taking stock

Hi MEOmites

When we get the quarterly reports we always hope that it will contain some new information but, really, all they are is a summary of the activities over the previous 3 months.

As the activity report is retrospective it shouldn't contain any new information as it all has already been released because of disclosure rules. What is new is the accompanying financial report which shows us the health of the company.

Therise you ask my analysis so, even though all the topics have been covered in these threads, I will try and give my summary of the summary.

NTP/68

I covered the farmin in * Post #: 6855483 *

Eni are now the operator of the Permit and registered as 50% participants. All that is left regarding Heron#3 is the timing. MEO will be relying on information from Eni as to the progress of securing a rig and government approvals.

We have 5 months until the cyclone season. If they can get a rig and fit the drilling into that window they will. I am not sure what Eni's (cyclone) risk appetite is so they may leave the drilling until April/May next year if need be.

WA-454-P and AC/P53 (MEO 100%)

These are MEO's new permits. Both will need geotech studies in the first year. They are only conditional to the work programmes as MEO holds 100% of the permits. If MEO's G&Gs can present enough encouraging data then the permits will be offered as farmin opportunities where wildcat wells will be drilled in 2015/16 unless compelling data triggers earlier exploration.

Exploration wells are not due until year 5 commencing June/July 2016.

AC/P50 and AC/P51 (MEO 100%)

MEO acquired 100% of these permits from Silver Wave energy. Silver Wave has an option to buy back a 10% interest prior to the expiry of Permit Year 3 by repaying 20% of MEO's costs, including acquisition costs.

MEO has also: 'granted RedRock Energy Pte Ltd (RedRock) an option to acquire a 5% carried interest in each permit in consideration for the technical work RedRock has undertaken on the permits to date.

Seismic acquisition is programmed for Permit Year 3 which commenced 21st April 2011. Exploration wells, one in each permit, are due in year 5 commencing April 2013.

WA-361-P

This is in its second year with seismic acquisition due in 2012. An exploration well is due in 2015.

WA-360-P

Of course the interest in 360-P is the intentions of Petrobras (PBR). There has been no news since A#1 apart from what MEO put in the Q4 release:

'During the quarter, MEO continued to integrate the Artemis-1 well results and consider the implications for remaining prospectivity in the permit.

There is no mention of the other PPs. With the permit up for renewal this year and mandatory 50% relinquishment all the PPs will need to review their participation. We can only wonder what PBR's intention is with their continued involvement.

If we look back at the farmin agreement (time permitting):

* In Post #: 6105670 *

We can see that unless the original farmin agreement is re-negotiated, PBR will still have to pay the remaining US$31.5m bonus and MEO's share (up to US$62m each) for their 20% participation in the second and third wells in 360-P, should they choose to continue with further wells.

PBR have released their business plan which can be found here.

* Petrobras 2010-2014 Business Plan *

Pertinent extracts on the international scene for PBR and, perhaps, their Oz ventures can be found on P13:

'Projected international production reduced as a result of decrease in investment'

and again here on page 27:

*********************************************************

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So it seems that PBR will be concentrating more on their domestic ventures and reducing their exposure to LNG.

There are a couple of scenarios I can think of which could happen:

1 The original agreement stands, PBR take over as operator and MEO gets the bonus and 20% costs of their costs in next two wells paid.

2 PBR stays in the JV as their only venture into Australia,, leave MEO as operator and re-negotiate the terms of the farmin with MEO when the permit goes for renewal.

3 PBR sell their share of the permit but the original agreement with MEO has to be included in the sale. MEO must also be given the opportunity to match the purchase.

4 PBR decide to pull up stumps and leave MEO with 75% of the permit and the A#1 data.

Whatever happens, I don't think MEO will abandon the permit. It is valuable real estate with additional potential leads. Like 361-P, a new 5 year work program will start on the reduced permit and there may yet be undiscovered reservoirs.

A closer look at the other 360/361 leads can be seen:

* In Post #: 6658870 here*

Entry into Indonesia

Two of the new acquisitions are in Indonesia.

South Madura PSC, Indonesia

MEO have acquired 30% of this PSC. The other participants are AED Oil Ltd ( 60%) and PT Eksindo South Madura (10%).

* This is from the AED website: *

'The PSC contains a number of near term shallow targets with relatively low drilling costs and potentially holds deep reservoirs with higher resource potential.

.... One well has been drilled in the block by the Joint Venture: Kurni-1, drilled in 2007/2008. The Kurnia-1 well encountered good shows of gas and oil in the fractured Kujung and the well flowed gas to surface on test. However, the test was compromised by a combination of high formation pressure and mechanical problems that resulted in the testing equipment becoming blocked. The well was plugged and abandoned, but the prospect is not considered fully tested and has the potential for further evaluation.'

So Kurnia#1 sounds like H#2 and needs further exploration. AED appear to have sorted out their Rights Issue and part of the proceeds is for:

'geological & geophysical activity in South Madura (Indonesia), including seismic planning and interpretation of the Kujung platform leads and prospects in the South Madura PSC'

MEO purchased the 30% South Madura from Cooper Energy who was the operator. It is unclear whether MEO inherited the operator status with the purchase.

Seruway PSC, Indonesia

'MEO acquired all of the shares in Transworld Seruway Exploration Limited (TSEL) which is the holder of a 100% participating interest in the offshore Seruway for US$5m.

The Seruway PSC currently covers an area of 3,635 km2 and contains two gas discoveries (Gurame and Kuala Langsa) .... The PSC is located close to the Arun LNG plant which has near term unfilled capacity. Under the acquisition arrangements, MEO has committed to acquire a 700km2 3D seismic survey and drill one exploration well in the PSC before the end of 2012. The PSC expires on 11th December 2014 and will be operated out of the Indonesian office that MEO acquired as part of the transaction.'

The cost of the Gurame well has been calculated at US$23m (by the vendor) and Kuala Langsa will depend on unitisation with the neighbouring permit. I wonder if MEO will be looking for a J/V partner in this venture.

We discussed this acquisition:

* In this thread here*

And no doubt will provide plenty of interest in the next 18 months.

Tassie Shoals

This is MEO's flagship. Whilst they do have Major Project Approval they are still striving to get a gas supply for both the TSLNG and TSM projects.

There was a lot of interest in NT/P48 and the Evan's Shoal gas field through Magellan's purchase aspirations. The deadline was extended twice but the sale eventually fell through. Magellan seemed to follow the Darwin solution for processing the gas and it was unclear whether or not they were to include MEO in the processing of some of the high CO2 gas.

This is inconsequential now but what the ES JV is faced with is an expensive appraisal well due and permit renewal next year. It will be interesting to see how the JV moves forward keeping in mind the government's potential use it or lose it policy. With no upstream solution for the high CO2 gas the JV has some difficult decisions to make. TS is the obvious solution - the same as it was ten years ago.

Caldita (NT/P61) and Barossa (NT/P69) are other permits in the area which are up for partial sale by Conoco, but with restrictive conditions, so they too are up in the air.

Caldita is due a further well and renewal next year whilst Barossa is due for renewal this year.

* Source - NT PERMIT WORK COMMITMENTS 2010 - 2015*

There are other permits in the area and I covered these:

* In Post: 6785893*

Once we do get a gas supply then, of course, we will need partners to get the projects underway. Even though a lot of the groundwork has been done we will need a partner with deep pockets and find funding ourselves.

Hopefully recent acquisitions will go part way to providing this.

It is interesting to note that Santos are keen to develop Caldita/Barossa but are equally keen to sell Evans Shoal. This is possibly due to the quality of gas (high CO2 content).

Something will have to give in this area over the next twelve months.

Cash balance at end of quarter

It is interesting to note that the present management took over MEO early in the 2008-9 financial year the cash assets were $24.3m. In June 2009 after the Zeus duster the balance was $17.2m.

In June 2010 the balance was $35.9m after the 2009 CR to confirm the drilling of A#1 should the PBR farmin fall through.

Now in June 2011, even after yet another duster, the balance is $90.1m - this is after the post A#1 balance (31/12/10) of $100.3m but the reduction in funds has been spent wisely as can be seen in the Q4 report.

The report says that some new ventures did not come under MEO's stringent financial banner but during the last financial year MEO have successfully bid for more new permits and purchased into established international permits with good prospects for early income.

Moving forward

So, to summarise this summary of the activity summary.

It has been a rollercoaster ride for SHs with the disappointment of A#1 in December after showing so much promise. It would have been good to see A#1 produce results and we still don't know the fallout from the failure, regarding future prospectivity and PPs, but life goes on. Sound management decisions leading up to A#1 has left the company in a better position.

The SP has flat lined since then but management have persevered with their business plan and turned adversity into a positive LT outlook for the company.

For LT SHs their holdings have been diluted but this has been countered by SP strength as it continually tests an 18c bottom. It should now commence an upward trend, with the usual swings, leading up to H#3. We can look forward to further announcements as there will be a lot of activity behind closed doors.

What we do know is that we have yet another major partner, Eni, who may join us through Heron and Blackwood to downstream production, possibly at TS, whilst covering MEO's costs to FID and another $75m bonus. But this is way down the track. We also have the potential to become an international player and supply underutilised Indonesian processors.

All this will take time so, like ortstock infers, patience is still the key. There are a lot of seismic studies due this year and wells to be drilled over the next 18 months so investor/trader interest will increase, IMO.

Knowing how MEO promotes their business we may see more involvement by existing partners or even new partners coming on board.

I also think that MEO is now in a better position than pre GFC days when the SP was in the mid $1 price range. This price was based just on H#2 and the TS projects as the Carnarvon projects were still a relatively new acquisition.

Management have shown that they will not be hurried and are building up SH value even if this is not reflected in the SP at the moment.

But these are only my views.

#:>))