: undervalued---here is the article Trans-Pacific shale gas...

: undervalued---here is the article Trans-Pacific shale gas pioneer undervalued

(soory - no pictures)

Steve Rotherham
Tuesday, January 17, 2006



TOMAHAWK Energy has finalised the completion of the acquisition of a 12.5% stake in another 20,770 acres held by its US partner Metro Energy that surround its successful Oklahoma, USA shale gas project. The transaction was financed by a recent placement and share purchase plan.





Tomahawk is cutting out a niche for itself in the US gas market.

"When the settlement of the full 25,000 acres is reached, a total of 3125 net acres (12.5% of 25,000) will be added to the 5200 already owned or over which Tomahawk has options," the company said.

"Tomahawk will have the option to participate in further lease acquisitions with Metro per the same pro-rata ownership, within an area of mutual interest encompassing approximately 250,000 acres."

A recent report by Gaffney Cline & Associates confirms that the ASX-listed junior had established a good leasing position in a sought-after shale gas play.

Tomahawk is now being copied by other Australian juniors, but it was the first ASX-listed company to get into US shale gas and has managed to grab prime acreage.

Gaffney Cline & Associates identified proved gas reserves, net to Tomahawk's interests as of the end of September 2005, of about 350 million cubic feet and possible gas reserves of nearly a further 1 Billion cubic feet (Bcf).

Given Tomahawk's 100% success rate so far – with 18 wells in a row finding commercial hydrocarbons, it is reasonable to assume that these reserves have very likely been considerably expanded.

Late last year, Delta Securities rated Tomahawk a "Speculative Buy" on the basis of its then existing acreage.

"Tomahawk has established early mover presence in the Caney and Woodford gas shale play in Oklahoma," Delta analyst John Macdonald said.

As shale gas production techniques evolve, US operators are finding that fracturing techniques are delivering commercial flows from previously tight shales.

"Under the right conditions consistent gas flows from shale beds can be developed cheaply," Macdonald said.

"When multiplied across a broad productive area, shale plays represent a high-yielding, large scale investment opportunity."

The risks associated with Tomahawk appear to be fading, according to the Delta report.

"The gas market shows no signs of retreating, the Oklahoma shales are displaying the desired properties, and the capital/technical capabilities are in hand," Macdonald said.

"Beside the ongoing technical assessment, the next significant steps are a renewed land acquisition program and then a commitment to full development at a rate of 100 wells or more per year."

The consortium intends to increase the landholding from 25,000 acres to 100,000 acres within the area of interest. Tomahawk will retain 100% ownership of the 5,200 acres already earned. Metro Energy will fully fund the first three wells drilled and Tomahawk will pay 12.5% of drilling and completion costs thereafter. Metro must drill six wells in the first 12 months.

The partnership between Tomahawk and Metro has been profitable for both parties and its growing strength will drive the future development of Tomahawk's wholly owned leases.

Before Tomahawk and Metro Energy joined forces in 2004, Metro had identified an area in Oklahoma with similarities to the successful Barnett Shale play in Texas.

The US independent had land, a plan and a need for finance. With the US stock exchanges dominated by giant players, Tomahawk's ASX-listing provided a relatively convenient avenue for financing. The Australian junior's lower US profile also enabled cheaper land acquisition.

Upon exercise of all options over land, 15 million Tomahawk shares will have been issued to the US independent, equivalent to 19% of Tomahawk shares after the recent share purchase plan. In addition, two Metro Energy representatives have joined Tomahawk's board.

Tomahawk now has 100% of 5200 acres and 12.5% of 25,000 other acres.

In some areas, the shales will be sub-economic and not developed, but it is likely that at least some of the new acreage will be productive.

So far, the average net pay zone of shales intersected in Tomahawk's wells was 59 metres. Logs and sidewall cores indicate the gas contents and maturity of the shales favour continued development. Early gas flow results have also encouraged accelerated development of the field, and Tomahawk achieved positive cashflows early in the life of the project.

While shale gas plays still lack completed production profiles to base projections on and production techniques are in the early stages of evolution, on the available indications Tomahawk's Oklahoma blocks could return $1.10 to $1.90 per share, according to Delta.

"If two thirds of Tomahawk's leases under current agreement prove productive at an average of half the yield projected for the Barnett shale [in Texas], then the estimated NPV of Tomahawk's lease interests is $A105 million or $1.40 per Tomahawk share," Delta said.

Tomahawk closed yesterday at 67 cents.