what the mel?, page-13

MF/KC,

my personal view is that the results will show a substantially extensive and commercial gas resource in the CM - 100% wholly owned by MEL. Pure and simple...but purely speculative.

We wont trully know how commercial such a production well may be until they actually put one in the ground and test it.

We are still on an exploration well at this stage. They are only doing some low cost frac testing on certain zones. I believe this will help them collate enough data to go ahead and then optimise a design for a commercial well.

There are a lot of knowns that we already have in front of us, such as:

1. Ripley Road - confirmed producing resevoir. This was a simple vertical intersection. I believe that considerations for enhancing the flow out of this zone would add only a small cost for substantial benefit.

2. Gatton Sandstone - the gas kicks on the initial drilling and then lack of flow indicates porosity cannot be maintained - porosity may be being squeezed or blocked near the well. The insertion of proppant into the formation should help open this up so the well can flow for longer from further away from the well bore. The recent announcement on operational limitations during the insertion of proppant means we cannot rely on the results as a final test, but perhaps they will be indicative of something greater.

So all in all, I believe we will see a commercial well out of this.

Remember also there is also a substantial contingent upside to the gas figures to almost 2 TCF for KF. If the Gatton can be tapped then I would suspect that this was a substantial source of the P90 contingent figure because of the thickness and extensiveness of those units. We could subsequently see a substantial upgrade in a reserve for that area. A big could, but thats what I am hoping for.

And something which I cannot emphasise enough. MEL has a 'double pump' coming out of this conventional program.

1# CSG operations in QLD face a substantial challenge of managing gas flows. to describe the problem. You drill a CSG well in 2010 - by 2014 when you need to pipe the gas to plant, the well has come off its production high of say 900mmscfd to say 500mmscfd - you are only getting 'half' the flow. So you need to keep drilling and drilling and drilling in order for you to be able to get the required gas to plant. The problem for CSG wells is that you just cannot shut them in and then open the taps when you want flow like you can on a conventional well. its a train that cannot stop feeding a traing that cannot stop. Conventional gas wells offer a solution in being able to pre-prepare gas flows that you can open on Day X and ship to plant.

2# The conventional wells pay for a substantial amount of compression and collection piping to a gas hub out of Casino. This sunk cost of infrastructure means that these costs for you CSG wells are stripped out of the reserve calculations which results in a lower capital cost for you CSG wells to production and thus a greater amount of reserves and rates of return achieveable.

A disclaimer to the above that there are a lot of shoulds in there. But I sure think that MEL should make me a motza!

Cheers and DYOR!

SF