westpac upbeat analysis

Quoted from Westpac Broking, an interesting read, very upbeat, and also brings on the unmentionable Takeover target idea, happy reading to long termers....
Quote "Recommendation 20070720: Speculative Buy
Investment Rating
MOS owns 50% of the Wallumbilla LPG plant, 100% of the Silver Springs gas processing facility, compressors at Churchie and Downlands fields and 290km of pipeline. Tariff income stems from re-delivery of Santos gas. MOS may increase production if potential at its SE Queensland acreage is realised. Large Permian gas reserves have been masked by mud drilling blocking flows. Nitrogen drilling successfully protects reservoir quality. Gas has high condensate and LPG yields, leases are close to pipelines, construction costs are low and development times short. The future lies with exploration and gas marketing. Recent farm-ins should accelerate exploration and production growth. Cooper Energy´s 6.6% stake adds interest. Speculative and not for conservative investors.


Event

MOS has released first meaningful news on the 6% owned Hurricane-2 drilling program offshore North West WA. The well is being drilled to investigate the possibility of an oil leg below Hurricane-1’s 76m gross gas column. Hurricane-2 has potential for 40-50mmbl of recoverable oil worth 12-15cps net to MOS. Several other leads upgraded by the Hurricane-1 discovery provide an additional combined unrisked potential of 220mmbo with MOS’ share 13.2mmbo. MOS says Hurricane-2 has encountered the reservoir formation close to target and confirmed the presence of oil. The well is still drilling in reservoir. No oil/water contact has yet been reported. If a contact isn't encountered, the reserve potential is obviously upgraded and further deep drilling will be required.

Full Event Analysis

Impact

Is MOS' 6% Hurricane interest worth 2cps, 15cps or more? For now we lift our group valuation 2c to $0.22ps, recognising additional Hurricane value at the lower end of the spectrum pending drilling completion and production testing. This leaves room to move upwards and allows retention of our Speculative Buy recommendation. Long term assumptions remain a US$60/bbl oil price, A$/US$ exchange rate of 0.76 and a 10% discount rate. No meaningful change to earnings forecasts at this stage. At last count MOS said it was on track to deliver record annual revenue in excess of $17m and EBITDA in excess of $4m. The strategy to maximise production from existing facilities impacting positively.


Recommendation Impact
(Last Updated: 20070720)
Unchanged.


Event Analysis
This is a promising development. Hurricane-2 will need to be tested to determine flow rates, to take about two weeks. It wouldn't take much to be commercial as less than 10mmbls are required given the location near existing NWS infrastructure, and the existing gas leg, itself known to be liquids rich. The oil and gas could be piped to the Legendre oil facility, owned by Hurricane co-venturers, Santos and Apache. Noteworthy is MOS' rising worth to 31.31% Hurricane equity holder and operator, Santos. The companies have both proximal and common acreage and infrastructure assets in SE Queensland. While for Santos, MOS' SE Queensland expertise is probably best left within a small independent, a takeover bid for MOS from the likes of Beach Petroleum, also a Hurricane partner, might just spur Santos into action. Cooper Energy's 6.6% MOS stake could become increasingly important under that scenario.

Elsewhere, the 28.6% Kimu gas field interest in PNG could be monetised given operator Oil Search is to conduct 2D seismic to appraise for LNG potential. Kimu is carried on MOS' books at around A$0.5m. Resources are potentially 386Bcf net but a sales multiple would likely apply to a more assured one tenth of that figure. MOS might realise a few million dollars to boost cash reserves" END QUOTE from WESTPAC BROKING