I thought now was an appropriate time to start talking in...

I thought now was an appropriate time to start talking in telephone numbers since the LNG gas industry today with this epic announcement has officially made the formerly supreme iron ore industry which previously powered Australia to prosperity now look like an after-thought. Iron what? Sorry Twiggy, you'll still play your part though.

Put simply, a beautiful thing occurred today. Most importantly China is proving they will scramble to secure almost any kind of resource available as they are going to need it as they are industrialising just as Japan did 50 years ago. They will soon make USA diminish in power as the only world superpower exponentially, but that's another issue.

The other wonderful thing to take out of this development is we now have fresh data to satisfy the quants among us as to current gas prices and hence MEO and Artemis' potential.

So here goes:

First of all a bit of perspective:

Gorgon = 40 TCF which = $300 billion in sales revenue (we now know after today as Exxon said they have sold $75 billion which is their 25 percent of the $300 billion Gorgon project!!!)

Gorgon will now become the biggest Aussie resource project of all time in September when it gets the green light. Capex on it should come in at a cool $50 billion or so. Worth it though for the $300 billion pay-day!

Another excellant thing to come out of this is that we now know the Chinese have paid $7.5 billion per TCF. ($7.5 billion x 40 TCF = $300 billion!)

In Karoon's report:

http://www.karoongas.com.au/LinkClick.aspx?fileticket=3yo07frOsbs%3D&tabid=81&mid=387

...they state Woodside signed sales agreement for around 9-10 billion per TCF in 2007. So clearly prices have come down a little from $9 billion per TCF to $7.5 billion per TCF, but none-the-less still worth getting out of bed for IMO!!! With this new up to date and excellant data lets do some comparisons now


NWS = 33 TCF x $7.5 billion =$247.5 billion in sales revenue at today's prices, though this North West Shelf project began in early eighties, when I was born, so prices aside from inflation may have been a little different when they signed long term contracts a few decades ago to these prices today.

MEO's Artemis = 20 TCF x $7.5 billion = $150 billion after this latest GIP resource upgrade at today's deal or going-rate gas prices. Now if you want me to be more conservative and go with MEO's conservative gas recoverable estimate we'll make it 60 percent of 20 TCF which =.6 x 20 TCF x $7.5 billiion= $90 billion in sales revenue.

So to get that all in a nutshell you've got Gorgon @ 40 TCF = $300 billion sales rev VS NWS @ 33 TCF = $247.5 billion sales rev VS MEO Artemis @ 20 TCF = $150 billion sales rev or $90 billion sales rev @ 60 percent recovery.

Now to conclude, after farm out MEO will keep 20 percent of $150 sales revenue = $30 billion or 20 percent of $90 billion sales revenue @ 60 percent recoverable = $18 billion.

So worst case scenario if they have the GIP or better that they predict, which at 32 percent is relatively high in the gas sector(!!!) they'll have nearly 20 billion worth of product owned outright.

The kicker in all of this, is to get that $20 billion in product, MEO will pretty much have to kick back and sip mojitos on a beach somewhere as the 50 percent farm-in partner will have to cover most if not all Capex on both the drilling and the project if MEO can get the terms it's looking for. Check the MEO farm in brochure here:

http://www.meoaustralia.com.au/content/Document/Farmin%20Opportunity%20WA-360-P%20Brochure.pdf

Aside from that kicker, the ace up the MEO sleeve was always going to be the GIP estimate increase. I've held off until today to really talk about this, but the increase to 20 TCF target is frankly the best news I've heard about any stock in this past year, and possibly in the past five to ten years aside from FMG and Twiggy's ability to turn that dream into reality.

I am going to jump on the fence on Woodside vs Chevron battle for Artemis as you could argue they both have similar sized projects requiring gas like it's going out of fashion to improve the economies of scale on them.

After today's riveting information what I will do is give my new 12 month target for MEO assuming they drill within this time frame. Given they are now targeting a similar amount of GAS TO KAROON GAS (!!!!!!!!) a market cap of $2 billion seems less of stretch and more a formality at this juncture given all we know. So @ around $200 mill market cap at circa 50 cents a share, 10 x that should get us in the right ball park to $2 bill, or $5 dollars a share.

Note that now we really can compare ourselves to Karoon holders, and god forbid it's even in the realms of possibility we could come out with more gas than them when all this is through.

As for those of you who worry that there will be no gas (you crazy characters ;-) ) even worst case scenario if that is the case, you'll be able to sell as the drill nears the gas column next year after the stock has already sky rocketed Karoon style, and buy back in after they announce GIP and the dust settles if you have the inclination.

This feels an awful lot like FMG at five dollars a share before it went to 90 odd dollars a share before the share split, and to that end if would't surprise me in the least if in three years MEO had a market cap of $ Four billion and a share price of 10 dollars.

To be honest I'm probably only interested in being on board up until the drill hits the gas collumn for the lion's share of the potential gains (12 month period ish), but I wish all genuine long term holders the best regardless.

P.S: Feel free Ya or who ever has an idea to let me know what the profit margin is on a trillion cubic feet of gas as we now have the latest sales revenue figure ($7.5 billion per TCF) and it would be nice to know how much MEO gets to give to the tax man and themselves out of that. I could not find anything on that on the web so far.

Cheers
GenY