well analysis; where i went wrong

Hi All,
I’ll keep this as succinct as possible.
Ken has authorised me to post the text in italics which is a summary of the operations conducted during drilling/testing. It has been particularly useful for me as it has clarified the root cause of the mistakes I made. The text is as follows:

“During the drilling operations, there was nothing in the shallow part of the hole that indicated excessively high levels of CO2. Our ability to measure CO2 was compromised because the downhole equipment that is designed to read and report gas composition information from specific strata could not be calibrated correctly. We were therefore left with equipment that only reads what is brought up in the drilling mud. This is much less accurate for a variety of reasons, but mostly because it is a composite of what goes into the wellbore from all exposed strata as opposed to what is coming from a specific level of interest.

We observed some high “slugs” of CO2 below the top 3 zones, but nothing sustained and as a result, we saw nothing to make us overly concerned about high CO2 levels in the upper part of the hole. The actual CO2 levels produced during the drill stem test indicated much higher amounts than anyone had suspected pre-test.

Wireline and LWD log analysis indicated we found 5 levels of hydrocarbon bearing sands and the decision to test the 4.5 Ma was designed to provide definitive data about the rock permeability and the composition of the gas. Permeability cannot be directly measured in any other way.

The test was conducted and unfortunately the reservoir contained higher levels of CO2 than anyone had seen previously, and it could not be produced at rates that would be commercial. For those reasons we agreed to cease testing operations and commence plugging the well.

I hope this clarifies things.

Regards,
Ken"

In effect, issues with the LWD/MDT tools meant that the operator didnt have a clear picture of the downhole conditions. Hence the surface equipment (chromatograph) was the only source of top-to-bottom well data. This obviously opens up some risk. I am speculating on this point, but it appears that a number of shareholders contacted the company over the course of drilling to either:

a) Extract a more detailed update on drilling/testing progress; and therefore
b) Postulate on early results

I came to the above conclusion from the personal conversations I have had with shareholders offline but also upon reviewing posts on HC (over the weekend). In my own experience, I did the same thing. However I incorrectly assumed that the source of this information came from the downhole readings. This in truth would have been impossible. In my opinion, the operator and all JV parties for that matter overlayed their technical and practical experience to reinforce the early observations. This is why we see a high level of confidence expressed in the announcements leading up to the DST results.

For me the impact of the above is two-fold. It clarifies the error I made, but has also raised an issue. Regardless of this detail, it doesn’t change the result. i.e the result ‘may’ have been known during wireline logging operations as opposed to the DST. The secondary issue is that I backed management and the JV. The entire team wouldn’t have planned then executed on this well without applying a high degree of knowledge and expertise. And the result of it was a failure. At one point I rated the chance of failure as very, very low, yet it happened. The message therefore is clear; a similar scenario can happen again as the same people are driving the other assets in the portfolio. This isn’t a bash-up, I’m just stating a fact. As an investor this is how I assess it, and if NEN are reading this I sincerely hope they do not take it the wrong way and on some level empathise with the view.

Going forward, I have no doubt that the company will survive but more importantly thrive. This is particularly true of the current share price. I will not post analysis to support this view, in fact, I am not going to post again. I wish you all the best. GO NEN!!