ready set go, page-8

Most of the capex expenditure for the initial self-operated programme was incurred and booked in H2 2013 but little production from the wells drilled and completed was brought on stream. The current quarter should look better.

Also, the benefits booked from tighter spacing of wells appears to have been conservative. On the one hand, they are saying that they expect lower EURs but, on the other, they are saying that there is no evidence of impairment of early stage production.

On the basis of the decline curve projections, in rough terms, total production would appear to be of in the order of 3x 1st year production. The first 2 years should about one half of the total production and the first 3 years about 2/3rds of total production. MRO/AUT has 18 months of experience and they are saying that they have not seen impairment of production yet.

If the production projection is subjected to discounting at 10% as are the projected cash flows for valuation figures, the result is more favourable. If the reduced average cost of wells is taken into account, the result gets better again.

And that is before taking account of land cost. This will be material for the self-operated acreage. The cost of land/well is obviously halved if twice as many wells are drilled on the same patch.

They have introduced a further reservoir - the Pearsall formation.

They have firmly indicated that they will be seeking to JV the exploration and development of the Eaglebine and that won't happen this year anyway.

The market will have to start recognising all of this at some time. Sure, there is more oil & gas production in the US but there is switching from coal for electricity generation and that will increase demand and self-sufficiency for the US is still a long way off.