activity update, page-4

lion after entek Given 22m Entek shares are being distributed gratis to Lion shareholders, thats roughly 1 Entek share for every 100 Lion shares.

Entek shares are listing at 20 cents, thus the Entek bonus shares represent 0.2 cps of value for each Lion share.

Thus, I'd expect Lion's shares to go down by at least 0.2 cps once the Cooper assets end up in Entek.

The question is thus ... is Bula and Oseil worth 1.7 bn shares * 0.4 cents, or A$7 million.

Now, Bula is a declining field on the wrong end of a decline curve, and Oseil is crappy heavy sulferous oil ... but never the less, they are both still oil fields that are in production.

My best number on Oseil is 62.7 million barrels of reserves, and there's a rumour that Kufpec are looking to sell down their share by 40%. Lets assume it's 60 mmbl, which gives Lion one point five mmbl of reserves from Oseil ... wooo-hoo. But wait a sec, if they get US$25 a bbl for the HSFO and Naptha, and production costs are US$15/bbl, then that should be worth US$6 a bbl in the ground, so thats US$9m.

Bula is cash-positive as well, based on last quarters results (Bula revenue US$1.5m, net revenue US$1.16m). I'd be expecting Bula to keep declining ; I dont have good enough data to do a proper decline curve, but if you put a gun to my head, I'd say production will decline by a cumulative 5-10% a quarter until Lion gives up and goes home.

Assume 1 mmbl is left at Bula, at a NPV of US$4 a bbl (old declining field, crappy oil). Thats still US$4m.

On the negative side, admin costs are too high - way too high. Some of this is the need to keep an Indonesia office, as well as an Australian one, but with Entek proposing to pay Guiseppe Mercorella $300K a year, I'd be suggesting he gets a pay cut at Lion - say, down to $100K a year.

Heck, if he did that (and I was a Lion shareholder), I'd vote him a chunky options package (excercising at, say, zero point eight cents).

BTW, a consolidation by Lion after the Cooper assets go out is pretty darn probable - 0.4 cents is really too low to get any sort of liquidity. Me, I'd do a 50:1 reconstruction to take it back to 20 cents, and a much more reasonable 35m shares on issue.