finally - a bit of action, page-18

cloudnine

I prefer to take a low-ball aproach .... 3,500PJ gas resource potential but assume 1 in 3 wells successfull and each on average 1200 PJ. OIP's share will reduce to an average of 25% after subsequent agreed farm-ins .. so that's 300PJ. IF that becomes reserves down the track and we say initially 3P @ $0.40 per GJ ..then that's worth $120m .. around $1.00 per share. Now remember that this estimate is after all 3 farmin wells are drilled and that wont be until at least years's end .. probably next year.

In the near-term,taking just the first well and assuming success. From the prospects and leads described in the releases Moree-1 looks like a large prospect .. but even so its unlikley to represent more than 1/5th of the total in all OIP's leases .. so at most 700 PJ say. OIP's share will initially be around 50% I think ... so ... assuming a less-than high-side estimate of say 500PJ then that's 250 PJ to OIP. It will initially at best be a contingent resource .. so worst case valuation say half of 3P at $0.20 per GJ .. that's worth $50m .. so around $0.45 per share. That's what we might expect near-term .. obviously the value of this gas increases as it moves up the scale to full 3P or 2P reserves (requires pilot producytion testing and a market).

Both tthese "guestimates" are way higher than current share price so its worth a punt. The Walloon coals are prolific elsewhere in the basin and ESG's success at Edgeroi on the northern edge of adjoining PEL 238 increases the chance of success.

Now being enthusiastic and taking the "unrisked' estimate from ESG of 3,500 PJ in all OIP's leases .. let's say they prove up half of that in 2 year's time (and remember they have already proved up over 7,000 PJ of 3P + Contingent from a prognosed 17,000 PJ in PEL 238)then OIP's eventual 25% of this will be 437 PJ. Valuation today .. as contingent resource at $0.20/GJ .. $87m ($0.74/share), at $0.40 as 3P reserves .. $174m ($1.50/share) and at $1.00 as 2P reserves $437m ($3.80/share). All this willtake several years and assumes no more dilution. In fact there will need to be capital raisings so apply an appropriate discount .. say 40%.

So there's good potential but HIGH RISK .. and yes so far OIP's drilling success rate has been low .. but that was conventional oil and gas prospects. Last year's Willaroo -1 found some oil and some gas .. so we know there is an active petroleum system, and we know from ESG's work next door that the csg potential of the area is much better.

Any comments?

H