the australian criterion

Hi to all holders of ARQ
this appeared today in the Australian
I hold ARQ
thanks and good luck
Arc Energy (ARQ) $1.55
WITH oil ticking up again towards $US80 a barrel, it's wise to look at a few players in the sector, starting with Arc Energy. It had a big run up from $1.25 in February to about $1.84 in June, then slipped to $1.47. But lately it has shown signs of life.
Stockanalysis.com's Peter Strachan finds there are a number reasons why it has eased back. First, work on its promising Drakea oil prospect in the Perth Basin showed that the target zone had poor reservoir characteristics and would not be commercial. The entire West Australian coast is a potpourri of fractured bits and promising but smallish hydrocarbon plays, but it's tough work finding one that will easily spout forth with anything.

A shareholder purchase plan issue at $1.30 per share to fund Arc's purchase of additional interests in the Cliff Head project and surrounding permit, plus a 12.5 per cent stake in the BassGas project, saw some holders taking a quick profit by flogging the newly issued securities.

Then, the company poured cold water on its Valentine prospect in the Canning Basin in northwest WA, downgrading previous estimates of more than 1 trillion cubic feet (tcf) to a still respectable 380 billion cubic feet of gas and 19 million barrels of oil or condensate.

Some punters bailed on this, but it's early days.

Strachan says the question of value for gas in the Canning Basin is complex. For example, 100bcf of gas found onshore in the Perth Basin would now be worth more than $1.50 per mcf, given the ease of getting it to markets and a current price of around $6 per mcf. By contrast, 100bcf of gas somewhere onshore in the Canning Basin is really worth zilch. Strachan says explorers in the Canning need to find at least 300bcf before it becomes worthwhile to get it out, and even then it would take four to five years to crank up.

Possible markets include the WA domestic market, via a pipeline linking Canning gas to the existing pipeline network, 460km west. Local markets could be captured for either power generation or transport fuel, using compressed or liquefied natural gas and a larger market could be found for LNG, both locally and overseas, using mini-LNG facilities.

The real bonus would be if any of Arc's exploration turned up the real thing in oil or the very next best of condensate, which needs little refining if any, before popping in a petrol tank.

Arc Energy has the Stokes Bay and Valentine prospects, which could have high levels of liquids associated with gas. Therein lies the upside potential. Any such discovery could readily be commercial, by extracting the liquids and then re-injecting gas for later use.

And as Peter Strachan says, a discovery at the Valentine prospect could be life changing for all concerned. He expects plenty of market interest in the run-up to drill time in mid-August.

Criterionhas a BUY on Arc, based on analyses that it is worth more than today's $1.50. After all, we have already seen it go to $1.80 in times past.