The good thing about Arc and HotCopper is that unlike some other...

The good thing about Arc and HotCopper is that unlike some other threads, this one has always been quite open with reasonable posts on the positive and negative side. Unlike some other threads, very little that is said here ever affects the share price and probably on balance the thread has been more negative than positive until recently.

Siamese Parrot is right to point out the risks in exploration, it’s usually 1 in 10 however this was an evaluation well of a previous (but ambiguous) strike so it was better than that. I reckon PC43’s estimation of a 1 in 3 chance of a commercial find is now fair and reasonable but firming up. We are looking at potential pay zones that are above the yet to be reached target area and not even contemplated prior to drilling, with hints of a vast gas reservoir that maybe an analogue of the offshore in the Browse basin.

Then we have a rig controlled by Arc that can stay there until the result is clear cut an unambiguous, a rare situation in past Canning exploration.

It is now becoming clear after this week that there will be an LNG plant in the Kimberley to process the large Browse basin gas finds. Woodside have been keen to share production facilities in the past and you wouldn’t think this was any different. If Arc can prove commercial quantities of gas over and above the potential billion dollar contract with Alcoa they can probably access world markets and world prices for the remainder and any liquids would be cream.

WA gas prices are about double those in the Eastern States but world LNG prices are another leap again, hence the gas “shortage” to WA industry but $35 billion deals to the Chinese.

The Fitzroy Trough within the Canning Basin where they are drilling now is a deep structure and therefore the dew point where oil and gas separates out as it migrated may not have been reached in many targets. Therefore it is complicated and may be prone to wet gas with the oil pools previous explorers were searching for elusive. Hence it’s downgrading as an oil province, but probably oil is still there but in pockets (inclusions), all the same. Wet gas was not highly valued in the 1980’s in such a remote area but sure is in 2007, perfect for Arc.

The risk to the downside is not huge given that Arc is presenting the possibility solid growth just through evaluating existing drilling success outside of the Canning. On the upside, it is massive, multiples of the current price, the seeds of a new Woodside like story given there vast acreage and high (38-100)% ownership. On balance, well worth taking the risk, as far as I am concerned, and if commercial petroleum is there as is so tantalisingly hinted, Arc will have played a strategically brilliant Canning game to perfection. It’s the 1000lb gorilla of the basin, you will have to deal with them if you want to get your coconuts to market. If nothing is found, a slightly boring mid sized oil co but not without proven reserves, production and still some growth prospects at least on par with it's peers.

You wouldn’t bet your house on it but allocating some funds to this unfolding but still speculative story could prove to be a wise investment because although the risks are moderate at the current share price the rewards are high.

These are only my own thoughts, at best a basis for your own research.