the quarterly

Highlights: gas production up, new very experienced CEO, additional treatments being explored, $20-22m in the bank (post successful SPP), independent field validation report received, E/V ~$60m.



So the major disappointment for me was that the independent field validation report was delivered, but not announced or released until today.



In engineering speak, what is validation? Validation talks of meeting a need, as opposed to Verifying which meets the spec. The need for distinction is that sometimes the specification, even though derived during the requirements phase, doesn’t always meeting the project need. Teasing this definition out means that (imho) this was a critical piece of evidence that can be used to put in the face of prospective buyers of gas to prove to them that a long term GSA is a real proposition for them.



How might have things transpired in negotiations with Petro? Well the validation report seemed to be a key output from the ‘netgotiations’ that were undertaken with Petro. My assumptions/postulations are from looking at what went in and came out, was that they seemed to be querying the ability of the field to reliably act as a source of gas. In negotiation terms this might have been represented as a substantial discounted offer price. Hence, my belief that WCL rightly stuck to their guns and ordered a validation report to reduce the ‘risk’ lever that Petro were pulling in negotiations.



So now the validation report provides some substantial value adding. As much as Petro wanted confidence of supply and a well priced asset, a GSA customer will want the same assurances and demand a risk factor, or penalty rates, be applied on the reliability of supply. Hence, Westside’s GSA attractiveness should have increased with this report.



What I want to see next, is a massive wad of shares dropped on the CEO to provide him with the necessary incentive to run this thing to ground and we can all do well out of it. I believe the relevance of his experience cannot be understated as a success factor for Westside and its shareholders. Proof is always in the pudding, but the building blocks and timings look perfect for a good result.



So for a simple look to understand the BUY/SELL value of Westside. The E/V on the stock is equivalent to a 17 cent margin on the 2P (M GJ) gas from the Meridian field alone. With prices looking to have a basement around $6/GJ, you have to ask yourself whether WCL can produce gas at $5.83/GJ in the future when they can do it now at $3.50/GJ (read it again if you think it is illogical). Don’t get me started on the topside margins on this one. Money for jam!





On some other points in the Quarterly, the long lead time for desorption on the Advanced Treatment wells appears as a blessing in disguise. High water flow rates should indicate that there is substantial contact with the reservoir and it is taking longer to lower the pressure gradient because it is drawing down over a larger area. The result should be higher gas flow. The downside is it could be because of suboptimal coals that are not 100% charged, but unlikely given the knowledge on the coals.



Anyway Westsiders, happy trading and investing!



Cheers,

SF