I have spent years finding and investing in oil and gas juniors....

I have spent years finding and investing in oil and gas juniors. One was HDR that I bought into at around 5-10 cents when it signed up WPL to drill offshore Mauritania. They found the Chinguetti field in 2001 ... at the time it was estimated at 100mbbl. HDR's share was 20 mbbl. This took the share price intially to over $1.00 and a market cap of around $750m (from $100m). It went to $2.50 (market cap close to $2 billion, on further discoveries and as Chinguetti production came onstream.

I'm not saying that OIP is going to do anything similar as its hard to imagine the same level of excitement as we had with a JV of major international companies offshore Mauritania. But in terms of looking at the upside its somewhat instructive. The market gave an intial valuation to HDR after the Chinguetti discovery of around $4 per barrel in the ground. This was offshore in deep water in a frontier area with no oil infrastructure or local market for any associated gas. OIP is drilling on land in NSW, very close to a know oil and gas area in the Bowen and Suart basins, and toady the oil price is 3 times what it was back in 2001. Recoverable onshore oil in the ground in the vicinity of markets and infrastructure back in 2001 was given a value to the enterprise of around $10 per barrel .. that's around $30 today.

OIP's first well is targeting a 40 mbbl potential reservoir (plus gas). let's say they find half of that and 50% is recoverable .. so 10mbbl. As a minimum initial addition to OIP's enterprise value that would add $300m (and it would be worth a great deal more if actually produced). Current market cap is $16m ... so almost a 20 fold increase.

Those are odds that I like. On a risk reward basis .. a duster sends you back to 7 or 8 cents .. but with 3 more wells to be drilled .. so down 50%, and success is a potential 20 bagger!! Worth a punt (but don't put your house on it!!).

H