From The Age Essential may prove it has all the ingredientsBarry...

From The Age
Essential may prove it has all the ingredients
Barry Fitzgerald
October 29, 2007
ESSENTIAL Petroleum hasn't exactly set the world on fire since its February 2001 listing. Friday's closing price of 5.5¢ a share tells as much.
But patience with the Otway Basin oil and gas explorer, like that shown by the group's biggest shareholder, former JB Were resources guru Peter Woodford, just might deliver some big rewards in 2008.

Managing director John Remfry has worked the group into a position where it will be a stock to watch next year as it sets about drilling near-term development opportunities in the onshore Otway while also chasing up the big-time potential of its offshore permits, flanking what Essential reckons could be the next major hydrocarbon province — the Discovery Bay "High" offshore from Portland in western Victorian.

Another geological feature, the Pecten High offshore from Port Campbell has already been proven as a hydrocarbon fairway. A bunch of groups (Santos, Woodside, BHP Billiton, Origin, AWE, Beach and others) have all now found commercial scale gas resources.

Geographe and Thylacine (operated by Woodside), Casino (Santos) and Minerva (BHP) are all now producing gas and have combined proven reserves of around 1.7 trillion cubic feet.

Apart from the producing fields crowded around the Pecten High, there is also a bunch of discoveries awaiting development (Martha, Henry, Halladale and La Bella).

Essential reckons that back at the bigger Discovery Bay High, the potential in its permits is for more than 5 trillion cubic feet of recoverable gas and more than 2 billion barrels of recoverable oil. That's big talk for a company of Essential's size, but we'll soon know if its hot air or not.

That's because Essential is pulling in $10 million from a $6 million rights issue (underwritten by Bell Potter and Comsec) and $4 million from a public offer at 4¢ a share. At the issue price, the group's market capitalisation will be all of $22 million.

While the big-time potential of the offshore permits creates the excitement factor, it won't be until the back half of 2008 that things heat up. Near term interest in the stock will come from the two or three wells to be drilled early in 2008 in onshore permit PEP168, and a production test of the 1999 Killanolla oil discovery. They are smaller targets than the big game offshore but could be sweet enough in themselves given Essential's relatively modest market cap.