good times, page-4

There are plenty of downsides, that I see.

1. Mahalo and Mira pilots haven't worked and need workovers. Whether they flow economic gas after that remains to be seen but it won't be before Q1 14 - so what happens with the deal where Stanwell had an option to buy 35% for $1M per PJ of 2P reserves at December 13? They will have no 2P reserves until 2014 now. Does that mean Stanwell get the 35% for free? Presumably not but even if they extend the deal, these failed pilots probably won't prove up a lot of gas even if the workover is successful, so Stanwell will still be able to buy COI out of the Mahalo block for a steal. So COI as I see it will probably lose Mahalo cheaply.

This is really disappointing as I had high hopes for Mahalo.

2. Galilee pilot flowed lots of water but no gas despite operating for six months. Doesn't sound good, particularly since they said the well had more capacity (read: they maxxed out the pump and still couldn't dewater it enough for gas to flow). So it will probably require a multi-well pilot to prove Reserves there. COI can't afford that. They need to farm out to a major, but until they can prove gas flow, majors won't be interested. Catch-22.

Also note AGL has written off 100% of their investment in their own Galilee pilot at Glenaras because they couldn't dewater it either. And that was a multi-well pilot.

3. NSW CSG still appears dead and COI doesn't have any money to spend on it anyway.

So what's the upside here? The best chance for COI seems to be now to convince Stanwell that Mahalo is a pile of poo so that they don't exercise their option. That will give them time to work out how to drill it properly and what fluids to use so that they can get good pilots, then hopefully sell gas into the LNG projects.

With Galilee they need a multi-well pilot which they can't afford.

Not looking good for COI overall IMO...