The offshore Sydney Basin, is it for Real? This was the week that shares in pooled development fund MEC Resourceswent parabolic and its partner in PEP 11 in the offshore Sydney Basin,Bounty Oil & Gas, followed just behind at an equally impressive pace.MMR jumped from $0.135 to $0.375 and BUY from $0.046 to $0.12. Bounty made its biggest jump Friday from $0.069 to an intra day andclosing high of $0.12 on Friday. A huge 173,619,165 shares traded valued atover $16 million. Who said speculation was dead?Bounty’s presentation at the 20:20 Investors Series in Sydney on Friday was the catalyst for the company’s re-rating. And in particular the following two comments: “If the imminent drill test in PEP 11 offshore Sydney Basin targeting gas goes ahead and is a commercial success, Buy estimates an increase in its Enterprise Value (IEV) of $2.75/share.” (That’s BUY’s emphasis!) and: “2009 -2010 programs in the Cooper and Surat Basin with oil focus will add reserves and continuing cash flow. Success would provide an IEV for BUY of $0.05 and $0.40/share”. Oh and Bounty’s Phil Kelso did say in a separate release that “if the Fish well is successful in discovering commercial gas offshore from New South Wales there is the potential for a major re-ordering of the New South Wales gas market and for the establishment of an LNG export project based in the Port of Newcastle” Well maybe! Personally we think junior oiler managements should be banned from making such heavily conditional statements. But of course if you were a shareholder in Bounty, especially those clients of Philip Kelso’s favourite finance house, Claymore Capital, who participated in the recent Bounty capital raising at $0.015 what do you care. You have made a motza. Philip’s your mate! There are two important assumptions that Bounty makes in the above statements. One is that PEP 11 will be drilled. Note Bounty says, “if the drill test of PEP 11 goes ahead”. Although Pareto Group of Norway has been mandated to find finance for the estimated US$25 to US$30 million cost of a well there is no guarantee that such finance will be available any time soon. And if it is such a great prospect why haven’t the majors been knocking on the JV partners doors already? The second assumption is that a wildcat will be successful. As we know wildcats have a 10% success rate. And don’t let anybody tell you PEP 11 will be different. Unfortunately with disclaimers, “ifs, and buts” you can get away with saying just about anything regarding the potential of your prospects. It’s just that some management are a bit more circumspect than others. Our guess is that once the commotion dies down BUY and MMR are in for a correction. Possibly as early as next week. Unless you can put out a news release repeating the story over and over again (NB Bounty issued its announcement to the ASX twice!) you just can’t sustain the punter’s interest. This is really a game of pass the parcel. Those that got out at the top on Friday are going to be laughing. BUT if/when Pareto announces it has found finance and the JV announces a rig contract and a firm drilling date it will be on again for young and old. Buying on the dips prepares one for the next spike. We didn’t see if the Bounty predictions attracted any attention in the weekend press but if they did we could see the current run extend through to Monday before petering out. But again be wary there is always the possibility BUY will follow MEC’s lead and have another capital raising.
BUY Price at posting:
15.3¢ Sentiment: None Disclosure: Not Held
