today's australian

CRITERION: Tim Boreham From: The Australian December 23,2009

WITH an interest in numerous oil and gas exploration plays but with scant financial obligation when serious cheques are needed, Octanex goes close to having its oleiferous cake and eating it as well.

The vehicle of Melbourne lawyer Geoff Albers, Octanex boasts a $30 million cash pile and a $15m stake in three listed companies: Cue Energy, Orion Petroleum and Central Petroleum.

All up, Octanex has net tangible assets of 30c a share, allowing only 13c for the exploration upside. Octanex chief James Willis says that while the listed exposures "add piquancy" to the Octanex story, they're only a vehicle to park unrequired funds.

"It's all low-stress activity," Willis says. "We have cash in the bank. We have no need to go to holders for money and we have a good story to tell."

Octanex's approach is to shell out for initial exploration stuff such as acquiring seismic, but to farm in partners for drilling. In four permits. Octanex is fully carried by multinational operators, while in three other Shell-owned tenements it has an ongoing financial interest.

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The company's core projects are an 8 per cent interest in Cornea (Browse Basin), a "known oil and gas discovery". The partners yesterday reported the Cornea 3 well would be cased off at 592 metres, with the lure of more promising results since Santa's last down-hole play a year ago.

It also has 40 per cent of four tenements in WA's Exmouth plateau, with the objective of "discovering and developing large gas fields." The operators, OMV and Eni, yesterday committed to drilling in one of the four permits, with Octanex free-carried for a 20 per cent interest in the first two wells (and up to eight wells). "Octanex doesn't have to pay a cent," says Willis. Should Octanex have elected not to participate, it would have received a $US16m payment, so that gives an idea of the perceived upside.

In south Exmouth, Octanex recently sold three permits to Shell, on condition that Shell stumps up $US5m ($5.6m) if it makes a discovery (and further $US5m if it applies for a production licence). This makes for potential upside of $US90m. Capping off the portfolio, Octanex fully owns ground in NZ's Taranaki Basin. As with the North West Shelf, it's embraced by producing oil fields.

Octanex is a speculative buy.