what's happening? , page-9

Hi Jukes, just saw your post and this spurred me on for a lunch time visit to the conference (its a 10 minute walk from my office), so I went back and asked Kerry Parker a few questions. BdG wasn?t at the booth ? seems I have just missed him every time.

I should just make the point that there seems more of a buzz there this year than there was last year. Things seem to be looking up for the clean energy sector, despite our lack governmental of action.

Speaking of politics, Bob Katter was there at one of the booths spruiking his clean energy corridor in Queensland. I presume he is not telling people that in the absence of a carbon price and with direct action (say from a Coalition government) it will end up costing us tax payers more than through a market based mechanism. Should have gone up and asked him that question, actually.

I should also say none of this is advice on my part! I have lost more money on paper in CWE and now PAX than any other stocks in my portfolio. (I am in the black due to other, ?better? investments though.) I guess I am just a true believer in this stuff.

Here is a summary of my conversation with Kerry Parker (plus some comments from BdG during and after the presentation):


Penola

The reservoir itself is fine, it is the state of the open section of the well in the reservoir that is the issue. The rest of the well is fine also. They were forced to drill using mud as the drilling fluid by SA regulations in case they hit gas and there was the possibility of a blow-out. It is likely that the cause of the well completion issues has been the mud or the acid or a combination of both. (Kerry mentioned the acid action on chloride - is this the composition of the sandstone in the aquifer layer? What is the composition of an aquifer? Water/brine plus what? I would have thought it would have been water and silica (sand) mainly, SiO2. Anyone?) Now they have proven there is no gas it is likely they can perform any new drilling with maybe water or air as the drilling fluid. They will need to decide what the best strategy is before they do any further drilling or clean-up activities. As per the announcements, they have engaged industry experts to work on this. They are also looking at future options including other clean-up activities and a sidetrack (as mentioned here on HC by a poster ? forget who) into the reservoir is also a possible option.

Penola JV discussions are relatively advanced and are progressing with more than one third party. The parties they are discussing with are confidential but they do include ?more than one major? and while he was not giving away any names, companies of the size of Origin and AGL are included in this group. The expectation is that they would provide not just funding but expertise and capability as well. I guess some sort of interest in Penola would have to be given away but I did not ask him this.


Indonesia

BdG said in answer to a question after the presentation that Indonesia was definitely going to be more profitable than Australia. (Costs are lower because temperatures are higher and drilling depths are shallower and tariffs are higher <- my summary.)

When I spoke to Kerry I asked him if it was appropriate for PAX to focus more on Indonesia short term and he specifically said no, all projects are full steam ahead. (Subject to financing of course, but I think that is a given.)

They are heading back to Indonesia in a few days to convert the binding MOU?s into signed contracts. There are two new opportunities in Indonesia, I think they were in the presentation.

The 30 MW Dairi Prima mine and 25 MW Flores projects are off grid and that is how they have been able to negotiate 12.5c/kWhr offtake with the government. The diesel generators used on Flores (or was that DP?) cost $400 per MWhr (40c / kWhr), for example. The projected time to market iods end of 2012 for DP and end of 2013 for DP. As we know there is the possibility of government funding in Indonesia.

They have a 9.6c per kWhr off-take for on-grid developments. They think they can produce power for 4 to 4.5c per kWhr capital costs in Indonesia so they will be making a good margin there even for on grid developments.

Drilling rig availability is good in Indonesia. Drilling is less complex and much cheaper because it is to 2 km rather than 4 or 5 km. Temperatures are of the order of 260 deg C at 2 km.

I asked about the risks of doing business there and they said they were adopting stringent controls. No work progresses unless all contracts are signed. Any sign of corruption and he said they would walk away. (They don?t really have any cash to grease palms with, that was my little thought bubble.)


India

They are waiting on final development permits. It is a normal bureaucratic process in India, there are no issues. The permits come from federal and state governments. He said they may need some sort of equity raising to start that project. He also said that the World Bank, the IMF and the CDM are possible sources of funding.


I think that is about it.