150 m usd cash - 163 aud, page-15

The biggest killer issue for me here is the dilution where shares on issue will climb from 686 million shares to 1.625 billion by the addition of 939 million ( give or take a few million). This comes from HZN having 1.297 billion shares on issue and using the 0.724 ratio in the merger.

So just to be on equivalent metrics, where ROC's current oil production from the quarterly is approximately 8000 BOPD , and add the 5000 BOPD from the new Malaysian PSC, then we are looking at 13000 BOPD....to compensate for the dilution, HZN would have to contribute 17900 BOPD equivalent production at $100 a barrel, or whatever the prevaling price of oil is..... this is where the price of gas is critical and why converting gas to BOE is useless unless the ratio is price based, not energy based. This is why I believe HZN reserves ( and the value within) relative to ROC are overstated because they are predominately gas.

Page 6 of the 2013 AGM presentation shows HZN projected production where post the OSAKA transaction , production from current 2P and 2C reserves and resources peaks at just below 15000 BOEPD in 2020.... still not enough to compensate
for the extra shares on issue, and six years down the track, and even if the price of gas sold was between $12-$16mcf.

Additionally, due to the dilution, to have an equivalent affect on share price , cashflow per share, EPS etc, any deal or discovery that the combined company will be exposed to will have to be 2.36 times bigger. For example , with ROC having 686 million shares on issue, a 68.6 million barrel discovery would need to be a 162.5 million barrel discovery for the combined entity... ROC's small field development program would need to become a large field development program just to maintain the metric ratio .

For me this issue is that rather than making things "easier" , this merger will have the opposite effect, especially for ROC holders.

Can this merger work?.... yes it can but it will need some mighty big gas discoveries in PNG and some deals won on a magnitude such that would not have been possible otherwise.

Cheers

Dan