oex starting to move, page-9

"Hey Ian,

Roma have approx 5x as many shares on issue as Oilex..."

I count no escrow/options shares for RPM, for a total of 130 million ordinary securities (ref 19/7/04 quarterly)

I count 36m securities for Oilex, including 2m 20c options, and 9m unquoted securities (ref 21/7/04 quarterly).

So it's more like 3.5:1 rather than 5:1, once you compare numbers fully diluted.

Coincidentally, with Roma trading at about 9, and Oilex trading at about 27, thats also about 3:1.

"If success at Connolly is valued at around $5 / share to OEX,

then success at Connolly for Roma would be valued at around $1 per share + extra 10% interest in permit + royalty ( 4% ish from memory )...."

Lets assume a theoretical 1000 bopd well with a $25 production cost, and a A$50 oil price.

One partner has a 45% share and a 4% over-riding royalty, and the other one has a 45% share. The other 10% goes to someone else.

First, the royalty comes off the top - $2 per bbl royalty.

That leaves $48/bbl ... minus production costs, thats $23 net. The $23 is split 45/45/10, giving $10.35, $10.35 and $2.30.

Therefore, the party with the 45% and royalty is getting $12.35, and the party without is getting $10.35, and the party with 10% is getting $2.30.

This is a 49.4/41.4/9.2 split, so I'd split any NPV that way.

Pick your own number for whats in Connolly, and your own NPV for oil there - I'll value Cooper oil at $15 in the ground, but I dont know the Surat well enough to judge it.

With lower oil price, or higher production costs, the royalty becomes even more important, as it's off the top, not the bottom.

"As you can buy 3 RPM for Every 1 OEX...Roma share price would have to reach $1.70 to match OEX at $5....

I haven't adjusted for escrow......When do they come out of escrow?"

Before any oil well finishes producing :) I'd be guessing 2 years from listing date, but someone would need to go digging in the Oilex prospectus to find out.

"Both companies seem to have good leverage but I prefer to hold OEX given their exposure to upcoming drills ( 88% of Barcoo North at $15 / share on success.......$3+/ share for Rockwood south , etc)..."

On the other hand RPM has exposure to the 104/111/115 drilling, and as you've pointed out, Merlin is carrying them in that ... see the solicitors report in Merlin's prospectus at www.merlinpetroleum.com.au for details (*)

"Be interested in your thoughts/valuation for RPM on Connolly ......"

I dont know the Surat well enough to judge. Sorry. I would guess that if Connolly is a hit, then you'd have a number of leads around it that would become rather interesting to many players.

Fundamentally, my view is driven by the fact that Roma's downside on Connolly is a lot less than Oilex's, and in it's last quarterly, Oilex are estimating Connolly as a 30% chance - so it's better than two thirds it'll miss.

Ian Whitchurch
Accelerated Farmins
Pre-float Consultants to Merlin Petroleum

This is not investment advice. Please read all documentation and seek professional advice before buying any shares.

(*) In the immortal words of a stockbroker "You're the promoter. We'd expect you to say that"