Ann: Palm Valley PV13 Encounters Strong Gas Flows, page-62

Hey Justingas,

Thanks for sharing - absolutely agree on other valuation metrics. The risk with comparatives analysis such as mine above is the whole market could be mispriced and this would obviously lead to poor capital allocation. However, I do believe including the 2P reserves and pricing on an EV basis enables us to more accurately assess value in a "snapshot view" though.

Going back to your spreadsheet, looks good. A few comments from me:

- $26m well program/facilities upgrade was to be funded through cash, but agree some debt as indicated by recent cost re-estimates.
- $3.0m profit per PJ for FY18 looks high. I think we only broke even on net cashflow movement basis in FY18.
- $3.8m-$4.0m profit per PJ for FY19 - FY26 also looks high at current implied ex-field gas prices of c. $5/GJ. Obviously we're now leveraged fairly highly to the east cost gas market and a relatively stable cost base as we increase volume. Achieving anything like $15 on east cost would be company changing from FY20, even if just for one year. I think we will need to wait until the Mar-19 quarterly to see more accurate indications of pricing, assuming the funds have flowed through working capital into cash by then!
- Pre-paid gas and PWC pay or takeaway will also reduce our cashflow by c. $35m - $40m over the next 3 years or so. Unfortunately.
- PSI has already commented on reserves. With continued success for the remaining horizontal of PV13, it should derisk the pre-drill estimates of recoverable reserves. Based on this assumption, we would be able to satisfy production volume to c. FY26 in your analysis....production may decrease as pressure also reduces on lower volume in place. In saying that, we have other reserve opportunities and they'll be back at Mereenie one way or another. Maybe just not well 26.
- Ascribing value to QLD and Dukas is tough. Eventually it becomes easier to value on a $/GJ basis for 2P reserves..but will have to wait to prove up the prospectivity, if any. Dukas we should know sooner than QLD!

Thanks again for sharing. On a whole I believe we should be valued somewhere between our current share price and your price...RC said we need to be 30 to 40 cps by year end to remain independent...I suspect that was after he prematurely banked WM-26 though!

I really like the way management are following through with their strategy though. Although we have had re-cost estimates changing our drilling program slightly, it's broadly on track. From my experience, the market rewards this type of consistent strategy eventually....