred
commodities – uranium and oil – at a time when the
world is approaching its longest, most serious energy
shortage that has resulted from under-investment in
the case of uranium, and over-consumption in the case
of oil. Throw in the compounding concerns with
global warming and the naïve reliance on green
energy to carry the day, and the increasing
politicisation of energy by the Russians in particular,
and we see that the future becomes more uncertain.
We should all be looking at increasing our weightings
in the oil and gas sector, ranging from exploration
through to production. We favour a basket approach
to the higher risk exploration end of the business due
to the unpredictability of the business, and that should
involve frontier oil stocks for maximum leverage.
One such stock is MHL, which, at a market
capitalisation of $15m, is carrying only “option value”
with the price at 2.4¢.
Reminds Us of Caspian Oil & Gas
Three years ago we spent a week in the Kyrgyz
Republic, coming to grips with a junior oil stock
named Afminex (it subsequently changed its name to
Caspian Oil and Gas). Back then, the shares were less
than 1.8¢, the company had precious little cash, the
market capitalisation was $8m and the oil price was
only US$30-35/bbl.
Since then it has raised more than $20m, it has signed
a joint venture with Santos and, independent of that
JV, it is preparing to drill a number of shallow targets.
CIG’s market capitalisation is approximately $170m
with the share price at 16.5¢. Our clients have done
very well out of CIG, irrespective of whether or not
they hit big oil in the forthcoming program.
Differences Between Monitor and Caspian
CIG’s focus is mostly on the Fergana Basin with a
few licences to the east. With the exception of At
Bashi, MHL’s licences are in the NE of the country.
CIG initially promoted itself on a series of oil seeps
and very shallow oil, but these oil finds have been
shown to offer low productivity due to the lack of
pressure near the surface, and it has been lower
quality oil that is sold at a significant discount to
world prices. The deeper plays offer much more
promise but Santos is yet to drill these.
Monitor’s targets are all much deeper, at 2,500-
6,000m depth, without the distraction of the lower
productivity of near surface positions.
Caspian did have the opportunity to acquire uranium
leases in the Kyrgyz Republic but at the time the
directors wanted to stick to a pure focus on oil, so the
leases were acquired by Monaro Mining NL.
Notwithstanding the difference, Monitor could easily
qualify for the mantle of “Cousin of Caspian”.
Inspiration from Nearby Fields
MHL has four licences covering 9,950 km2, in close
proximity to major proven oil provinces. The prolific
Tarim Basin, to the SE in China, has reported
resources of 170 billion barrels of oil and 710 TCF of
gas, with production of 350,000 boe/day. The Junggar
Basin, with 65 billion barrels of oil and 13 TCF, is
located to the east, also in China.
Exploration History of the Licences
There is no production history on the licences but
previous exploration work conducted in Soviet times
has provided evidence of a number of play and lead
types, including four-way-dip and fault-dependent
anticlines, fractured and karsted carbonates, strategic
pinch outs and salt-related diapers. Both Paleozoic
and Cenozoic sediment thicknesses of over 5,000m
are indicated within the foreland basin troughs
resulting in sufficient burial for hydrocarbon
generation. Complex deformation comes from thrust
faults and related compression shear faults.
The most prospective horizons are thought to be in the
Paleozoic units where the hydrocarbon generation
postdates the tectonic activity. Higher up the
Mesozoic and the tertiary units offer opportunities for
captured leaks.
Very little drilling has been conducted previously. At
the At Bashi licence the Soviets drilled a well to
2,000m, which blew out and had to be filled and
abandoned. At the Tyup licence there were four holes
drilled with two having oil and gas shows and two not
being completed.
Far East Capital Ltd/OzEquities Junior Resource Company Comment
________________________________________________________________________________________________________________
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees
do not accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained
therein. 2
MHL believes that 100 mill. bbl targets are realistic,
though these are likely to be broken up into blocks of
10-20 mill. bbls.
The predominant petroleum system present in the
areas have the following features;
a. Source: Paleozic marine algal, Carboniferous
limestones and Permian shales, Mesozoic
Jurassic coals, shales and possible remnant
Cretaceous shales and Cenozoic deep basin
lacustrine mudstones
b. Reservoir: primary porosity in sandstones and
limestones, secondary porosity in carbonates in
the form of inter-granular voids, vugs, moulds,
caverns and fractures.
c. Trap-Timing-Generation: multiple periods of
structural deformation; thrust fold closures in
the Paleozoic, surface expression anticlines in
the Paleogene-Neogene; paleokarsts, salt
diapers and related sub-salt traps
d. Retention; hydrocarbon generation postdates
some of the tectonic activity and pools
generated prior and during tectonic episodes
will have been distributed and remobilised and
trapped in shallower target zones.
(For those of you with a technical bent, the Company
has produced a brochure that gives more geology).
Fiscal Considerations
The Kyrgyz Republic has an attractive fiscal regime
with company income tax of 10%, royalties of 5.3%,
low work commitments, long tenure and a free market
economy.
Looking for A Joint Venture Partner
MHL has shown initiative in acquiring the licences
back in April 2005, at minimal cost. The classic
formula for junior companies of getting in early and
promoting the opportunity to larger, better financed
oil companies is the model being pursued by MHL
(just as CIG did with Santos). Depending upon the
Company’s negotiating skills, we could see it end up
with a 10-30% free carried interest in gravity and
seismic surveys and a number of wells. This would
provide excellent leverage on any discovery.
The Uranium Interest – The Following Comment was
Taken from the Uranium Review Released by FEC
MHL has 50% of an interesting uranium project in the
Kyrgyz Republic, named East Kokmoinok. Our
examination of Soviet work suggests a non-JORC
resource of 770 t U3O8 at Kashkasu, which awaits
confirmation and conversion to JORC status. The
Soviet work comprised a shaft to a depth of 160m and
800m of drives. The uranium mineralisation is hosted
within coal horizons of the Jurassic sedimentary strata.
Lower grade mineralisation is associated with
sandstones and siltstones adjacent to the coal. There
have been historical uranium mines in the same
uranium field at Turakavak, Agulak, Sashytash
deposits.
The mineralised coal seams vary in width from 4.2-
6.6m and the grade is typically 300-2,000 ppm, with an
average being close to 1,400 ppm.
MHL paid US$230,000 to acquire a local company
which held a 97.5% interest in East Kokmoinok, then
sold a 50% interest to Leopard Minerals at cost price.
Ongoing exploration cost are shared 50:50 between
the two companies.
Investment Perspective: MHL is one of the cheapest
uranium stocks on the bourse with a market
capitalisation of only $13m (share price 2.1¢). It
seems that the market is considering only the oil
exploration licences, and even then it is not placing
much value on them. The share price will be affected
by news on the uranium front, but there will also be a
rub-off from oil drilling in the Kyrgyz Republic by
Caspian Oil and Gas, which is capitalised at $131m
The Cash Position
Currently there is minimum cash with $1.2m in the
kitty at 30 June. Whilst this suggests that a placement
may be needed, it also suggests that the Company will
be beating the drum to generate more interest. Far
East Capital would probably be interested in helping
out on the funding front.
Management and Technical Strength
MHL is headed by Jon Roestenburg, a petroleum
industry geoscientist with over 35 years of experience
including periods with Mobil Oil Australia
(Geotechnical Manager), Ampolex (Technology
Advisor) and Schlumberger (Chief Geologist – SE
Asian Geomarket).
The Bottom Line
Monitor is a cheapy that offers an attractive
risk/reward ratio. It is one for those who don’t mind a
bit of speculative risk. We are frequently being asked
for another stock like Caspian in the early days, and
MHL seems to fit the bill. The share price will be
influenced by the progress with joint venture
negotiations on the oil licences, the uranium market,
drilling results when the uranium deposit is drilled,
and eventually by the success or failure of the oil
exploration. There is plenty of room for upward share
price movement.
Contact OZEQUITIES NEWSLETTER “Australia’s Most
Comprehensive Daily Digest of Equities News”, at
[email protected]. Tel: +613 97485033. Warwick
Grigor is a director of Far East Capital Ltd, an ASIC
Licensed research and investment firm. He and his
associates have no material interest in the securities of
Monitor Energy Ltd, though it may look to acquire shares
and assist in capital raisings in the future. This report
provides information of a general nature and it does not
contain a recommendation, express or implied, to deal in
the securities mentioned herein. A professional investment
advisor should be consulted before acting on the contents
of this note.
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