As ESG moves up in scale of reserves and sales as a result of its alliance with Santos OIP will become the equivalent of PES to AOE. OIP is 23% owned by ESG .. some protection but its not watertight as the PES takoever by BG showed despite AOE having over 20%. If the price is good enough it could happoen .. but only once OIP has had some successfull drilling in PEL 6 IMHO and pilot production .. this could all happen within the next 6-12 months. For anyone willing to wait that long the rewards could be srious. OIP has large acreage in what will surely become the hottest new area in CSG after the rave review of ESG's acreage by Santos.
Even if OIP stays within the ESG orbit think about the upside on success (be warned this will be an unashamed ramp). ESG's JV drilling in PEL's 427 and 428 both found 4-5m gassy coals. From talking to ESG they only did shallow drilling to see if the coals they knew were there were gassy. This gave them confidence to now proceed to investigate the other deeper (and shallower Wallon type coals) elsewhere in their acreage. PEL 6 seems to hold most of the estimated upside of 3.5 Tcf in OIP's leases. They are about to drill 2 targets with both shallower and I think deeper coals that include the Bohena and Hoskisson seams.
With a market cap now of $12m and fully diluted around $15m at 10.5 cents .... upside multiples on success are impressive. Let's say for example that they find good quality coals in their first PEL 6 well .. and follow this up later with a lateral pilot (which have succeedeed in PEL 238 in both thicker and thin coal seams). The mapped areas of the targets in OIP releases are sizeable. Let's say the drilling in coming months points to potential reserves of 500 PJ only (or the 3,500 PJ potential). OIP's share is 30% I think (ESG 50% and COI 20%??)... so once a pilot confirms these as reseves (6 months at least) then OIP could have 150 PJ of contingent resource. Recent transactions in the sector when assessed on a contingent basis give a value of around $0.30 per GJ. So 150 PJ would be worth $45m ... 3 times current Market cap. This is the base case .... think about an eventual 2,000 PJ....
I'm buying OIP and putting it away for a while because its got a lot of acreage in a hot area and a very good partner in ESG (and its own good management).
H
OIP Price at posting:
10.5¢ Sentiment: LT Buy Disclosure: Held