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Ann: Independent Expert opines transaction is fair and reasonable, page-22

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healyn

5,417 Posts.

14

13/11/14

10:19

Post #: 14282044
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Originally posted by joewolf ↑

Well I read the entire report plus the real one the from Risc which sets out the real assets and the reserves as they calculate it. What freaked me out was that figure 5-11 Gross Low Mid & High production forecasts table was missing on RISC report page 27 or 129 if reading the whole bundle.

However apart from that what I gained ( Lay person in regard to OIl and Gas technical aspects)

1. Many ( maybe even most) of the tenements are behind on agreed terms of spending and are non-compliant requiring variation.
2. RISC take a much more conservative view of resources and made the statement. "RISC has utilised a geometric factor as we consider it more likely that the reservoir sands are in pressure communication. However, as we acknowledge that this may not be the case, we have included this possibility as our upside case." It appears that this would reduce the reserves as EGO believe they are not. This relates to the Wannamal prospect and its material as what happens here will significantly underpin the plant as I read it.
3. The Plant is a boat anchor at the end yielding a scrap value around $5million and a make good cost of around $5.3million.
4. How much we can put through the plant is obviously a major factor in valuing the future of the company.
5. The fact that we are permitted to vent some , up to 11 tons per day of LPG as it cannot be fed into the gas we supply really makes me uncomfortable. Not such a clean process is it. However recover will cost some $10 million.
6. The amount of money to drill these prospects was a bit staggering as the numbers kept racking up. Essentially it looked liked we needed at least $10 million to start with and more.
7. What shocked me was the continually more cautious expressions of reserves from them. EGO view was never a mid point but a high point. Then I remembered past management and feel that our new board and management team are really only getting to grips with this now.

What became obvious is that without moving forward , drilling and exploring the company is doomed to not progress. The Gingin and Gingen East fields are important maybe even imperative but the diagram was not on the report so I could not see visually how they impact but the plant operating costs suggested they would extend the life of the plant significantly . It appears however to drill both will cost $20 million.

We have to drill the Bootline Deep Prospect and Wannamal as ,my impression from the report was they presented well developed opportunities.

So my final take of this was:

1. ERM are not in the right space to be a JV partner here as they are not going to spring the money to get exploring. Yes I have changed my view.
2. Selling 40 to 50% would be good as the bulk of current value in the company is getting the life of the RG plant extended so we can spend the money to recover as much as possible for as long as possible. that sale would / should generate sufficient cash for us to pay our way in the drilling but also have some to get the plant sorted if we hit what we all want to believe is there.
3. This even at these values is not a steal. We were at the low ends but we were not a huge bargain right now. That if ERM share is $15 million then ours is only around $45million Maybe some of the assumptions need to be fully understood.
4. I spoke to management and asked a question " why did you join" = The comment suggested that the new team has the quality , experience to deliver and that motivated the individual to join. Enthusiastic - yes. Marketing the project to me ... Not sure he did see challenges but saw the team and their experience as being the game changer. Yes it was a worthwhile discussion.
5. I was surprised that the Rights issue was not part of the AGM approval so that they could reset the 15% approval as shareholders had approved this deal and the rights issue. I dont know why it wasnt in the document.

So whilst I dont really understand enough to really say its a great deal or not I have changed my mind and believe currently its the only game in town. For ERM I think they are doing the correct thing get out of what you cannot control or understand. If EGO found a partner and started spending $15million a year that would force ERM to follow. Will they make a takeover offer - I think not from what was presented too much risk for them - consolidating a duster would hurt their results..

Share price - Its about fair value @0.7c to 0.8c so really what we paid is irrelevant and in fact RISC lowered virtually if not all the reserves that EGO thought they had.

I will vote in favour but would love an oil and gas expert to assist all of us to understand this report.

Expand

Your point 5. "not such a clean process, is it?" The gas stream is "too rich"
Page 24 RISC report.
The LPGs being vented is worth by my back of the envelope calculations about $800,000 per year.

Refer :
Whilst not directly impacting plant availability, the plant design will not allow the entire gas stream
to be produced "on specification". If the flash gas is recombined into the process the sales gas will be
too rich and the Wobbe gas index specification (<52 MJ/m
3
) will be exceeded. For this reason the
flash gas is currently vented (with approval from the WA regulators), causing intermittent high gas
levels to be experienced in the plant area and production to cease if access to the plant area is
required for activities such as condensate loadout.

EPW Price at posting: $1.85 Sentiment: None Disclosure: Not Held

EGO Price at posting: 0.6¢ Sentiment: Buy Disclosure: Held
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