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The previous experience on TGD was, well, quite an experience.

After all the excitement about the placing, I found myself slightly surprised by the 90% COS figure that sems to have been blurted out: the guys have given themselves a one-in-ten chance of not only looking a bit embarrassed, but also of having the share-price trashed to well below NAV for some time afterwards.

However, it's all been said and done and in the interim I have been amusing myself by considering the well design. (Yep, some of us do get our kicks that way - no pun intended.) Incidentally, the phrase "over-engineered" has been quoted a couple of times and I think it's been misplaced - it's the well that's going to be over-engineered, not the rig!

Background

TGD-1X

We know that in July 2007, pressures of 12,000 were reported when TGD-1X reached 4625m (along-hole depth, I don't believe we know what the True Vertical Depth was.) The well was suspended and in announcing plans for TGD-1X-ST1 in Oct 07 Soco said that they had assembled the proper high pressure drilling equipment which included a 15,000psi BOP.

TGD-1X encountered hydrocarbons in two Oligocene clastic sequences, which were separated by a volcanic layer. Well logs over the upper sequence showed about 30 metres of net pay and they were unble to log the lower section, though at the time they suggested that seismic interpretations show another 300m of sediments above the basement.

As far as I can work out, the section below the volcanics is overpressured; that is to say, instead of the pressure-depth graph being a nice straight line, there is not only a change in gradient just below the volcanics, but quite possibly a step out as well.

TGD-1X-ST1

Holy moley.

Here's a quote from Ed in Oct 2007:

"We are particularly excited to return to the TGD structure. Success in the
deeper objective section of this structure could totally transform this company
and represent a significant milestone in the history of oil exploration in
Vietnam. Accordingly, we are quite anxious to resume our evaluation now that we
have assembled the proper high pressure drilling equipment.

We were all pretty excited too. How did it go?

I'm sure you don't need much reminding. Here's one reaction from June 2008:

Certainly a lot should have been learned from this dismal experience to bring any future well back within more realistic timelines. SW10's Law is affected by a number of factors, but it seems to me that there has been a surprising amount of human error on this well, mostly arising from contractors as far as I can see. They must have been spitting blood at Soco Towers: the frustration must just be immense. I'm sure it would be an attractive - if unrealistic - option to change out the contractors and maybe even the rig.

Alright, it was me.

All the SNAFUs aside, ST-1 had limited shows whilst drilling the Oligocene, due to the higher mud weights needed to keep the pressure regime in check. Nevertheless, logging showed that the well encountered approximately 120 metres of good oil and gas shows in a combined gross interval of 570 metres.  Permeability and porosity were preserved and Soco said they compared favourably with pre-drill estimates. In other words, they saw what they expected to see on the logs.

However, the rodeo ride to get this well drilled meant that it's integrity was poor and so the planned extension into the basement was abandoned.

Two drill stem tests ("DSTs") were planned in the high pressure/high temperature Oligocene interval. The first DST  was over an approximate gross interval of 210 metres in the higher pressured zone below the volcanics layer separating the two over-pressured sections. The second DST was in the upper Oligocene interval above the volcanics layer over an approximate gross interval of 120 metres.

DST1: It's painful just to think about it. As Soco had it; downhole damage sustained during drilling and preparations for completion precluded recording meaningful sustained flow rates. After some Q&A, one poster noted that:

There does now seem to be the suggestion that the failure to get sustained flow was less to do with well damage per se (remember I suggested that perhaps solids were being produced) and more to do with a heavy fluid downhole preventing the well from coming in. A kind of equilibrium between the well and the fluid may have resulted in the well 'surging' back-and-forth without actually getting flow. Rather like that unpleasant feeling when you really want to burp but can't quite make it...

The shocker is that the heavy fluid, which would originally have been left to provide some protection against a blowout, may have reacted chemically with the production fluids put into the well prior to testing. This resulted in something heavier and/or more viscous and thus held the well back. Now, this is all supposition based on half-facts from a guy sitting several thousand miles away from the well and could be wrong, but if it's close to the truth then (yet another) sub-contractor needs his bottom kicked.

Yep, me again. However, the main point here is that the test flowed gas and condensate to surface.

At the same AGM in June 08 where those Q's were A'd, Soco described TGD as something that appears to be a very significant asset for the Group.

That wasn't all, though. DST2 was hampered by limited of the perforations, which had to penetrate two casing strings and associated cementing. Again, the problems encountered during both the drilling and testing of the well affected its ability to flow and there were no meaningful sustainable flow rates.

Designing for the future

Soco now have a lot more data to work with - not just in terms of the well itself, but also where to site it. The re-processing of the seismic will have used data from the previous TGD holes as calibration and that, alomng with some refinements in the model, should mean that they can aim at a part of the structure that seems likely to give some sound results.

Sitting thousands of miles of way with about 0.001% of the data available, I imagine that the real challenge for drilling is not the pressure per se, more the likelihood that there is a severe change in pressure gradient below the volcanics. Constant pressure gradients mean that a conventional mud column can be designed to hold back pressure from the well without causing too much invasion of the pore space. As soon as there is a change in gradient, then the mud has to be weighted up to deal with the higher pressures, meaning that the (always consistent) pressure gradient of the mud column causes invasion higher up in the hole, damaging the well.

I would guess that this means that they will deal with the well in two bites, the first down to the volcanics layer, where the well will be logged - and generously I hope - formation testers, fluid sampling, the whole works. They will then run casing to seal off the upper zone (without cocking-up the cement job) before drilling ahead in the lower zone before running another equally-generous wireline programme.

Once that's done, they can move on to the excitement of testing and finally give us some proper answers about this blessed structure...

I'd quite like to be there for the last few days of drilling and logging; if everyone can get their act together I really do believe that this is going to be a company-maker...

SW10

OK - looking through Merrill/BOA's note, they start by pointing out that SOCO has been seriously unloved (only 13% of analysts with Buy recs, the lowest in the sector) and worst-performing E&P YTD (+17% vs. sector +72%) and they now think that this discount should unwind as newflow picks up. They talk about the 25% discount to NAV as being a "Compelling valuation". They use $75 long-term Brent and $1.65 assumptions:

SIA targets 0.6bnboe of resources (4x reserves)

through the drill bit over the next 12 months, with the first well (Congo) spudding

in September. In addition, the forthcoming TGD (Vietnam) field seismic

reprocessing could re-ignite M&A discussions. With a more positive view on its

exploration portfolio, we raise our NAV to 1,651p (from 1,299p). The stock trades

at a 25% discount to NAV, against a 5% sector average discount. We upgrade

SIA to Buy and raise our PO to 1,650p

They go on to point to all the well-known factors re TGT and TGD and M&A, and note that production at CNV should be soon ramped from the present 12k boepd to 20k boepd thanks to water injection and then note that the market gives little credit for Congo at present.

Interestingly, I'm not sure that Merrill fully understand the potential of the West African assets either, as they are very vague on the Nganzi prospects and they also say they "would not be surprised" to see SOCO farm out there. I wouldn't be surprised either, but as some of us heard first-hand, the technical team are urging the risk managers to drill WITHOUT farming down - which is a first! I note they suggest the Nganzi WI is 38%....which it is not. Block 5 is 38% though........  ;-)

Their drilling schedule summary also points to a "gross" potential of 100mn bbls from the next HPHT well in VN. Again, as we know from the AGM, this is perhaps the (conservative?) truth in relation to that fault block - but it certainly isn't the WHOLE truth, as success with that well would substantially derisk the rest of the fan!

On the M&A point (per the various discussions we've had on the boards about whether a deal MUST wait for a further well on TGD), Merrill make the interesting comment that:

we highlight that, last October, Soco confirmed it had received a

preliminary approach regarding the sale of a majority of the company’s portfolio.

Since then, there has been no update on this front. However, we believe that by

reducing the geological uncertainty surrounding TGD, through increased reservoir

knowledge, the potential bidder could be brought back to the table.

...my bold.  As you know, it has been my view for a long while that it may well not be ESSENTIAL for a further well to be drilled - and that if a bidder waits until the well is drilled, then a success will very definitely put the asking price up (and attract other bidders). So I'm certainly not ruling out a deal being done before (subject to price - which I still think would need to be £25+ based on the current state of development of the VN assets).

Re TGT they say initial production in 2011 will be 40k boepd ramping up to 100k plateau (confirming previous indications) and note that:

The company submitted the TGT field Development plan for Governmental

approval in 2Q09, with all appropriate regulatory and review committee approvals

set to be granted shortly. Tenders for long lead items have already been issued,

with bids from FPSO providers (for a 1m bbl storage unit) currently under review.

Reportedly, SBM Offshore, Prosafe, Swire, BW Offshore and Bumi Armada are

bidding for the job. Key to the development of the field is flow assurance between

the FPSO and the wellhead.

Curiously they say that:

The cash balance of the company totals around US$300m. We note that most of

this is likely to be used to repay its outstanding convertible bond (US$250m),

puttable to the company in May 2010. Even with this expected cash outflow in

2010, we see Soco well placed to meet its capex requirements over the next

couple of years.

......which appears to be assuming all the bonds get put. Merrill must know where the bonds are trading, surely??? [I assume that they are now very close to or even over par, given the recent run-up?? Anyone got the exact current level?]

And (astonishingly IMO) they ascribe only 211p per share in their 1651p NAV to risked exploration upside, with 282p of risked development and 1159p core (including (only) the initial production rates at TGT from 2011). It seems to me (from their comments on the HPHT area and Nganzi) that they could easily double their risked explo numbers if the company did indeed drill Nganzi without farming out and if they fully explained the derisking impact of the "100mn bbl" well on TGD.......and I'd expect both of those to be made clear to analysts by October, if perhaps not in next week's interims.

ee

ps......  There is little doubt IMO that  many investors have exited the stock on the back of analysts' recommendations. It'll be interesting to see what happens as they try to get back in. I'd be unsurprised if the shares were back at £20+ by year-end, irrespective of any M&A news.

Here are some bullet points that I picked up from attending yesterday's presentation and speaking to Brian Hall afterwards:

• The 2009 reserves report for US assets is expected shortly. Whilst I didn't ask, I would hope that this will reflect some upgrade to Shoat's Creek resources, as a result of the 3D seismic reinterpretation. To reiterate: Aminex's own estimates for SC have increased from 4.53mmboe at the last reported reserves (~66% of the US total) to 18mmboe (but the 18mmboe might be a P50 figure?). 45% of this potential is believed to lie in the Frio & Cockfield sands, with the majority of that in the Cockfield.
• Brian was hoping to announce the spud of the first Shoat's Creek well that evening, but weather delays have impacted the spud by a few days. An announcement can be expected "imminently" [my choice of word :0)]. This well will target the Cockfield. A further well, due to be drilled in Q2, will target the Frio. Aminex are still looking to farm out the deeper Wilcox sands, believed to hold the remaining 55% of potential, with a view to drilling it before the end of 2010.
• Aminex expect to publish a resource estimate for KN-1 within the next 3 months. Brain stated that he was committed to doing so by the end of Q1 - which i guess makes it 2 months! I asked Brian what remained to be done to be able to do this. He said that the estimate was being finalised by a consultancy in Perth. Mike Rego was due to travel there in 3 weeks time, to get the job completed. SW10's law appears to have applied to the integration of historic seismic data, the KN-1 logs and the new Songo-Songo seismic shot last year, allowing the reserve estimate to be made.
• I asked Brian about export of the gas from KN-1. He was adamant that the planned upgrade to the Songo-Songo processing plant, which is awaiting government approval, would be sufficient to allow Aminex to begin production (subject to confirmation of reserves, grant of production licence and contract with customers), despite possible indications to the contrary from Orca. A pipeline upgrade was not required. Should further export capacity be required beyond that facilitated by the plant upgrade, Brian pointed out that the pipeline from Songo-Songo to shore was 16" but the onshore line to Dar-es-Salaam was 18" (IIRC - but the onshore line is certainly larger), so dualling the relatively short 25km shallow-water stretch from SS to shore would increase capacity further at relatively modest cost.
• An aggressive drilling programme of 9 wells, including S.Malak testing is planned for 2010 (see slide 21 of the presentation). Brian acknowledged SW10's law again (implicitly) by saying that this was a target which was unlikely to be met in full. The drilling programme includes a Nyuni follow up well, targetted for Q4. Brian is seeking to mitigate the risk there by a further farmout of that acreage. He also acknoweldged that cash was likely to be running short by the year end. Clearly, however, we can expect lots of newsflow in the meantime. I would hope that that newsflow will be sufficient to lift the SP to a level where another fundraising can be conducted without TOO much dilution - or that another means might be found to finance Aminex's plans (e.g. asset monetisation).
• Brian was remarkably optimistic about progress in N Korea, having visited Pyongyang late last year. Aminex needs to novate their Korean agreements and Brian was optimistic about Aminex's chances of doing so. We had some entertainment at the start of the Q&A, when the first questioner castigated the company for its involvement in the "Axis of Evil" N Korean regime. As Brian politely pointed out (and ee has amply explained previously on various BBs), there are two sides to every story and the killing of 3m Koreans by the US in the Korean war might give a slightly different colour to the N Korea/US relationship from that painted by the press (especially the extreme views that the questioner expressed). Brian's impression of N Korea was rather different from those press accounts.

Regards,

Mark

Right, finally at the desk and since my dealing screens are on the fritzz, Ive got a few minutes to spare so breain dump/stream of couscious (or verbal diarrhoea if you prefer) coming.

The comments below are in part related to what some one (or more than one) may have said above otherwise its just my opinions. Martin (?) I think, made a comment about me probably being better connected to whats been happening (such as the funding issue and Astaire being appointed) and he is probably right. There are a lot of things that I cant comment on to be honest.  Neveretheless, these are some thoughts.

Are we "unlucky"?? Yes, Id have to say that we are to a degree. Weve seen the capital markets collapse just at the wrong time for us. This, coupled with the collapse in the POO closed any chance of doing a farm out earlier than now and restricted acess to raising money from any other source. Over that period weve had some good results in the US and KN1 and also picked up very attractive acreage around K. The falls in the Nat Gas price has not helped our US revenues but it is still profitable and there is everylikelyhood that the price of gas will pick up over the coming year as a result of the massive reduction in ccapex that we have seen in the US (read across the utilisation rates for rigs on shore US, especially horizontal rigs). Add to that the fact that a lot fo the new production is from "unconventional" plays with parabolic decline rates and we could well see a spike in the Gas price, especially if economic activity in the Us improves or even a hot summer/cold winter. US gas production for us is still profitable and keeps the lights on. We were certainly unlucky with the Texas City disaster a coule of years ago that shut in production and New Orleans etc but things happen right? On the positive side, the old hands may remember the sale of Vinton Dome (?) that was obliterated shortly afterwards by the hurricanes.

Lets face it, it has been a bloody awful time to be a pure (ish) exploration company needing access to funds. Exploration copanies usually do end up having to multiple funding issues due to the need for development capital etc. Ideally this occurs as discoveries are made pushing up the SP. These are not normal times though.

We didnt want to have to raise cash at these levels. Needs must, however. As the PIS who attended the presentation a few months back will remember, the farm out process had started both at Ruvuma and Shoats Creek. Shoats has no time pressure since the acreage is ours full stop. There is, of course, the commitment on the Ruvuma licene so there was some time pressure, as Johnny T has mentioned. That sort of situation is not ideal when you are trying to negotiate a deal and it is far better, as someone above said, to be able to negotiate from a position of strength. Now we can either drill it ourselves or get a good farm in. Nice position to be in, though I would expect to see a farm in done as a derisking exercise.  Remember that it is not jus us who have suffered during the downturn, even the big boys have been cutting capex and thus any interest they may have in new acreage has been limited. Now that the market is picking up, the background is much more favourable for us.

We do still have a very good portfolio of assets. Shoats Creek looks very interesting indeed and relatively low risk (due to the historic wells we have there and the new seismic data). I can see some serious value to come from this area alone. Then there is Alto Loma with more production to come. In many ways Id say that Shoats Creek alone is very attractive and could be a real money spinner following a farm out as it is close to infrastructure and could be producing very quickly. .

Egypt - the free carry hasnt cost us anythign and its been disappointing to date. IIRC, there is the prospect of 1 or more wells to come (probably 1 this year?). Shame we havent seen the same success that COP have had in Egypt. C'est La Vie.

Ruvuma and Nyuni (both K and the origianl Nyuni) have great potential value also.

Unlike some other companies I can mention, AEX has always played it very straight with the shareholders, especially the private shareholders. The company has regular presentations for private individuals and Brian has always been very willing to answer PIs questions (where he is able to). Dont go deluging him with emails and phone calls now though or else he will have my guts for garters. The information in the RNSs is always very clear.

Ive always stressed to Brian that maintaining good relations with the private shareholders and treating them fairly is essential, hence the rights issue with the last issue and warrants and the open offer now. It would be so easy to just do what other companies do and "shaft" the shareholders with a big placing but thats wrong IMO. Yes there is an argument for a company to do a placing to ensure that you get the money you want but allowing PIs in is essential IMO. Note of coruse that the issue was oversubscribed. Personally weve taken another $500k of stock and may take more through our open offer entitlement but I do know that there was good demand for the shares since the story is very compelling (see my post above with Tristone's valuation of just Ruvuma). As to the new brokers, I know some have expressed concern re Astaire (Blue Oar as used to be) but they, together with Davy, have worked very hard on this issue and have impressed me. Thats a bit galling since we lost out on an acquisition to Blue Oar's waelth management arm a while back - (bugger!) but credit where credit is due.

As Ive said, it is done now. We have the csh that AEX needs and so Id imaginewe will see progress with a farm out and Ruvuma will be drilled. SC progress will also be very interesting to watch.

Sorry but this post has been interrupted by several phone calls so it may not read that well. I just thought it worthwhile my putting "pen to paper" as it were.

D

In reply to emptyend (post #118)

OK - if that's the response then I'll just leave you all to it. If people prefer to delude themselves that drilling wells can reliably proceed to a nice orderly schedule then there is plainly nothing I can say that will stop them doing so.  There is no significance in the slight difference in the guidance on timing.

UBS have a sector note out today, which argues that the sector as a whole is "trading in line" with their oil price view.

It goes on to say that :

Our top sector picks are Tullow (M&A and exploration play), Dana (value and

exploration play), and SOCO (value and M&A play).

....and then they point out that SOCO's unrisked upside potential through to the end of 2010 is + 120%....much larger than Dana (75%) and the others in their universe (TLW,PMO, CNE, JKX). This is the first note I've seen that actually considers the relative upside through to 2010 and includes all SOCO's prospects (even if, IMO, it doesn't give full weight to the potential of the HPHT area, or even the fan).

The headline conclusion they have on SOCO is  

Transformational potential for free

.....which says it all really....though the detailed comment is:

the key well to watch is the appraisal of the “E” prospect in 2Q 2010 which

could potentially be testing 1bnboe of upside. If successful, this well could

add c50% on the current share price and this transformational opportunity is

being offered essentially for free currently, in our view.

Oddly, they include only 650mn boe of this potential in their NAV (hence my comment above).

So.....UBS reckon that "SOCO is one of the best value opportunities in the sector" (based on discount to NAV) - AND they see the biggest upside in the sector. Whats not to like?  ;-)

Nice to see analysts starting to wise up to the big picture situation, even if one may still argue with their NAV estimates.

ee

Isaac,

... you accept that 'everyone is responsible for their own investment decision' one sentence after damning ee because 'his posts have ...cost people a lot of money'....

Do you not see the inconsistency here ? Do you not see the inconsistency in complaining about 'individuals who insist on posting thoughts that are consistently wrong' ? How many times have you shared with us your views of the imminent boom, the imminent bust, the incompetent management , the wonderful management...?

Have you not heard of the saying that it's sometimes better to be silent and thought a fool than to open one's mouth and remove all possibility of doubt....?

Introduction & Company Strategy

The AGM was held in a rather pleasant 7^th Floor office in the heart of Paris, close to the Arc de Triomphe and with a view to the Eiffel Tower. I asked why Paris was the venue chosen for the meeting and this comes down to Polo’s tax status: being a BVI company, holding the AGM in the UK may cause questions to be asked by the UK tax authorities. Neil Herbert and Catherine Sugarman (Company Secretary) were present in person. Stephen Dattels participated by teleconference at the start of the meeting, for the formal business but we agreed that Neil would be able to answer my questions, so it was not necessary for SD to participate throughout.

I was impressed by Neil. He came across as straightforward and well informed. Someone I would be happy to do business with. Middle age is definitely having its effect on me as he seemed quite youthful by comparison. :0( His track record is impressive, starting with PWC, progressing to the financial controller role at Fags (Antofagasta ) and then on to successful roles, first at Brancote Holdings, then Galahad Gold and at Uramin. Tax complexities at Galahad, being a UK registered firm, had to caused those involved to be rather keen to see Polo established outside the UK’s tax jurisdiction. It was also clear to me that Neil was not privy to all of Dattels’ deals and activities – but I felt that he was not Dattels’ “stooge” and would be prepared to stand up to him if he felt justified.

One of my mains reasons for attending the AGM was to try to uncover Polo’s longer term intentions. This proved most interesting. As I had anticipated, Neil acknowledged that one or more of Polo’s current major investments may liquidate as the result of an external bid (or other event). Whilst it is possible that some or all of the cash may be returned to shareholders in such an eventuality, my impression was that this should not be assumed to be the outcome. The Board has not yet reached a firm conclusion and will actively debate the company’s future at the appropriate time (NB I note from the AR that an extraordinary 35 Board Meetings were held last year!). Though Polo has stated that its commodity focus has switched from coal to uranium, another switch can be expected when the outcome at Extract has been reached. We agreed that Extract offered a truly unique opportunity in the U industry. In the post-Rossing South era, it will be harder for more junior explorers to bring projects to fruition.

The future areas of focus for Polo are likely to be coal and iron ore. My mention of Regent Pacific’s stake in BC Iron (ASX:BCI) brought  a wry smile to Neil’s face. After recent experience (more on that later), Dattels’ preference is for Polo to be a 50%+ (preferably 100%) shareholder in its projects. So, it is envisaged that Polo may eventually develop into what I’d call a “real” mining company, as opposed to simply being an activist investor, as it appears to me to be now. Naturally, I asked about prospects for reducing the current high discount to NTAV that Polo trades at. My impression was that Neil was hoping to tackle this from two related angles:

• Marketing, hoping to bring in more supportive institutional shareholders. He was disappointed with Luxor’s departure but pleased with Ingalls coming on board.
• He is actively progressing a TSX listing for the company, which would seem rather a natural step given Dattels’ extensive N American contacts.  A Hong Kong listing is also under consideration but at an earlier stage in the process.

IMO if Polo does transition into a “true” mining company, then I’d expect it to be valued on a similar basis to other miners with similar assets. That valuation will clearly depend on the quality of the assets Polo is able to present to the market and the technical credibility it is able to offer in developing those assets. NB if, Polo’s investments in, say, Extract and Caledon were liquidated, I’d expect Polo to have in excess of US$300m in cash available for investment: not a sum to be sneezed at.

Extract and Other U Investments

• Polo has been trading out of its other U investments (which were regarded as short term) in favour of Extract.
• Neil remains in close contact with Areva and commented on some of their current views:
  • They are currently feeling more optimistic than they have been for some time that Cigar Lake may eventually come into production. However, whilst dewatering is progressing satisfactorily, some technical experts Neil has spoken to feel that it will be hard to prevent the mine from flooding again at some future point.
  • Areva do not consider North America to be viable for future U projects, due to the difficulty of permitting.
  • Their chief areas of focus for future U investment are Kazakhstan and Africa.
  • Cashflow is currently a big problem for Areva, which is slowing progress at Trekkopje. [ISTM that this might rule them out of the bidding for Extract].
  • Areva are aiming for an initial production target of 8.5Mlb p.a. at Trekkopje.
• Neil’s view is that if Extract is bid for, the buyer is most likely to be a sovereign entity.
• Neil & I concurred that Extract is a truly unique proposition in the U universe and hence that in a sale it should command a premium to RBC’s DCF model.

Coking Coal

Polo remains interested in the coking coal market, with continuing demand from India & China likely. Neil stated that, globally, there are 3 main coking coal basins:

• Australia’s Bowen Basin
• Mongolia
• Mozambique

I expressed the concerns that I had regarding GCM & Phulbari, which had deterred me from investing in Polo until relatively recently (as GCM has become such a small part of Polo's portfolio, by market value). Neil advised that Steve Bywater was highly regarded by the Bangladeshis and had been working hard to build links at various levels of government in the country. He also advised that the new government in Bangladesh had recently conducted an enquiry into corrupt practices by past governments involving foreign companies, and that GCM (ex Asia Energy) was one of few companies that were not censured.

Caledon

We discussed Caledon's operational performance. Neil observed that the Magatar system was no longer proposed for exploitation of the Minyango deposit. Neil was unhappy at the drawn-out bidding process for Caledon, and Polo would like to get better access to technical information on progress in the mine. However, due to the bidding process, Polo was not granted access unless it were prepared to enter the process itself, which it is not. Neil feels that the bidding process must conclude, either successfully and “Polo is looking for a return on its investment” (that implies > 100p) or be called off – this side of the new year.

Despite the faulting problems within Cook, Neil feels that Caledon’s 700Mt resource, including a substantial propertionof high-qaulity coking coal ought to be able to command a good price (significantly above Caledon’s current market cap.).

Mongolia

From the mining POV Erds is “ready to go”, low cost and attractive. What is now required is to attract a major investor to build a local power station to exploit the resource.

The South Gobi projects haven’t yielded any exciting results, so far. The Union project remains "in progress". Under the Peabody JV in Mongolia, Polo would be interested in acquiring mine-ready licences for proven resources to move to the production stage.

Misc Q&A

Q1.      Is or will Polo invest in AfNat, is there any relationship between Polo & AfNat?

A1.      Amber Petroleum (being reversed into Lithic to form AfNat) was founded by Mike Beck (close Dattels associate, according to my information). Beck has oil & gas as well as mining expertise. Other than that, Polo isn’t involved.

Q2.      What was the reason for establishing Polo’s “independent investment committee”?

A2.      To avoid conflicts of interest by Polo Directors who are on Boards of investee companies (as I had suspected). This is particularly important in respect of SD’s position on Extract’s Board, where his post is NOT (formally) as a Polo representative.

Q3.      Has there been any progress at UrAmerica? [URU owns 4.7m shares, NH is chairman.]

A3.      UrAmerica is a bit of a “hobby” for Neil. Polo is very much his main focus. He feels that there is a market need to consolidate disparate sub-scale South American licences into a more attractive explo package [note UrAmerica’s recent acquisition]. Drlling is currently ongoing and results are expected in Q1 of next year.

Regards,

Mark

In reply to marben100 (post #14)

Many of the key Aminex points have already been covered in earlier posts on this thread. However, a certain Aminex director ;0) drew my attention to a point in the presentation that is not quite so obvious. You can see from slide 7 that Shoats Creek 2P declared reserves total 4.53mmboe . Slide 9, however, shows an unrisked potential for 18mmboe arrived at following the 3D seismic interpretation

wonder who that might have been ......  ;-)

Fortunately you've already just pointed it out, thus saving me the bother of pointing out (for the umpteenth time today!!) that IMO this is one of the most significant numbers in the whole presentation [especially since 2P reserves for the whole company are only 6.75mn boe as at year end 2008].

Someone asked me earlier how many wells it might take to unlock the full potential of the Frio/Cockfield at SC (ie the 45% part of the 18mn]. The answer seems to be five. Two of these are being drilled by AEX.....and one can reasonably assume that these would be two of the better shots on the acreage - so you can do the math guesstimating what the potential reserves impact might be.

Neither of the two recent notes on the company take account of this upside potential. Note that the Omni note distributed this morning is paid-for research on a similar basis to the previous arrangement with Edison.

As an aside, I found it interesting to observe (having had the benefit of seeing a draft and therefore considered the contents of the presentation beforehand) that most of the people I spoke to about it seemed to have completely missed some of the key bits of information that were provided (in some cases because they were in the overflow room looking out for absent Russian lovelies ;-)). I think the above range of posts has now covered all the important aspects - though whether the right degree of significance has been given to the various points made seems rather less certain to me.........only time and events will tell (sorry I can't elucidate further).

Less important points from the presentation (but ones worth noting) that haven't been covered above are:

a) market value of AEX is equivalent to around $5 per boe of booked 2P (yes I know there was a typo in that line)

b) flow rate of KN-1 at 40 mmcfd  (c 6000 boepd) was rough twice best pre-drill hopes

c) partners in Egypt have a very clear incentive to put any discovery on production asap (because then the free carrys end for AEX and others)

d) the figures quoted for Likonde-1 (source-Tullow) [500mmboe in place and 151mmboe recoverable] are P10 numbers. P50 numbers are rather lower. However, of course, any outcome is possible (including, of course, zero). Note that Brian observed that "we think (these figures) are reasonably conservative" ....for what thats worth - which obviously isn't much in a very uncertain pre-drill situation.

I also enquired re the unexpected depth/sequences at South Malek-1 (in the context of having seismic). The answer is that there is extensive salt and anhydrite all around the Gulf of Suez, and such wide variations from pre-drill expectations are pretty common (as both these affect seismic velocities etc).

ee

Apologies to others on the board for feeding the troll. Just for the record, whilst my average on Dragon is £3.40 my average on EO is 12.75p Isaac and I will not be responding to any post of yours on any forum. People like yourself kill discussion boards.

ArtN

Have to say to all the critics of Brian Hall, you haven't got the faintest idea of how adept at ducking and diving the CEO of an E&P such as AEX needs to be in progressing the company through thick and thin. History is littered with failed oilcos. Hall has been around a long time, actively seeking opportunities on a shoestring. Eight or so years ago he successfully fought off a hostile bid for AEX and subsequently delivered a special dividend to shareholders through the sale of their Russian assets. He's a survivor and importantly, unlike others, he doesn't bull####.

Interesting to note Isaac was singing the praises on TMF a short while back about his investment in AEX at around 7p/sh and now he's slagging off management. Wish my bad luck was limited to that sort of entry level. Disappointed investors need to get real. Troubled times bring tricky decisions. Re Mikindani, AEX don't have an option to pull out of drilling the well. When you sign a PSC you are committed to adhere to the terms or find yourself being sued for the cost of such well and all the ramifications that entails in loss of confidence in other areas of the company's interests.

As to the comments about respected posters being criticised for sucking in naive investors, then I'm afraid that's their lookout. For Isaac to make such complaint is obviously ridiculous for someone who bangs on and on about his investment prowess!!

Note to Isaac, if you respond to anything I've said here, please note I won't be reading it. I've long since learnt there are very much more productive things to do!

Since I mentioned COP in relation to Marben's posts on NOP, I thought I had better get something down on the boards if only for information. Hopefully some will find it of interest and worth a second look or comments can be made as to its merits.

Circle Oil is one of the least promotional companies I can recall having come across. They are rarely discussed on Bullboards and have limited coverage by other brokers and yet they are, Ifeel, quite interesting at the moment.

One thing is certain and that is that the website: http://www.circleoil.net/index.htm is pretty woeful compared to what other companies provide. I know that when I was looking it took me a long time to actually spot that they are in compliance with AIM Rule 26 (that section is hidden away in very small type at the top right hand corner of the webpage.

Anyway, some basics,

Circle listed on AIM back in 2004 and has spent the time since building a portfolio with a focus on N Africa and the Middle East. Originally the portfolio and focus was on "frontier" or high impact licences with acreage acquired in Oman and Namibia particularly prominent. In 2006 the focus shifted towards development work and getting production on board. To that end Egypt and Morocco have seen the most "action", together with Tunisia. 

Last year the company conducted a placing (Sept) raising £33m mainly with two sharehodlers, Kaupthing (who now have 15%) and more interestingly, Libya Oil Holdings who have 29% of the shares. As part of the deal, LOH and Circle are looking to find projects on which that can work together.

This raising gave COP enough cash to cover their work planned for a 15 well programme running to the end of this year.

Due to drilling success, COP is likely to be producing over 5000 boepd by the end of the year and probably over 7000 bopd mid 2010. That, coupled with a strong balance sheet puts the company in a very interesting position to push further ahead with adding reserves.

Drilling Activity

Since the placing last year, these are the wells that have been drilled and their results:

1. 3/10/08 Al Amir SE1 Well in NW Gemsa Egypt - tested 41 degree API oil and gas. Flowed at 3.4k bopd and 4.25mmcfd 
2. 10/11/08 ONZ6 in Ouled NZala Sebou Morocco - tested 3.32mmcfd
3. 1/12/08 CGD-9 in Sebou Morocco - tested at 8.86mmcfd
4. 1/12/08 Serdouk well in Grombalia Tunisia - P&A no oil shows and tight.
5. 16/12/08 Al Amir 1X in NW Gemsa Egypt - upper zone flowed at 416bopd 16 API oil. Lower zone to be tested when well in production.
6. 15/1/09 Al Amir SE2 Well -NW Gamesa Egypt - tested 41 API. Flowed at ave sustained 5785 bopd and 7.8mmcfd
7. 16/2/09 KSR8 in Sebou Morocco - testedat 12.48mmcfd (lower zone) and 6.76mmcfd upper zone
8. 2/3/09 Shehab 1 in NW Gemsa Egypt - one formation water bearing, one left for return visit for updip drill.
9. 23/4/09 DJR6 well Sebou Morocco - 4m gas sands but testing postponed. To be revisited.
10. 19/5/09 Geyad 1X NW Gemsa Egypt - 40 API. Flowed at 2.8k bopd and 3mmcfd from two zones.
11.  3/6/09 CGD10 Sebou Morocco - tested at 3.9mmcfd fromprimary zone. Secondary to be tested later.
12.  19/6/09 KSR0 Sebou Morocco - tested at 8mmcfd from primary target, 4.66mmcfd secondary target and third target to be tested later.
13. 25/8/09 Al Amir SE3 in NW Gemsa Egypt - 40 API. Flowed at 2395 bopd and 2.2 MMcfd on 32/64 choke. Short term flow of 4938 bopd and 8MMcfd on 64/64 choke.
14. 21/10/09 Al Amir SE4 reported by Seadragon http://www.marketwire.com/press-release/Sea-Dragon-Energy-Inc-TSX-VENTURE-SDX-1063011.html  - NOTE - 22.10.09 COP RNS says testing not yet completed.

Nb - Interests

Egypt - NW Gemsa partners are Vegas Oil and Gas 50%, Circle Oil 40% and Premier Oil 10%.

Edit - PMO sold their 10% to Sea Dragon (TSX:SDX) 19/8/09 for $12.5m:

http://www.seadragon.ca/news/2009-08-19-Press-Release.pdf

Morocco - Sebou partners are COP with 75% and ONHYM (state oil co) with 25%

Summary of campaigns

Morocco Campaign is now complete and activity will be limited now to tying in the discoveries and EWTs.  In April COP announced that the ONZ6 discovery had already been tied in. Note, COP does not pay any tax on the Sebou licence for 10 years. There is a 10% royalty and gas is being sold at $7/mcf.

In Egypt, COP said in March that the Al Mair SE1X well and SE2X wells had started production. This started at 1450 bopd but would ramp up to 3000 bopd in the short term. Initially the oil was trucked then an existing pipeline but a new pipeline will be laid to take additional production from this and the remaining appraisal wells to be drilled on NW Gemsa.

On 22 June, COP announced their results: http://www.circleoil.net/22June2009.htm

Note the cash reserves at end of Dec 08 of $32.7m. Now that the group is prioducing, it should be self financing going forward from here in terms of explo work. I note that Fox DAvies est COP is cash neutral at $30 oil.

Other Assets

What has happened to the original focus assets, I hear you say?

Namibia was subject to a farm out to Petroholland as announced on 9 Sept 2008. That saw Petroholland pay $15 cash and carry COP through explo and development. So effectively COP has a 20% interest left for no cost. Petroholland is a Dubai company with a very big budget.

http://www.oilvoice.com/n/Circle_Oil_Signs_Farmout_Agreement_on_its_Namibian_Licence/c3410ae6.aspx

Unlike TRP, this is not offshore acreage but onshore. The EIA has been completed and five initial structures have been identified. More seismic work is planned to firm up targets and build up leads. COP can now relax since NAmibia wont be costing them a bean thanks to Petroholland. The prospects are huge in Namibia.

Tunisia.

Circle has interests in three licences here:

1. Mahdia (70%) - offshore
2. Grombalia (36%) -  90% onshore
3. Ras Mamour (23%) - onshore and offshore

The Mahdia interest came from a farm in announced on 19 June 2008 on Tethys Oil and Mining licence. COP would become the operator subject to completing a 550km 2d survey. Commitments were for another 500km of 2D in the first two years (frm July 07), converting to an explo licence (3 years) and then drilling one well prior to 2012 end. The additional 2D was completed and announced 26 Feb so we are now into Explo licence period.

This area is right on the Italy waters border. Shell and Total have have had discoveries in the area eg Isis and Oudna.

Grombalia has of course seen the P&A'd Serdouk well alreadyThe partner here (and in Ras Mamour) is Exxoil, a local company. The main projects are all close to the nearby existing producing fields. to minimis the risks. Still, as Serdouk shows, that doesnt elminate risks. The cloure was confirmed and stratigraphy was encouraging but then tight is tight is tight. More G&G work is planned before any more wells are drilled.

Ras Mamour has had a well drilled already. Again the partner is Exxoil. The Zita 1 had numerous problems whilst drilling so was suspended at 2250m to be redrilled oe re-entered at a later date following more G&G. There are numerous prospects ready to drill but till the G&G work is done, nothing will be happening.

The permit is both on and offshore but any discovery should be easily tied in to the profilc infrastructure in the area.

Exxoil is well established in the area with three fields already producing 32-40 API, low sulphur oil.                                                     

The planned campaign was for four wells in Tunisia, two have been "mixed" (at best) and two remain. Clearly nothing will be done with Ra Mamour and Grombalia till the G&G is done. Maybe the first well will be on Mahdia? Dont know to be sure but best to ignore Tunisia for the short term.

Oman

COPs interests here are in two blocks, one on shore one offshore. Both are 90% interests with 10% held by the state:

1. Onshore Block 49
2. Offshore Block 52

Block 49. EIS has been completed and tenders issued for 3D seismic. Historically there is c11,000 km of seimsic and 18,000km of aeromag on the block available to COP.

Black 52. This is nearshore to deepwater (100m to 3500m). COP has relinquished the deepwater elements (30% was 3500m) so is concentrating on the nearshore. 6300km of 2D was acquired by COP in 07 on top of 10500km of historic 2D and  magnetic/gravity data.

Obviously COP will not be doing this alone and will be looking for farm in partners for Oman.

Future

There will be more wells drilled in Egypt to increase the production in NW Gemsa (2 a year for 2010 and 2011?)

As weve seen, COP is now approaching being self funding with the production form the existing discoveries in Egypt and Morocco.

The group will be looking for more opportunities in the area of interest (N Africa and Middle East), especially with the understanding with the Libyan shareholder. One woudl imagine that a number of options are being discussed, especially Morocco and Egypt (easy) development type plays. Givent he Libyan connection, however, there could well be other bigger deals in the offing.

Summary

So we have a nice smallish (£115m mkt cap at 33p) company that has had great success in its drilling programme over the past year. Those discoveries have and are being rapidly tied in producing good cashflow for the company.

More infill work will be done on NW Gamsa to increase cashflows still further.

There is a "free" option on a potentially massive play (Namibia), a big interest in Oman to be farmed down) and somethign that shoudl (not so far) be good in Tunisia.

With the support of the Libyans, more deals will come and given the record of the gorup to date, they could/should come up with some solid opportunities. Okay, in the shot term it is not likely to set the world on fire but it just looks like a respectable (if somewht PR shy and overlooked) E&P play.

Any errors or observations, please feel free to mail me and I will stick them in this header.

Edit

As Tournesolf has mentioned in the thread below, there is a new presentation (July) on their website:

http://www.circleoil.net/Circle%20Oil%20Corporate%20Presentation%20July%202009.pdf

Isaac

I can understand the frustration, I really can, given Soco is our biggest holding - indeed increasingly so (given purchases made recently).

You say:

They need to be more proactive.

You, as far as Im aware, havent had personal contact with Roger or Ed or the other directors. I have. I have been to numerous presentations, on a one to one basis, in groups with analysts and instos. I have also kept in regular contact with them via email and phone over the years. I know how well they work the presenations and how much effort they put into their IR/PR programme.

One unfortunate problem is that the analysts sometimes simply will not see or listen to what they are told. Ive seen some cases where they havent listened to target sizes etc having come to the meeting with their own pre conceived ideas. No matter that Roger and Ed follow these up and point out the problems, the error remains.

In any event, the analyst reports have a much higher valuation on SIA than we see in the market at present. Even then the instos arent buying. The reason is simply, as Ive stated time and again, the perception (rightly or wrongly - wrongly IMO) that Soco is a no news story compared to others in the market. To some extent you can almost agree with them in that there are others like DNX, TLW, HOIL and so forth with an active and on going drilling campaign.

The instos are only now starting to find their appetite for risk again so are focussing on the ones where they see an active campaign. They are of course ignoring the Africa campaign for Soco. Only now are we seeing an upturn in the SP due, Id imagine, to the real perception that it has lagged behind and that a rise is justified on the POO rise alone. (well Durrr).

Soco are also somewhat unfortunate to be bound up (in Vn) with the JV so they have to move at the pace of the slowest element. Theres not much they can do about that.

What I really would say to you is that you make the effort to attend the AGM to talk to the principle culprits (in your view) players and ask them about what concerns you. If not then ring them up or email them. So long as you are not beligerent then Im sure you will get a reply. On the whole directors are very very aware of the need to be proactive with the City and investors, especially when they are as heavily incentivised through a large position (or very large position in the case of Soco).

Regards

Darron

Coal 2.0 - The use of coal in ways other than just digging the stuff up and burning it. "Fungible hydrocarbons".

Background Information

• CBM/CSG - Coal Bed Methane/Coal Seam Gas - http://en.wikipedia.org/wiki/Coalbed_methane
• UCG/ISCG - Underground (or In-Situ) Coal Gasification - http://en.wikipedia.org/wiki/Underground_coal_gasification
• CTL - Coal To Liquids - http://en.wikipedia.org/wiki/Coal_liquefaction
• GTL - Gas To Liquids - http://en.wikipedia.org/wiki/Gas_to_liquids
• Syngas - Synthesis Gas - http://en.wikipedia.org/wiki/Syngas
• Fischer-Tropsch - Conversion of Syngas to liquid fuels - http://en.wikipedia.org/wiki/Fischer-tropsch
• Ammonia - NH3, a liquid chemical made from Syngas - http://en.wikipedia.org/Ammonia
• Methanol - CH3OH (or MeOH), a liquid chemical made from Syngas - http://en.wikipedia.org/Methanol
• SNG - Synthetic Natural Gas - http://en.wikipedia.org/wiki/Synthetic_natural_gas
• CNG - Compressed Natural Gas - http://en.wikipedia.org/wiki/Compressed_natural_gas
• LNG - Liquefied Natural Gas - http://en.wikipedia.org/wiki/LNG
• CCS - Carbon Capture & Storage - http://en.wikipedia.org/wiki/Carbon_capture_and_storage

Listed Companies

The list is in no way comprehensive and is presented in simple alphabetical order. means the stock is a known Pure Play. There may be others ...

• AFC Energy (LSE:AFC) - http://www.afcenergy.com - Hydrogen fuel cell developer. JV with Linc Energy to use hydrogen stream within UCG syngas to produce electricity.
• Alkane Energy (LSE:ALK) - http://www.alkane.co.uk - CMM (Coal Mine Methane) extraction in the UK, one of a number of "gas-to-power" activities.
• AlterNRG (TSX:NRG) - http://www.alternrg.ca - Plasma Gasification technology, based in Canada.
• Altona Resources (LSE:ANR) - http://www.altonaenergy.com - Conventional CTL project in Australia.
• Antofagasta (LSE:ANTO) - http://www.antofagasta.co.uk - UCG project in Chile in conjunction with Carbon Energy. Also (mostly) copper mining.
• Arrow Energy (ASX:AOE) - http://www.arrowenergy.com.au - CSG in Australia, Indonesia, India and the US.
• BG Group (LSE:BG.) - http://www.bg-group.com - Major investor in CSG projects in Australia for purposes of LNG export. Also substantial conventional O&G activities.
• Blackham Resources (ASX:BLK) - http://www.blackhamresources.com.au - Conventional CTL project in Australia. Also iron ore possibilities.
• Carbon Energy (ASX:CNX) - http://www.carbonenergy.com.au - UCG projects in Australia and Chile.
• CBM Asia (TSX:TCF) - http://www.cbmasia.ca - CBM developer in Indonesia.
• Central Petroleum (ASX:CTP) - http://www.centralpetroleum.com.au - CSG and UCG prospects in Australia. Also conventional O&G prospects.
• Churchill Mining (LSE:CHL) - http://www.churchillmining.com - CBM prospect in Indonesia. Also (mostly) conventional coal mining projects.
• Clean Global Energy (ASX:CGV) - http://www.cleanglobalenergy.com.au - UCG projects in Australia and China.
• Comet Ridge (ASX:COI) - http://www.cometridge.com.au - CSG developer in Australia. Also conventional O&G projects.
• Consol Energy (NYSE:CNX)  http://www.consolenergy.com - CBM producer in the US. Has a project attempting to combine CCS with CBM extraction. Also (mostly) conventional coal mining.
• Cougar Energy (ASX:CXY) - http://www.cougarenergy.com.au - UCG projects in Australia and Pakistan.
• East Coast Minerals (ASX:ECM) - http://www.eastcoastminerals.com - UCG offshore Australia. Also various mining projects.
• Eastern Star Gas (ASX:ESG) - http://www.easternstar.com.au - CSG developer in Australia.
• Ember Resources (TSX:EBR) - http://www.emberresources.com - CBM developer in Canada.
• Eden Energy (ASX:EDE) - http://www.edenenergy.com.au - CBM developer in the UK. Also hydrogen production and geothermal prospects.
• European Gas (ASX:EPG) - http://www.europeangas.com.au - CBM projects in continental Europe, mostly France.
• Far East Energy (OTCBB:FEEC) - http://www.fareastenergy.com - CBM in China.
• Fortune Oil (LSE:FTO) - http://www.fortune-oil.com - CBM in China. Also oil and gas infrastructure.
• G4G Resources (TSX:GXG) - http://www.g4gresources.com - South African Fischer-Tropsch technology provider. Also iron ore and other minerals projects.
• Great Eastern Energy Corp. (LSE:GEEC) - http://www.geecl.com - CBM developer in India. Also downstream ambitions.
• Green Dragon Gas (LSE:GDG) - http://www.greendragongas.com - CBM developer in China. Also downstream ambitions including CNG manufacture and distribution.
• Greenpower Energy (ASX:GPP) - http://www.greenpowerenergylimited.com.au - CSG & UCG developer in Australia.
• Gulfside Minerals (TSX:GMG) - http://www.gulfsideminerals.com - CTL & UCG projects in Mongolia. Also conventional coal mining possibilities.
• Headwaters Inc (NYSE:HW) - http://www.headwaters.com - Generalised "clean coal" technology including CTL in the US. Also substantial non-related industrial activities.
• Icon Energy (ASX:ICN) - http://www.iconenergy.com - CSG developer in Australia. Also conventional O&G and geothermal prospects.
• Island Gas Resources (LSE:IGAS) - http://www.islandgas.com - CBM developer in the UK.
• Liberty Resources (ASX:LBY) - http://www.libertyresources.com.au - UCG projects in Australia. Also conventional coal mining possibilities.
• Linc Energy (ASX:LNC) - http://www.lincenergy.com.au - UCG and GTL projects in Australia, the US, China, Vietnam and Uzbekistan.
• Metgasco (ASX:MEL) - http://www.metgasco.com.au - CSG developer in Australia. Also conventional O&G prospects.
• Metro Coal (ASX:MTE) - http://www.metrocoal.com.au - UCG projects in Australia. Also conventional coal mining prospects.
• Molopo Energy (ASX:MPO) - http://www.molopo.com.au - CSG developer in Australia.
• New Hope Corporation (ASX:NHC) - http://www.newhopecoal.com.au - Conventional producing coal miner in Australia. Currently trialling various CTL technologies. Also has a substantial stake in Arrow Energy.
• Origin Energy (ASX:ORG) - http://www.originenergy.com.au - CSG in Australia. Also gas utility company.
• Oxford Catalysts Group (LSE:OCG) - http://www.oxfordcatalysts.com - Provider of small-scale Fischer-Tropsch reactors, amongst other catalytic products.
• Peabody Energy (NYSE:BTU) - http://www.peabodyenergy.com - Major US/International coal miner. Various "clean coal" initiatives.
• Planet Gas (ASX:PGS) - http://www.planetgas.com - CSG prospects in Australia. Also geothermal assets.
• Red Sky Energy (ASX:ROG) - http://www.redskyenergy.com.au - CSG prospects in Australia.
• Regal Resources (ASX:RER) - http://www.regalresources.com.au - Australian developer of a "UCTL" (Underground Coal To Liquids) process. Also investigating "EBM" (Enhanced Biogenic Methane), which speeds up the natural "decay" of coal seams into methane.
• Rentech (AMEX:RTK) - http://www.rentechinc.com - CTL and GTL developer in the US.
• SASOL (NYSE:SSL) - http://www.sasol.com - Conventional CTL mostly in South Africa. Substantial production.
• Spitfire Oil (LSE:SRO) - http://www.spitfireoil.com - Developer of a direct liquefaction technology called "Lignite 2 Value" (L2V) in Australia. Also gold mining prospects.
• Strike Oil (ASX:STX) - http://www.strikeoil.com.au - CSG and CTL projects in Australia. Also conventional O&G activities.
• Syngas (ASX:SYS) - http://www.syngas.com.au - Conventional CTL project in Australia. Also looking at BTL (Biomass To Liquids).
• Synthesis Energy Systems (NASDAQ:SYMX) - http://www.synthesisenergy.com - Coal gasification and CTL technology provider operating in the US and China.
• Syntroleum (NASDAQ:SYNM) - http://www.syntroleum.com - CTL and GTL developer in the US.
• Victoria Petroleum (ASX:VPE) - http://www.vicpet.com.au - CSG developer in Australia. Also conventional O&G prospects.
• Westralian Gas & Power (ASX:WGP) - http://www.westraliangasandpower.com.au - CSG developer in Australia. Also conventional O&G prospects.
• Westside Corporation (ASX:WCL) - http://www.westsidecorporation.com - CSG developer in Australia and Indonesia.
• WildHorse Energy (ASX:WHE) - http://www.wildhorse.com.au - UCG in Hungary. Also uranium projects in the US and Hungary.

Private Companies/Projects

• Accelergy - http://www.accelergy.com - USA/China (CTL)
• American Clean Coal Fuels - http://www.cleancoalfuels.com - USA (CTL)
• Australian-American Energy Co - http://www.manystarsctl.com - USA (CTL)
• B9 Coal - http://www.b9coal.com - UK and Australia (UCG + Hydrogen Fuel Cells)
• Baard Energy - http://www.baardenergy.com - USA (CTL)
• British Coal Gasification - http://www.britishcoalgasification.co.uk - UK (UCG in Scotland)
• Composite Energy - http://www.composite-energy.co.uk - UK (CBM in Scotland plus England, Wales & Poland)
• DKRW Advanced Fuels - http://www.dkrwadvancedfuels.com - USA (CTL)
• Ergo Exergy - http://www.ergoexergy.com - Canada (UCG engineering services)
• GreatPoint Energy - http://www.greatpointenergy.com - USA (SNG technology - "hydromethanation")
• H&WB Corporation - http://www.hwbcorp.net - Philippines (CTL)
• Ignite Energy Resources - http://www.igniteer.com - Australia (xTL super-critical water technology)
• Laurus Energy - http://www.laurusenergy.com - Canada and USA (UCG in Alberta & Wyoming)
• Monash Energy - http://www.monashenergy.com.au - Australia (CTL, JV between Anglo-American & Shell)
• Swan Hills Synfuelds - http://www.swanhills-synfuels.com - Canada (UCG/CCS in Alberta)
• Texyn - http://www.texyn.com - USA (UCG->Hydrogen+CCS in Texas)
• UCG Engineering - http://www.ucgengineering.com - UK (UCG engineering services)

CCS Companies/Projects

• BioClean Coal - http://www.biocleancoal.com - Linc Energy's algae-based carbon sequestration initiative.
• CO2Sinus - http://www.co2sinus.org - Academic German combined UCG/CCS experiment.
• CO2 Solution (TSX:CST) - http://www.co2solution.com - Developer of "bio-catalytic" or "enzymatic" carbon sequestration technologies.
• Cool Energy - http://www.coolenergy.com.au - Cryogenic CO2 capture technology.
• Enhance Energy - http://www.enhanceenergy.com -  EOR (Enhanced Oil Recovery) specialist. Planning to build a major CO2 pipeline in Alberta - the "Alberta Carbon Trunk Line".
• HTC Purenergy (TSX:HTC) - http://www.htcenergy.com - Canadian CCS provider.
• Ion Engineering - http://www.ion-engineering.com - Developer of "ionic liquid" carbon sequestration technologies.
• Powerspan - http://www.powerspan.com - US-based ammonia-related CCS technology developer.
• ZeroGen - http://www.zerogen.com.au - Queensland government-owned company, has a JV with Carbon Energy for CCS.

Trade Organisations/Journals/Databases etc.

• Carbon Capture Journal - http://www.carboncapturejournal.com
• Coal to Liquids Coalition - http://www.futurecoalfuels.org - US-centric advocacy site.
• Gasification Technologies Council - http://www.gasification.org
• UCG Partnership - http://www.ucgp.com
• World Coal Institute - http://www.worldcoal.org
• Zeus Virtual Energy Library of global gasification projects - http://www.zeuslibrary.net/vel/gasification/

In reply to Isaac (post #38)

Isaac,

your comments to Darron

It is not your money. Do you even care if you lose? It does'nt impact your lifestyle.

This has been a total disaster for many who followed into the stock on the back of your advise and emptyend. I have no intention of throwing anymore of my money down a rat hole, I will not be subscribing to the placing.

are not just over the top, they're rude and offensive. And how do you know whether Darron's successes or otherwise affect his lifestyle anyway? You haven't seen his contract of employment..

Take your own view, by all means, but don't insuit others personally. Disagree with them, if you wish - no-one will mind that.

If you don't want to take up your shares under the Open offer, that's fine. More, perhaps, for those who, like me, feel that there's enough potential in AEX to make it worth trying to get more.

it may, just possibly, have escaped your attention that UNLESS AEX got a placing away, they wouldn't have been able to handle their share of Ruvuma, making them prey to any scavenger that might come along. Ruvuma may, or may not, be a success - we'll have to wait and see on that.

I don't expect to make a profit on every share I buy, however much I would like to do so, which is why I try to buy some that seems pretty solid, and others, like AEX, which are riskier, but have, in my view, potential. And if something goes bad, well, that's my decision, not ee's or Darron's.

So give it a rest, will you?

Man Siarad

I have been asked to moderate Isaac's recent posts. I agree with ManSiarad that "they're rude and offensive". However, i think the thumb ratings give a good view of the community's view and Darron doesn't mind if they stay, so I am leaving them but issuing Isaac with 2 warnings:

• you have insulted Darron by saying he doesn't care as it isn't his money.  You may say what you want about companies and their management (subject to my second point below), but insulting other users of these boards is not appropriate. This is a final warning and any similar offence on this or any other thread which I have started will result in your post being deleted.

• you seem to have moved into rant mode on the subject of Aminex's management. Nothing wrong with a good (or in this case bad, IMO) rant from time to time on discussion boards.  But threads can get clogged up if things like this keep being repeated. You seem to be getting close to the borderline here, so this is a first warning for this thread to think twice before repeating stuff unless there is  additional content added.

If anyone wants to discuss this post (or any similar moderation issues), please post on this thread: http://www.stockopedia.co.uk/forum/view/29525/moderation-policy

db

Good presentation if a somewhat hurried gallop through - chair didnt allow any time for questions :(

Things which were new to me and a bit of colour:

1.  no farm-out of shallow Shoats Creek ("an alligator infested swamp") - presumably no one offered good enough terms and the shallow wells should fairly cheap despite the alligators
2. re S Malek1,  Brian sounded a bit more optimistic than the RNS, "hoping for oil", " could be a great well" but "not done until its done".  News in 1-2 weeks. If commercial, partners will be keen to get to production as soon as possible - oil and gas pipelines cross the block
3. Likonde 1 in 4 CoS - this is an average of Aminex's 1 in 3 and Tullows 1 in 5...  Aminex happy with change of location- Likonde is a "robust oil prospect". The flat spot on slide 14 had a Tullow geologist talking about a " Buffalo look alike".  Aminex would still like to farm this out - being a 50/50 partner with Tullow when you are a minnow is not a comfortable place to be.
4. Kiliwani N seismic so far shows closure "larger than anticipated" but still being wokrd on - will be able to give estimated size by end of year
5. explicit that expanding the Songo Songo gas plant is the current blockage.  BH was told in Aug by Tanz minister that the goahead should take "1 month" - still witing. When go ahead given will take c 12 months to expand plant - at which point Aminex will start producing
6. re "novation"  I noted that down as a query, then Brian said something which suggested that it was probably a technical legal detail eg name change, rather than significant - I didnt write this down

db (not disappointed at the absence of Russian PR ladies - Macrus do you have any specific qs?)

Well, I guess that is the question that we, as investors, both private and professional want to know.  Personally I hate markets like these but lets explore where we are right now and see if we can draw any conclusions.

There is no doubt whatsoever that the markets have been tremendous for those who took the bull by the horns back in March and ploughed money into the market. Indeed, anyone who believes in the old adage that the time to buy is at times of maximum pessimism (John Templeton) would have been piling into the markets or selected areas of the markets from late January onwards. After all the common view back then was that the global economy faced a new "Great Depression" and banks (RBS and Lloyds in the UK) would be nationalised and it was the end of Capitalism. If that wasn’t the time of maximum pessimism, I don’t know what else would be.

Moving away from the past to now. We’ve seen the Dow up 60% in 6 months and FTSE 100 up almost 50% but has the situation improved sufficiently to warrant it?

I’ve been speaking to other managers so have collated their thoughts and comments and will use these within this article (no names of course).

There are, at present two camps, those who did invest in the early part of the year and those who thought it was a bear market rally and are still largely hoarding cash. Of those who did invest, most are and have been taking profits over the past month. The common theme is that neither group really knows where we are headed in the near term. That economic indicators have improved is not in doubt. The question is whether this is purely down to the restocking of the pipeline, global stimulus and cost cutting, or if it is now a sustainable recovery. 

To further complicate the decision making process there is the question of inflation/deflation and which will prevail and when. It is taken as read that economic theory is that increased stimulus (Quantitative Easing) will inevitably lead to rising asset prices and inflation. However, there is little sign that inflation will take off in the near term due to a breakdown in the transmission systems with banks being forced to improve balance sheets (hoarding the cash being put into the system), the likelihood of a big surplus of capacity and little chance of wage push inflation due to still rising inflation and stretched employers. One has to wonder how much spare capacity there is in the system. Granted many companies have cut back but then to what degree has capacity been permanently lost due to complete closures/bankruptcy?

My own take on this is that yes, there is a greater likelihood of inflation but only down the line. As/if/when economic conditions improve sufficiently, the banks will start to ease up and cash will enter the system and thus restore one leg of the transmission system. The key will be how effective the authorities are in anticipating this and removing the "new cash" in the system. That, however, is a longer term problem. In the short term the direction of the market depends on the recovery being sustainable.

Looking at recent economic data (PMIs, etc) the economy has improved but the data is still fragile. More interesting perhaps is the Baltic Dry Index, which has come off sharply since its peak in June but still double that seen in the depths of the crisis at the end of 2008. Given the vast increase in Chinese imports of Copper and other commodities, this seems odd, unless it means that global trade is still slow.

All in all, there does seem to be simply too much uncertainty in the market at the moment. Analyst forecasts have been increased but are the improved (or less worse) conditions now priced in. My own guess is that the Q3 figures will be the key to another significant move in the markets. If the results confirm the recovery then the markets will be strongly supported due to all the cash sat on the sidelines. If they disappoint (as I probably favour on balance) then we could easily see a 15% retracement. The interesting bit will be to see how the cash holders, especially those who missed the March lows, react to such a fall. They could use it as an opportunity to put in some of their cash holdings thus limiting any decline.

Don’t get me wrong, there are a lot of companies out there that look decent long term value but the short term looks just too uncertain for me and I’ve been struggling to find companies that I like at a decent price that offsets this uncertainty.

Once we have the Q3 figures, and thus some sense of where stock pricing is, we then look forward to questions as to the strength of economic pickup on a localised basis i.e., for the "West", how will national budgets be improved without hurting economic growth?

So, after waffling for what seems like forever, what can we conclude from this?

Our own feeling is that it is very hard, if not impossible, to formulate a definitive long term plan since the outlook is uncertain. Our own policy is that we are trying to cover as many possible outcomes with our forward planning. That means we are long commodities as a hedge against inflation, a play on global recovery, internal Asian and Emerging Market growth and continued strategic purchases by the Chinese. Ultra long term we still feel that the "peak oil" argument will support prices. One interesting piece of research I saw recently postulated that oil is more linked to developing economy demand and gas is more reliant on "Western" economic strength. So possibility and interesting difference on the two commodities to be played? Outside this we are focused on International earnings and those companies with a focus on the emerging market development/infrastructure investment. Strategically we are wary about the domestic UK economy. We also carry significant cash balances now in order to trade volatility and opportunities as they arise.

Perhaps, therefore, the answer is that there is no clear "long term" strategy that will work, just a series of short term cycles? After all, in the long term, we are all dead.

Hi Aminexers!

I attended the resprise of the presentation in London today.

So, having attended today’s presentation, is Aminex a buy, hold or sell? What is the risk/reward? These are the questions I’ll attempt to answer in this post.

ISTM that the primary short term issue is Aminex’s cash position, which I asked Brian about. From his responses, it appears that, having laid off some staff, current income from US operations is substantially, but not totally, funding the company’s day-to-day operations. Brian also confirmed that the company has sufficient cash to fund the KN-1 seismic work which is about to start (BGP is deployed on Songo-Songo Island). Aminex is not funded for exploration or development activities beyond that. Whilst the company is not under immediate cash pressure (i.e. no debt), this clearly raises the prospect that Aminex is not able to progress its projects and hence add shareholder value.

So, what is the worst case? If Aminex found itself in the position described above (and I say “if” for reasons that will become apparent shortly), it seems likely that the company could sell itself for at least its current market cap. This would not be a “fire sale” because there is no immediate financial pressure from creditors – but this situation could take a turn for the worse,  if there was a second collapse to oil and gas prices, thus slashing Aminex’s income. Aminex could also raise fresh funds from investors but that poses a risk of substantial dilution.

That’s the worst case I can foresee. However, there are a number of events that could change this scenario for the better:

-          Per p9 of the presentation, South Weslaco is a “possible candidate for disposal”. Work is actively underway to do so. Such a disposal could address a large part of the short-term funding concerns. NB, per the OPR report, based on $60 oil, the 1P NPV for it is ~$7m, net to Aminex (and we know that US sales are generally based on 1P reserves).

-          Equally, talks are well underway concerning farm-out of Aminex’s interest in Ruvuma. Brian is confident of success and that Aminex will be able to fund drilling in Q3. The site has been prepared and a rig contract should be announced soon. IF (and it’s a huge “if”) oil is found there, it could be the company maker, as I’m sure we all know.

-          Talks are also well underway re farmout of Shoats Creek. Mike Rego likes what he sees in the 3D seismic, which helps enormously to pinpoint locations for drilling. There are currently 18 shut-in wells on the property. If and when farmout is completed, decisions can be taken to workover, redrill or drill new locations.  Production from the two existing Shoat’s Creek wells is relatively small. Success here could produce an income stream that would fund Aminex’s explo & development activities elsewhere for the foreseeable future and convert Aminex from primarily an explo focussed company to a profitable producer with explo upside. That could (rightly) transform the market’s view of the company.

-          Positive results from the Nyuni-1 seismic would allow progress to be made on commercialisation of that discovery (subject to funding). Specifically, it could allow contracts to be signed with industrial energy consumers at decent prices. A realistic prospect of commercialisation should again transform the market’s view of the company. Personally, I find it unlikely that a flow rate of 40mmscf/day would be obtained from a small reservoir, so the risking on this looks pretty good to me. Judging by the chart on p20 of the presentation, ISTM that an initial reserve assessment may be possible around the end of 2009. I will ask Brian about this.

These are the key events IMO that could lead to significant share price movements.

My conclusions? Risks remain, particularly of dilution, however considerable “derisking” could occur in the near term, with possible asset sale and/or farmout announcements. The downside risk is limited IMV, due to meaningful US assets whereas the possible upside is considerable. I am happy to continue holding but would not be inclined to add until some further “derisking” has occurred.

Regards,

Mark

Hi,

I'm not sure if there are any active Aurelian followers on Stockopedia, but I have done a write up of the company below (also here: http://boards.fool.co.uk/Message.asp?mid=11840893).

---------------------

Executive Summary

Share Price - 33.75p
Shares in Issue - 339.5 million
Market Capitalisation - £ 115 million
Cash - € 51 million
Debt - None

Introduction

I have not really been following the progress of Aurelian and there has not been much written here, so I choose Aurelian as my entry for the Nicky Fraser 2010 share comp. After a couple of recent RNS's (a successful placing and an increase in contingent resources following a competent persons report) I thought they might be worth a closer look. This is my write up.

What do they do?

Aurelian is an oil and gas exploration and production company focusing on eastern European countries, including Romania, Slovakia, Bulgaria and Poland. Their acreage is focused in the Rotliegendes and Carpathian basins. Although currently a producer, the focus of this investment case is centred on the assets currently in the development and exploration phase. There are some high impact wells that are to be drilled on the next two years that could potentially transform the company.

I have split this write up into 3 sections :- Producing assets, development assets and the exploration assets.

Production asset

Aurelian currently produces gas from the Bilca field in Romania. It currently produces 3.5 mmscfd per day which generates circa € 2 million cash flow per annum. It looks like Aurelian will try to off-load this asset this year to focus more on its high impact development and exploration plays.

Core Development asset

Siekierki Field - Gas - Poland - Rotliegendes (AUL - 90 % working interest - operator)

The flagship project for Aurelian. This is a tight gas field that, following the CPR, is believed to contain, mid case, 346 BCF contingent gas resources (net to Aurelian). An appraisal well drilled here in 2007 produced gas but not enough to make the field commercially viable. Aurelian believe that by using horizontal wells with multiple fraccs that commercial levels of gas can be produced. Similar techniques have been used successfully in the neighbouring acreage of the Rotliegendes Basin in Germany.

Aurelian plan to drill a well in Q2 this year and this will significantly de-risk the prospect. This well has been fully funded and a Multi-Fracc Horizontal Well (MFHW) has already been contracted. According to the brokers notes there is a 70% CoS (see references).

Aurelian would need to find finance for the second well and for the gas processing facilities (probably via Mezzanine debt), but if the outcome of the first well is positive, this shouldn't be too much of an issue.

Moreover there could be significant upside to the contingent resource figures.

There has already been an agreement for sale of gas from Siekierki field:-

Under the Agreement prices will be set by reference to the published PGNiG S.A tariff price for
system high methane gas fuel (E-39,5 MJ/m3 ) which is currently PLN0.91/cm. At today's exchange
rate of US$0.35825 = PLN1.00, a tariff of PLN0.91/cm converts to a Polish Market Gas price of US$9.328/mcf.

http://www.investegate.co.uk/Article.aspx?id=200910260700143...

The first well is looking to produce 8-16 Mmscf/d. Taking a low-mid case number (10 Mmscf/d), this will be generating $93,000 per day and will provide Aurelian with some useful cash flow.

Core Exploration assets

Bieszczady - Oil - Polish Carpathians (AUL - 25 % working interest - non operator)

This exploration well is targeting 89 mmbbls oil net to Aurelian. There are two wells scheduled for Q4 2010 and Q2 2011. Two structures have been identified at 2000 and 4000 meters. This area is currently under explored and therefore the CoS will be quite low. Despite this, Aurelian has put a high priority on this block. Although not explicitly stated, it is implied from the presentation that the first well is funded. (see references - Aurelian Capital fund raising presentation for more details)

East Karpaty - Oil - Polish Carpathians (AUL - 80 % Working interest - operator)

Targeting 237 mmbbls oil net to Aurelian. An exploration well is planned for 2011. It looks like Aurelian will seek to further farm down this block further to cover the costs. There are two structures (Dolna upper and Dolna lower) that will be targeted and it is not clear if one well could target both. Cash is available for funding, however it is not clear if this well is included in the CAPEX for 2010/2011.

Svidnik - Gas - Slovakian Carpathians (AUL - 50 % working interest - operator)

Targeting 408 BCF prospective gas resources net to Aurelian. Another highly prospective block with other multiple leads as well as Svidnik. An exploration well is planned for 2011. Cash has been set aside for funding this well.

Non Core Exploration assets

Golitza Block 1 and 2 - Gas - Bulgarian Carpathians (AUL - 30 % working interest - non operator)

Two wells planned for Q2 and Q4 this year targeting 80 BCF in total (although this is for multiple prospects). The cost of these wells to Aurelian has been reduced by the farm-out agreement with Sorgenia. These wells have been funded but it is possible these assets may be sold off this year.

Summary

There is a lot going on in the next couple of years. For the sake of completeness Aurelian have further acreage not mentioned in detail above because there are no concrete plans to develop or explore them in the next couple of years.

- West Karpaty in the Polish Carpathians is believed to contain 193 BCF gas.
- Kalisz (gas), Cybinka (oil) and Torzym (oil) are all Polish exploration assets where seismic information is being evaluated (company estimates Cybinka and Torzym to contain circa 38 mmboe)
- Medzilaborce and Snina are blocks in the Slovak Carpathians that are seen to have significant exploration
potential (ground oil seeps have been observed).
- Brodina Block EIII-1, Cuejdiu Block EIII- 3, Bacau Block EIII-1, Suceava EIV-1 in the Romanian Carpathians
are categorized as non-core to Aurelian and may well be sold off in the coming years.

One thing that I like about Aurelian is they have clearly set out their strategy to develop the fields that will return clear shareholder value. Clearly more funding will be needed after the first drilling phase is complete but with so many assets, there is always the opportunity to farm down if exploration wells are successful or sell of other assets deemed non-core to raise further capital.

Funding

IMO Aurelian did a great job raising €39 million (at a price of 32 pence) given the current economic climate. So now they have €51 million (they had €12 million cash) as of the Feb RNS.

http://www.investegate.co.uk/Article.aspx?id=201001270700041...

In their 2 year drilling campaign, Aurelian thought they would need €44 million to fund the wells above and also complete further seismic activity. The horizontally fracced Siekierki wells are the most expensive ( circa €16-18 million per well). However other wells in the Carpathians cost between €6-8 million so the extra €7 million could be used to target an extra well.

In any case Aurelian look well set financially to complete the first phase of their drilling schedule.

Valuation

Aurelian has their own views on what they are worth after the CPR:

Aurelian now calculates a total risked EMV of €1.49 billion equivalent to £5.64 per share

http://www.investegate.co.uk/Article.aspx?id=200912090700318...

That share price equivalent actually falls to £3.82 per share after the equity placing.

Jeffries International broker report (see references) has a risked NPV of 104 pence per share and an unrisked NPV of 600 pence per share (again calculated before the latest equity placing and the latest CPR).

Clearly Aurelian has a lot of attractive assets. My calculations only take into account the blocks where drilling will take place in the next couple of years and only the core assets (leaving some upside potential from the non core assets if they are sold off and the upside from current wells being drilled). Even this cannot paint an accurate picture because it is almost certain that more farm downs will be needed (as well as possible further placings or securing mezzanine finances) but its a start.

Assumptions

$1 = £0.65
6,000 scf = 1 boe
CoS has been set at 15% for exploration wells.
$10 for each barrel in the ground has been assumed

Abbreviations
GUR - Gross unrisked reserves / mmboe
WI - Working Interest
NUR - Net unrisked resources / mmboe
CoS - Chance of Success
NRR - Net risked resources / mmboe
NPV - NPV $US/ boe
RNPV - Risked NPV (US$m)
RNPVS - Risked NPV (p/sh)

Prospect GUR WI NUR CoS NRR NPV RNPV RNPVS
Siekierki 57 90 48 70 33.6 10 336 65
Bieszczady 89 25 22.5 15 3.4 10 34 6.5
East Karpaty 237 80 190 15 28.5 10 285 54
Svidnik 68 50 34 15 5.1 10 51 10
Total 451 294.5 70.6 706 135.5

Even without adding in all the extra exploration acreage, the potential upside from current projects and their non core assets, Aurelian look pretty good value right now. There is certainly more than one value outer and they have the cash to drill the exploration wells. Two wells alone, if successful, could more than cover the current share price.

Management

Rowen Bainbridge (CEO) and Mark Ried (CFO) were appointed mid-last year along with David Walker as a non-executive director. These changes seem to really have made a difference to the strategy of Aurelian and focused the company on returning value to shareholders.

Reading through the last 2 years of RNS's and the financial reports, it seems that there was no real clear strategy at all. I find it a little odd the given all this acreage, the only producing well
asset is providing so little shareholder value.

I would welcome any comments here from long term shareholders as perhaps I am missing something.

SWOT Analysis

Strengths
- Large acreage with multiple company making targets
- Attractive royalty agreements in Poland (low tax rates also - 19% )
- Well funded for their two year drilling program
- Good strategic partners with Polish Oil and Gas Company (PIGNiG) as they have in-depth knowledge of the Polish Rotliegendes and Carpathian basins
- Clear corporate communication with excellent website
- Clearly defined strategy

Weaknesses
- Failure to commercially develop Siekierki Field could lead to large drop in share price
- Cannot currently generate significant cash flow from production

Opportunities
- Large potential upside from Siekierki Field
- Upside from acreage currently not in the two year drilling program
- Strengthening of the dollar will lead to greater NPV
- Selling non-core assets could generate extra revenues

Threats
- Complex geology in Siekierki Field could lead to a decrease in recoverable gas

Conclusions

Whilst certainly not being a one trick pony, I would feel a lot more comfortable investing in Aurelian after the Siekierki Field was further de-risked after the next well is drilled. Even so there is a lot of activity in the next two years to keep holders interested.

Disclaimer

Aurelian is my Nicky Fraser 2010 share comp entry

References

Presentations
http://www.aurelianoil.com/media/35253/maquarie_investor_pre...
http://www.aurelianoil.com/media/35340/presentation180110.pd...

Broker Notes
http://www.aurelianoil.com/media/33896/Jefferies%20231209.pd...

Foolish Analysis
http://boards.fool.co.uk/Message.asp?mid=11599999&sort=w...
http://boards.fool.co.uk/message.asp?source=isesitlnk0000001...
http://boards.fool.co.uk/message.asp?source=isesitlnk0000001...

Proactive Investor
http://www.proactiveinvestors.co.uk/companies/news/8379/aure...

Any comments welcome.

Regards

Stuart

I am away on hols at moment (looking out on Indian Ocean from Hotel veranda somehwere south of Durban). Have just read ee's post above on latest difficulty being faced by Chinese in their quest to secure oil assets so what I have to say is at best anecdotal.
The Chinese are here in SA (and have been arriving in steady numbers since fall of apartheid) but are not well received/liked by all here, in particular by SA's black population. From what I gather the dislike is because of the complate lack of integration of the Chinese out here and the disrespect/disregard by Chinese migrants of local traditions/sensitivities. The Chinese are viewed as here for reasons only of profit and making profit the chinese way using chinese food/products/imported from China materials and often using imported from China migrant labour if at all possible(a trend that has occurred elsewhere in Africa).
So what has this to do with Oil M&A activity? From what I am seeing and reading, the impression I am getting is that African governments are deeply suspicious of the Chinese, Black Africa more so than Arab Africa. Despite the anti USA rhetoric, politically the US offers African Govs the best of everything.

Chinese Oil Companies seem to be under the misapprehension that African Governments are queuing up to do business with them whilst offering, in return, knock down price access to lucrative infrastructure projects and in oarticular mineral and oil/gas acreage. In the old days of exclusive brown enveloping this may have worked but African electorates are better educated and more informed now than they were in the "old days" and even corrupt politicians know their voters will not tolerate any blatant mis-selling of strategic national assets or unvetted award of contracts to overseas/foreign Contracting firms without adequate due diligence and transparent debate. They want the best price ....with extras thrown in so if the Chinese want the assets then they will have to up their game as they are now competing not just to win over an increasingky informed electorate but also facing stiff competitiion from Big Oil in Europe as well as USA.
Right, thats my summary of how I see Afro-Sino relations and its impact on M&A activity.

JPGH

Isaac,

Occasionally your posts draw out some interesting comments from the better posters, but most of the time you just irritate the #### out of these guys and the rest of us.

These boards can all too easily become a cosy consensus and lose a bit of the edge, that is needed to make money more consistently, so some contrary opinion and close scrutiny of what is being said is welcome. That's why I sometimes ask ee, DJP and others 'dopey' questions and put contrary points of view and that's why people will read what SirL says.

Might I suggest you post a lot less and try to put a lot more thought into what you are saying and the affect it has on others. Your recent posts about Soco underperforming the market and going on a roadshow were hardly news. Ask yourself whether the responses generated anything of interest or were ever likely to?

repobear

This thread relates to companies, news etc that surrounds ASX listed uranium explorer Extract Resources (ASX:EXT) - http://www.extractresources.com/. Extract's latest investor presentation can be found here: http://www.extractresources.com/DesktopModules/Bring2mind/DMX/Download.aspx?EntryId=3389&PortalId=13&DownloadMethod=attachment . The attractions of Extract are:

a) It has consistently underpromised and overdelivered

b) It has made one of the most significant uranium discoveries in decades, in politically stable & mining friendly Namibia. [It now has Namibian govt linked directors on its Board]. Once fully scoped its undeveloped resources are likely to be at least 550Mlb of U3O8, according to Kalahari's chairman. 292Mlb of JORC resources are currently declared, with exceptional grades for the ore type (439ppm average). An independent estimate, based on drilling results released up to 18Feb2010, suggests that a total of at least 434Mlb  should be identified in the next JORC estimate. Recent trade sales indicate a value of US$6/lb is conservative for undeveloped resources - suggesting US$3bn as a conservative valuation.

c) It has attracted the interest of Rio Tinto, who have substantial shareholdings in Extract and Kalahari. If you study the 2007 and 2008 "stakeholder reports" for Rössing Uranium, you will see that the existing Rössing mine is in need to new ore sources: http://www.rossing-com.info/reports/stake_report_2007.pdf and http://www.rossing-com.info/reports/stake_report_2008.pdf 

d) The initial scoping study for developing a mine has indicated a target production rate of ~15Mlb U3O8 pa. This rivals production from the world's largest current U mine at McArthur River, Canada (which has reserves of 333Mlb by comparison to Rossing South's resources). Indicative cost figures will also place Rossing South amongst the world's lowest cost producers.

 Charts

NB: The vast majority of U3O8 is sold on long term contracts and the spot market is small & illiquid.

Long Term Contract U3O8 Price

Linked Companies

All the following companies have significant investments in Extract (either directly or via investments in Kalahari, which owns 40% of Extract), hence understanding Extract and goings on surrounding it is rather important, if you have a direct interest or an interest in any of these companies:

Kalahari Minerals (AIM:KAH)  http://www.kalahari-minerals.com/

Polo Resources Ltd (AIM:PRL)  http://www.poloresources.com/index.htm

Emerging Metals (AIM:EML)  http://www.emergingmetals.com/

Niger Uranium Ltd (AIM:URU)  http://www.niger-uranium.com/

NWT Uranium (TSX-V:NWT) http://www.nwturanium.com/ (33.8% shareholder of Niger Uranium)

AfNat Resources (AIM:AFNR) http://www.afnatresources.com/ (11.7% shareholder of Niger Uranium)

Regent Pacific (HK:0575) http://www.regentpac.com/index.jsp

Brazilian Gold Corporation (TSX-V:BGC) http://www.braziliangold.ca/home.html

All of these companies have connections with the directors of Uramin, which was sold to Areva for US$2.5bn in 2007. Of particular note is the heavy involvement of Stephen Dattels (see http://www.regentpac.com/template?series=10&article=18) and James Mellon (see http://www.regentpac.com/template?series=10&article=6). See this thread: http://www.stockopedia.co.uk/forum/view/30542/dattels-watch to keep up-to-date on SD's activities (and for further background).

*Ambrian is confident that the resource will exceed 560Mlb. See http://www.kalahari-minerals.com/News/Analyst_Research/New_Zone_of_Mineralisation_-_Zone_4$/News.aspx?id=119

Forthcoming Events

I am now expecting the following newsflow over the next few weeks and months:

• Further drilling results
• 18th March: dealine for submission of bids by potential partners (see http://www.bloomberg.com/apps/news?pid=20601116&sid=aslvEliP7CjY )
• Resource upgrades for Rossing South Zones 1 and 2 are expected around mid-2010, as is a Definitive Feasibility Study.

Links & Further Reading

Paydirt article on Extract's recent history: http://paydirt.com.au/aurora/assets/user_content/File/pdsept09covStory.pdf

Useful Wikipedia articles (these are excellent IMO):

http://en.wikipedia.org/wiki/Uranium_mining

http://en.wikipedia.org/wiki/Uranium_market

http://en.wikipedia.org/wiki/Uranium_ore_deposits

Uranium supply & demand thread: http://www.stockopedia.co.uk/forum/view/30871/uranium-suppy-demand-and-background-information

Illustration of Rössing South resouce drilling and results: http://www.stockopedia.co.uk/comment/view/31678/re-the-extract-complex

A website that dynamically calculates the discounts of KAH, URU and EML to the value of their tangible assets: http://www.freesharedata.com/eml

Recent Presentations by Extract & Related Companies

AGM presentation November 2009: http://www.extractresources.com/DesktopModules/Bring2mind/DMX/Download.aspx?EntryId=3439&PortalId=13&DownloadMethod=attachment

February 2010 Mining Indaba: http://www.extractresources.com/DesktopModules/Bring2mind/DMX/Download.aspx?EntryId=3450&PortalId=13&DownloadMethod=attachment

Kalahari update, February 2010: http://www.kalahari-minerals.com/News/Presentations/Company_Update_01_02_10/File.aspx?id=160

Audio Interview with Kalahari's Mark Hohnen: http://www.kalahari-minerals.com/Investor_Relations/Document_Downloads/Audiocasts/Mark_Hohnen_talks_to_Proactive_Investors/News.aspx?id=152

DISCLOSURE: I have shareholdings in Extract, EML and Polo. Together (even after topslicing) these consititute a significant part of my overall portfolio.

I am sorry that you thought my previous post was a personal attack.  I am even sorrier that you felt the need to remove the whole post rather than ask me to change bits of it.

I said I thought it was rude to copy someone else's successful board - I deliberately didn't say that YOU were rude (play the ball, not the man).

The point I made that KMcK's board covers all sorts of investing mistakes, not mostly wrong macro economic call was just factual and not offensive at all.

And the point that you can't maintain a sypathetic attitude to people's mistakes and encourage frank posting whilst at the same time making your own market predictions seems to me to be entirely valid. If you want a thread discussing your macro ideas listed in the header, then fine, no problem. But this just doesn't fit with an invitation to everyone to roll up and post your catstrophes on this thread.

So why did you delete my post ????? I don't mind if you reply here or want to take the topic off thread to the Moderation thread here http://www.stockopedia.co.uk/forum/view/29525/moderation-policy but please leave this post so that people are aware of the issue and can follow us over there if they are interested.

db

OK - I'll go first then.

Sentiment:

 ....sentiment (ie will the shares go nowhere because there's not much upcoming news) and likely moves in the share price in the next six months......  My view, as stated elsewhere, remains that in the absence of much to get the market excited the shares will wander aimlessly for the rest of 2009.  I've previously guessed that if crude were $65 at Christmas 09, then Soco's SP would be somewhere near £13 then, and I'm still very happy with that guess.  What does anyone else think?

I'd say that sentiment is about as weak as it could be, and that your view is very widely shared in the market. That doesn't necessarily mean that it will be proven correct - and indeed IF there should be some developments then the fact that sentiment has been weak probably means that many people are quite underweight at this point.....and positive news (or rumour) could spark a disproportionately large rally. I have no way of knowing whether the market will be "excited" enough by news but:

a) The HPHT seismic reprocessing should be completed by the September interims and seems likely (based on the AGM presentation mood music, the hiring of a world-class HPHT expert and the 120m of net pay found last year) to show a real chance of there being a 1-1.5bn bbl oil/condensate fan structure overlaying a similarly sized gas/condensate structure under the volcanics (perhaps part in basement). See http://www.stockopedia.co.uk/forum/view/29425/hpht-appraisal-area?comment=4#4

b) There is material upside in the first Marine XI well on S1 - and it will be a quick well, once spudded. See http://www.stockopedia.co.uk/forum/view/29284/soco-post-agm-reports-and-predictions

c) Looking ahead to next year and the Nganzi programme, they will decide by October whether to drill the whole 300mn bbl upside without farming down. See http://www.stockopedia.co.uk/forum/view/29284/soco-post-agm-reports-and-predictions?comment=12#12

d) TGT development plan should be finally approved and production forecasts are likely to confirm plateau production of c 30,000bopd net to SOCO (more like 50,000 boepd effectively, during the cost recovery phase)

Whether any of this makes any impact on either the market or the potential bidders is, of course, impossible to say. It should do - but nobody knows whether it will. Nevertheless, I'd be very surprised if the combination of news doesn't lead to SOCO outperforming the peer group iin the remainder of the year

Valuation:

How should the shares be valued?  How reasonable is it that any drilling without a firm commitment further than several months away is ignored by the market?

I haven't seen many recent analysts' reports on Soco, but I have one from Cazenove with a core NAV of 1370p and no doubt considerable explo NAV on top of that.  I imagine that's approximately concensus, but maybe with crude rising again these concensus NAV figures will start to rise.  Has anyone any other recent broker estimates?

I've seen the same report. The unrisked explo/appraisal upside shown in Fig 5.3 totals £28.11 per share (additional to the 1370p core). Risked upside is shown as 569p. This includes NOTHING for the deep gas plays in the HPHT area (which are likely to be in the 1 to 2bn boe range, when E South is added in to the TGD lower Oligocene (where a net 70m of pay was logged in TGD-1X) and the basement below TGD). It also implies that the TGD/fan area that is expected to be oil-bearing is in the order of 760mn bbls gross....whereas it is clear from the AGM that the actual outcome (post seismic reprocessing AND drilling) might be as much as double that.....

....so the point is this: VN .....in particular the HPHT area....is CENTRAL to valuation. And the fact that the potential upside there is now (pending seismic confirmation) thought to be VERY much more valuable than it was at this time last year (because they now think there is an oil bearing fan that could be 1-1.5bn bbls recoverable, additional to the original expectation of a 1-1.5bn boe gas play) is one of the key reasons why the expected deal has failed to happen - because buyers, not unreasonably, want more evidence that the current interpretation is correct. So.....

....returning to the valuation question this indeed poses a problem. Assuming no material changes in oil prices or other Cazenove/JPM assumptions it seems to me possible that the REAL maximum upside potential (including the full fan and the deep gas) could be in the £40-50 a share range (given that another 750mn bbls in the fan would be c £10 a share)....to which one would add the 1370p core. We'll probably have some confirmation of the upside scope this autumn [which may well lead to reassessments by analysts IMO!] - but it won't actually begin to be properly proven until TGD-2X is drilled in mid 2010......though of course there is the possibility of 425mn of gross upside(perhaps 300mn net if they drill Nganzi alone) being confirmed in Africa in the meantime.

My view on this is pretty simple: If they were to sell in VN BEFORE they drill the TGD appraisal, it is likely they would want £25+ per share for the VN assets. This is £11+ of core (according to Caz's fig 5.1) and the balance being explo upside (Caz's total for the three VN line items in fig 5.3 is 1996p - to which, as I say, can probably be added the deep gas play and the full size of the fan). If they sell AFTER drilling TGD-2X, thus derisking the fan, they would want something over £35 per share [given my comments above about a potential £40-50 upside and £11 of core].

So I see VN as either £25 sometime between now and next May or £35 sometime in the year from mid-2010 to mid-2011.

The value of "the rump stake" in the rest will of course depend heavily on drilling, given that four important wells will be drilled in the next year with up to about 350mn bbls of net upside between them. Caz put a risked value on the rump of about £3 per share, but success at all the wells listed in fig 5.3 would (on their figures) raise the value to about £9 per share....

....so, adding to the VN figures, by late 2010 we MIGHT be looking at a value of about £45 a share. What's that worth now? Dunno. The market says it is worth £12 - which seems far too cheap when considering that the shares have (IMO) a reasonable prospect of doubling or more over the next year. Whatever the case, I am very happy indeed to hold.

Other brokers?

Morgan Stanley - 22 May: price target of 1575p, base case NAV 1771p, bull case NAV 2162p [nb this seems to exclude all 2010 drilling]

Tristone - 14 May: price target of 1575p, NAV 1585p

Citi - 13 May:  price target 1300p, NAV 1344p [nb.....Citi were presumably in the "departure lounge" for their broker role by this point!]

Merrill: 11 March: price target 1500p, total NAV 2202p (incl 1554p core) [nb this includes only 201p of risked explo - less than half Caz's figure]

"Events, dear boy, events":

Of course unexpected bids and other events may overtake this, but these sort of events may happen to any company, and perhaps Soco (where management seem unlikely to accept bids since they believe there is considerable value not recognised by the market) is one of the less likely companies to be affected by the unexpected.  The key new news for Soco might be (a) a bid (IMO unlikely), (b) some sort of presentation by management of the drilling data they claim to have that demonstrates a significant strike has been made at E, currently ignored by the mkt, or (c) possibly hitting oil off the Congo.

I'd agree that an early acceptable bid seems unlikely, though the Chinese are still on the table with their interest. However....it only takes ONE third party (KNOC, PTTEP etc etc) to decide that it is worth paying up at this point - and a deal could quickly be done. With bids out for various other E&Ps any bidder should know that at least they are likely not to be outbid if they can do a deal with SOCO. There is no chance that SOCO would sell in Africa, IMO, so we're just talking a VN bid. A deal will be done at some point - I've indicated above the sort of numbers that I think management will be looking for, assuming analysis and drilling results proceed as expected.....but WHEN it will happen is very much a guessing game, especially in an environment where it is "open season" on E&Ps. The other events are of course a possibility (indeed a probability, IMO, if one adds in Nganzi too).....but whether and when they will impact the market, which has plainly dozed off on the potential for SOCO, is more difficult to say.

ee

What people think is if they average down then the share price does'nt have to rise back to the old highs for them to recoup their money instead the share price only needs to rise a little bit. 

well, that is correct, isn't it?

I prefer to use a fresh pair of eyes and choose the best possible Investment for my money. In the current environment and based on what I expect to unfold in the markets much later on I do not want any more exposure to a illiquid small cap with a binary outcome.

if you are saying that you currently have as much exposure to Aminex as you want , then fine - in that case you shouldn't buy any more even if they look cheap. But that is a rather different position from castigating the management as useless - in that case you shouldn't be holding any at all.

I'd rather sell at a slightly higher price at a loss

so you think the shares are cheap now and will rise letting you sell them for a slightly higher price before Ruvuma is drilled? In that case I assume you think that people with no or only small exposure to Aminex should be buying now, right?  If wrong, then why are you still a holder?

Sell up before drilling results. Once Ruvuma results are out, if it is any good there will be plenty of time to buy back in. Why take big risks when you simply don't have to?

Because if you look at their other assets - US and Kiliwani - the company looks undervalued without any value for Ruvuma

I am big fan of the little guy

and I am a big fan of the little guy making sensible decisions. Forget what price you paid for the stock - that doesn't matter. Look at the price it is now and decided if you think it's cheap.  If it is, then hold your current shares and buy some more if you are happy with the risk/reward.  If you don't think it's cheap, then sell out.

The people that are benefiting are the WShak's of the this world who are buying in at a very good price

and you too can buy at that price - thanks to Brian providing an option that few AIM companies do

and will most likely make money because the shares will rally prior to drilling results.

I think you are talking yourself into buying :)

The difference between Soco & Aminex is Soco atleast have loads of decent prospects to drill

s what is your considered opinion on Aminex's non Ruvuma assets?  Sunny Ernst seems to be going well and Shoats Creek looks promising, doesn't it?  i assume you have looked at the recent AGM presentation?

we may all never get our money back.

true! but what do you expect when you buy a small E&P company? a guarantee?

I'm not a gambler. I invest on the basis of making money.

I think you mean you invest on the basis of hoping to make money...

db

Morning all

Moving on from matters statistical, I note that Al Stanton has issued a new note on  SIA:

Upgraded to Outperform and Target increased to 2000p from 1600p

Says:

SIA trades at 28% discount to our 2004p NAV

Newflow to pickup from Q2 and this year's campaign could add c1100p or 55% to our NAV.

THe TP assumes successful delivery of 16-1 appraisal will unwind discount to our PV10%.

Ranked by NAV, SIA is the second cheapest stock in our FTSE350 universe, which trades at average discount of 14%. In terms of unrisked upside potential in 2010, SIA ranks behind SMDR and CNE.

Estimates that DRC could add c740p, or 37% to NAV. (assuming they farm out half their 85% stake...

I am currently enjoying an extended Christmas break in Brazil at the kind invitation of my cousin, who is based in São Paulo.

Before we head down to the beaches for some serious relaxation, I was yesterday able to accompany my cousin on a visit to one of his clients. This provided a good opportunity to observe what is happening in the real emerging market world of Brazil. I hope readers will find my anecdotal observations of interest.

São Paulo

My last visit to SP was around 5 years ago. There have been some significant changes in that timeframe. This first, most obvious observation is that the extended shanty town that lined the route from SP's international airport towards the town centre is now much less prominent (though still ever-present). I understand that the govt. has had some success with a subsidised low-cost housing programme, which has enabled some of the favella residents to move to considerably more tolerable housing conditions. On the political/economic policy front, though there will be elections next year and "Lula" will retire as president, his successor (whichever party is elected) is not expected to make any major changes to the successful policies of the last few years.

A second visible change in SP is that industry is starting to move out of the town, slightly further west into the interior of Brazil (for cost reasons). The rapid rate of population growth in SP itself has slowed and the town is becoming more of a residential/commercial/finance centre, rather than a centre of industry.

It is noteworthy that whilst Brazil remains an important car manufacturing centre, its competitive advantage has shrunk as the Real has strengthened. On my last visit, £1 bought you more than 4 Reals, now it is down to 2.5.

Towards Santos

Yesterday's meeting was in the port city of Santos, some 60km west of SP. I observed that the 6-8 lane highway connecting Santos and SP was very busy with commercial traffic. My cousin reported that after the global trade freeze in late 2008/early 2009, business conditions appeared to be returning to normal and growth was resuming,  but from a lower base. The general tone appears optimistic (unlike the UK).

Down to Business

My cousin is a yarn import agent. One of his suppliers is a Korean yarn manufacturer. Our visit was to Brazil's largest supplier of industrial webbing & strapping, based in Santos and a regular customer for the Korean yarn. From our personal perspective the result of the meeting was not good (though not entirely unexpected by my cousin).

It is proving extremely difficult for the Koreans to compete with the Chinese. The webbing supplier has found that a Chinese company are able to supply webbing fabric (of acceptable quality for high-spec industrial applications) at a finished material price per kg lower than that of the raw yarn. Hence he is slimming down his weaving operations considerably and moving to purchase finished fabric, ready to sew into webbing/strapping product.

Chinese Overcapacity

My cousin has had extensive dealings with Chinese business and has visited the country on several occasions. He reported that a single new Chinese yarn production plant was being opened, whose capacity would exceed that of the entire current Korean industry. His experience is that the Chinese central government is not able to exert much control or direction over private Chinese enterprise, which is de facto regulated by local officials, who are frequently on the Boards of those companies. Individual Chinese entrepreneurs appear to take a rather short-term view and do not seem to pay much heed to the longer-term consequences of their investment decisions.

This "micro" observation appears to confirm the macro-economic (and socio-economic) view I have seen expressed that there is "trouble brewing" from uncontrolled & unco-ordinated industrial growth in China.

As we have seen from the above illustration, this "trouble" could have even bigger negative consequences for China's smaller industrial competitors than for China itself. Ultimately, however, it strikes me that Chinese industry could be cutting its own throat.

Development at Santos

A further interesting "gleaning" from yesterday's visit is that my cousin's client appears likely to move their base from Santos to the lower-tax region of Espirito Santo. Their current high-spec premises are likely to be attractive to an oil industry player, as Santos becomes more focussed on that industry. Unsurprisingly, a lot of Brazil's optimistic mood is based on the future development of Tupe and the other Santos basin fields.

Should I be distracted from the serious business of enjoying my break (and I am really being spoiled here by my cousin's hospitality :0)), I will post further...

Regards,

Mark

Goldman have upgraded to buy, reportedly, as part of a large sector note out today.

I've now had sight of this piece, which is part of a very substantial sector review. Under the section labelled "Drivers of M&A" it makes the good point (that I have previously made!):

Purchase of “strategic” assets by NOCs which could likely apply lower discount rates

Soco, Tullow, Heritage and Dragon are companies that could benefit.  M&A transactionsover the past six to nine months (and more generally over the past few years) suggest that the focus of the NOCs is large assets with potential upside from further exploration....typically....assets outside Europe and the US....

 

We believe that for those companies that own what we believe are “strategic” assets, it is reasonable in an M&A scenario to lower discount rates for those assets to 8%, to reflect the strategic value to an NOC acquirer.....

....and doing that for SOCO produces 1799p on Goldman's figures.

It is worth noting, though, how those figures are derived:

We value the company using a SOTP methodology (producing and under development fields are valued using a DCF, and exploration prospects being drilled within six months and pre-sanction discoveries using a risked NPV/barrel approach) using a combination of valuation based on the forward curve (40%) and at our peak oil price estimate of US$110/bbl (40%). 20% of our valuation is performed using an M&A valuation in which we value strategic assets using an 8% cost of capital. Based on this, we raise our 12-month target price to 1769p (from 1465p).

From this, and the more explicit comments about it being "too early" to include value for the planned Nganzi drilling, it would seem that their DCF is ignoring virtually all the explo upside, including E/TGD as well as Nganzi and the possibility that TGT development drilling will validate SOCO's assessment that recoverable reserves there are closer to 500mn bbls than the currently-booked 300mn. And eyeballing their Exhibit 64 indicates that some 93% of their estimate of SOCO's valuation is accounted for by producing developments, cash and existing discoveries....with only 7% or so attributed to exploration potential. By way of comparison, fully 40% of their estimate of Tullow's valuation is attributed to exploration potential, with a further 35% attributed to unsanctioned/undeveloped discoveries (which account for only 6% of SOCO's valuation).

In sum I'd say that their approach leaves some very considerable scope for upside surprises, especially if exploration happens sooner than they expect. I'd also say that Goldman's analysis also shows that SOCO's valuation is very well-supported by core assets. They conclude:

With the shares only trading at a 6% premium to its core valuation at the forward curve on our estimates (vs. a sector average of 14%) we do not believe that the option on this M&A potential is expensive.

Indeed it is not!! ....especially if one factors in the full drilling programme rather than arbitrarily cutting off at 6 months and ignoring the vast majority of the upside!

ee

CHNS announced their H1 results on Tuesday.  Despite the results being terrific the share price initially fell sharply because of misunderstandings about  two issues - the Chairman resigning and selling his shares to the CEO, and the passing of the interim dividend.

On to the results To achieve 23.4p EPS for H1 was excellent imo given the H1 world economic climate, as exemplified by the big drop in overseas/Indian sales in the half. The Chinese telecoms boom, which will continue for the next 3 years, is what held up sales and profits, as I hoped they would do.

I believe CHNS remain cheap given:

- a P/E of 4.4 at the current 203p based on the 47p EPS forecast
- £20m cash including short-term investments, i.e almost half the m/cap
- CHNS' m/cap remains less than its tangible NAV
- the likelihood of Indian and other export markets recovering soon, and

- the potential for a step-change upwards in profits with the new lead recycling plant

It's also worth noting:

- H2 is usually better than H1 in both profit and cash flow terms
- unusually there were £1.1m of impairment provisions (much larger than in prior periods). For example, WNN this morning announced a "normalised" EPS excluding impairments - if CHNS had announced similarly the EPS would have been substantially higher at around 28p EPS. CHNS could at that rate announce 56p EPS for the year, which might cause a stir at the current price
- CHNS have scrapped the interim divi previously, before reinstating the full divi at the finals, so this isn't new. After due consideration of working capital needs and the new recycling plant I feel this will happen again (see below)
- note the £4.3m cash inflows from operating activities (i.e after debtor/creditor movements), compared to the £4m cash outflow last H1, in this the seasonally weaker period

- the results were also excellent in the core yuan currency before taking currency appreciation into account (contrary to what the notorious deramper PapalPower/Prosolenes has been posting elsewhere) - I'll expand on this in another post.

There are negatives:

- results would have been reasonable, but not half so impressive without yuan currency appreciation over the last H1
- the Chairman's going is unexpected, and the resulting combined CEO/Chairman post is not good corporate governance. Perhaps they'll announce a replacement.

Seymour Pierce are very positive as follows (pasted from another bb) - they haven't always been so regarding their own clients. They should also add the short-term investments on to the cash balance as they have in the past - CHNS actually have £20m net cash including these:

"China Shoto 3,5 (BUY) - Going Green: H1 Results to 30 June 2009
CHNS.L (240p) Market cap: £56m

Results reflect strong demand from China Mobile, China Unicom and China Telecom which are increasing network coverage and need backup batteries to support mobile infrastructure. Accordingly, China Shoto reported sales growth of 41% for the six month period and 47% uplift in pretax profit. This margin expansion reflects a lower lead price and a larger proportion of sales coming from backup batteries.

These results show a pretax profit of £6.4m on revenue of £96.4m for the six month period. Our full year forecast is a pretax profit of £12.5m on revenue of £200m. We are therefore comfortable that China Shoto is on course to achieve this estimate.

The company has announced that it intends to invest in a new lead acid battery recycling project. We see this as a prudent step by China Shoto to offset environmental concerns with its product suite. Accordingly, the group will not pay a dividend at the interim stage as capital expenditure increases. We retain our forecast of a 5p full year dividend. Investors should be mindful that Mr Yang, Chairman and Chief Executive is the company’s major shareholder with over 40% of the equity and his interests are aligned with other investors.

We note that China Shoto’s strong first half performance reflects domestic revenue. Export revenue in the first half was just £3.5m compared to £11.7m in the same period last year. India is China Shoto’s principal export market. We note that the company has been active in participating in trade fairs during the first half. These include locations from Moscow to Singapore. In the event that these efforts are transformed into sales, there could be incremental revenue in the second half.

China Shoto has announced that the company’s Chairman is step down. Cao Guifa joined the company at flotation in 2005. The company’s major shareholder and chief executive, Mr Yang will take on the role of Chairman.

Our 2009 estimates suggest that the company should generate eps of 47p. This places the company on a 2009 prospective PER of just 5.1. The company had a net cash balance of £9m at the end of June which gives comfort for a company which is growing so quickly.

Jim McCafferty | Research Analyst | 020 7107 8070 |
jimmccafferty@seymourpierce.com"

Feel free to post your catastrophes in this thread.

I suspect there will be quite a few later this year or early next year

I thought I would explain why I gave this thread header a Thumbs Down:

• I think it's rude to appropriate someone else's successful personal board on TMF, and although the title has now been changed so that copyright isn't involved, the rudeness remains
• KMcK's board is so successful because people tell the tales of all sorts of investing mistakes - getting distracted at work and not trading, using stops and regretting it, not using stops when away on holiday, thinking you had a natural hedge that failed etc etc Not just (or even mainly) making the wrong macro economic call
• who wants to post about an error on a thread where they will be lectured by you? Running a sympathetic home for sorry tales and dishing out advice about market calls are incompatible.

db

Here's my (belated!) AGM write-up

I found attending Encore’s AGM to  be most useful (some information not just affecting Encore) and felt that I gained a fair bit of insight into “where we are now” and “where we are going”. Nice to see some familiar faces, including Doverbeach/Manzanilla & moniclub – but considerably fewer than in past years. I’ll divide my writeup into 4 parts:

-          Outcome of pre-meeting chat I had with Paul Young (Geoscience manager)

-          Formal meeting

-          Alan’s presentation

-          Post meeting and conclusions

Pre Meeting

I had the opportunity to have a word with Paul Young before the meeting. I learnt that executing farmouts in the North Sea remains very difficult. Whereas last year Encore and its partners had seen as many as 15 enquiries for one farm-out opportunity last year, they have seen 4 enquiries for 4 opportunities recently. I asked about the reasons for this (though they’re pretty obvious): there are fewer players in the game now (e.g. Oilexco demise) and, with credit being tight, those remaining are being very cautious about deployment of cash. I take this as an indicator of the difficulties Brian Hall over at Aminex will face too (Aminex’s farmouts being at the forefront of my mind).

I also asked about rig rates in the North Sea. Jack-up rates have come down very substantially and are now 75% down on last year’s rates. However semi-sub rates are only down by about 25%. Catcher can be drilled with a jackup but Cladhan will require a semi-sub (AIUI).

Formal Business

All directors were present. Mike Lynch did the introductions and handed over to Eugene Whyms (FD) to go through the resolutions and voting.

There was little debate about most resolutions, except resolution 8 regarding buybacks. EW confirmed that it was the Board’s current intention to only buy back below the value of cash/share, currently ~14.7p. This figure was queried but EW explained that much of the Breagh cash had been received in sterling, so that dollar falls have not impacted the sterling figure. The buyback will be conducted by Encore’s broker, strictly on-market. Encore understands that some large shareholders wish to realise their holdings and this mechanism will allow them to do so without severely impacting the SP. A tender offer would be both costly and could create potential tax difficulties. EW intends to use the buyback as an opportunity to realise some of his personal holding.

Presentation

Details as in the thread header. I made a nuisance of myself during the presentation and asked rather a lot of questions. :0) Here is what I gleaned:

• AB stressed that Encore’s strategy was to realise value from its assets and return cash to shareholders ASAP. This could be achieved either by piecemeal sales or an outright sale of the company. He stated that an offer in the 25-30p range for the company would be looked at seriously by the Board. He and other Board members did not view Encore as a cash-cow and had no desire to remain on the Board any longer than necessary.

In the light of this, IMO investors should view Encore as a (non-distressed) liquidation situation, with possible upside from the opportunities mentioned previously on this thread.

• The company does not intend to get involved with, for example, African exploration, as it does not have particular expertise/contacts in that region. I take this mean that for the remaining of its, likely limited life, it will remain North Sea focussed.
• The Esmond licence is valid until 2012 and does not have any specific work commitment attached.
• I enquired whether the  P&L that would be booked on the Breagh realisation would be the sale figure ($68.8m) less the book value of the “assets held for sale” (note 16 to the accounts in the annual report, £17.8m). EW confirmed that this would be approximately correct. No tax liability is crystallised because the sale was effected by the disposal of an Encore subsidiary.
• As mentioned previously on the thread, the prospective size of Cladhan is impossible to assess at this stage. Further drilling is anticipated in 2Q10.
• Regarding Esmond gas storage:
  • The lower reservoir, which has repressurised, represents 75-80% of the total reservoir size of 100-130bcf
  • Encore’s technical proposal for developing the reservoir for gas storage purposes is being peer reviewed. This process should be completed by the end of the year.
  • Assuming the peer review confirms the technical approach Encore will seek to market the project in early 2010.
• Cashflow from Ceres is limited because in order to exploit the field using existing infrastructure, other gas wells will have to be shut in. This necessitates “back out” payments to the infrastructure owners to compensate.
• Cobra is expensive/high risk for Encore. Probably better appraised by an operator with more “tight gas” expertise.

Post-Meeting and Conclusions

I spoke to AB after the meeting and asked what his thoughts were on what he wanted to do post-Encore, given that the stated objective was to wrap-up Encore ASAP. He told me that he really wasn’t thinking post-Encore currently and was fully focused on the company. He will “cross that bridge when he comes to it.” I find this reassuring and generally felt that the tone was very straightforward and transparent.

My conclusions FWTW, are that Encore is a pretty safe home for spare cash, at the current SP. It is likely to be liquidated within the next 3 years, at worst, and downside over that timeframe is pretty limited. I trust the directors and don’t think Encore’s cash will dwindle by much (bar the £2-3m mentioned in the presentation = < 1p/share). The buyback programme should prevent the SP sinking too far below net cash value over the coming year – though if it did that might present a low-risk buying opportunity.

Over the next year, I would expect there to be some minor asset disposals and possibly major ones, which may exceed “cash burn” when combined with some income from Ceres. This is subject to no further deterioration in the hydrocarbon markets. Success in any of Cladhan, Catcher or gas storage could add meaningfully to the NAV/share and ultimate liquidation value.

Regards,

Mark

In reply to Isaac (post #35)

I am interested to know more about this. I am asking because I know you are very close to the management and perhaps have got a hint of something from them?

a) You don't know anything of the sort

b) Management would say nothing to me that they wouldn't be prepared to say to other shareholders, ESPECIALLY in relation to anything to do with asset sales where, quite properly, the normal mode is "no comment" at all!

You said Merril and JP are perfect for the job, what job? Selling Vietnam in due course? Meaning sometime in the near future?

My words were perfectly clear. Please do not attempt to imply something different that wasn't said - that's how timing became an "issue" elsewhere!

Perhaps I am wrong

You are.

Rui De Sousa, Sold £6mil worth of shares in March 2006 @ £10, 3 or so months later the share price rose 60%. Just over a a year later Soco shares were worth £24 i.e. a 140% rise compared to where he sold.

Yes he sold then - to family members, in order to honour promises made when he took his initial stake.

Did'nt Rui buy shares at £15.44  in May 2006? So he needs about a 40% rise to breakeven from current levels, how well is his knowledge as to what Soco is actually worth?

Yes he did (it is the highest price paid by a Director). I have no doubt whatsoever, having discussed the matter with him at at least three AGMs, that he has an extremely keen idea of what SOCO shares should be worth - and he is extremely confident of making a good profit on all of his purchases. I did mention to him the problems that you were having with the lack of "imminent" action in the share price and noted that it seemed to be making you uncomfortable. His advice was immediate and unequivocal......"then he should sell!"  It seems sound advice to me. IIRC Marben was present for that conversation, so he should be able to verify the advice......

.......though whether you should be as discomfited as you often appear to be may be another matter, especially given your agreement regarding the newsflow outlook!

George Hepler, the top exploration man at Soco, why did he excercise and sell his shares at £12.63 back in May2009? Surely he knows better then everyone what is down there in TGD and Africa? I would'nt have expected him to sell the shares at such a low price

Neither would I - which is why I made prompt investigations at the time. It isn't appropriate to discuss (or speculate on!) the precise reasons on a public bulletin board as they are personal. Suffice to say that any one of us would be forced to take similar actions if were in the same circumstances, irrespective of our view on the investment merits of the shares. In other words there is nothing to be concerned about on that point.

ee

In reply to Isaac (post #18)

Right now all my indicators are saying BE CAREFUL

 

You have referred to "your indicators" in this and other places on many occasions

As far as I am aware you have never spelled out what your indicators are, nor have you provided any evidence whatsoever as to their efficacy, reliability or accuracy

It really is absurd to make statements on public bulletin boards about mysterious and unspecified indicators whch are completely lacking in visibility.

It reminds me of the South Sea Bubble and the famous "enterprise which no-one shall know what it is" in which the unsuspecting greedy lost their money

I might just as well post about my use of goat's entrails. Actually that would be more useful than your indicators - at least I would be specifying what kind of animal I was using and which parts of its anatomy. You are being nowhere near so transparent.

In reply to ohisay (post #116)

Any thoughts?

SW10.

When was the last time a well anywhere came in exactly "on time" according to anyone's theoretical pre-drill expectations?

It will be what it will be......doesn't matter what anyone says ahead of time, however precise their estimates might seem to be  ......NB prior expectations over matters such as Egypt testing and SC spud (never mind the Nyuni-1 well or others in the area that are "still drilling" after more than a year) - sometimes the Gods Of Timing have minds of their own!.

ee

First for everybody to know,this article does not address the conservative investor.This is about a very high risk (short term) investment,where you could end up with either multiplying your money or ending up with Zero.If you are not prepared to take that risk stop reading!

But,this is not about the average bankruptcy speculation,in this case IMO chances are much better than usual.

 Here is why  :

 Washington Mutual (OTC:WAMUQ)   formerly the biggest American Savings Bank was bought by JPMorgan Chase in 2008 for 1.9 Bio USD a price which many considered way too low.

I am not going into all the details here,there are many articles out there,which can explain the past much better than i can. The interested reader will find out...

Just as an example an article from the 3rd of April 2009

http://www.prlog.org/10211217-evidence-of-improper-governmental-seizure-exposed-in-the-washington-mutual-wamuq-bank-seizure-case.html

Due to recent actions by the FDIC (Federal Deposit Insurance Corporation) and JPM (JP Morgan Chase), it has become apparent that Washington Mutual Inc. (WMI) will have to fight seemingly endless court battles to get proper compensation for its assets which were illegally seized and virtually given away to JPMorgan Chase (Stock Symbol: JPM).

This interview on Youtube gives you a good overview:

http://www.youtube.com/watch?v=Zx-BNk4QnTY&feature=related

and another one:

http://www.youtube.com/watch?v=IeXtCiU2IeA

Summing up the sentiment among many shareholders (and analysts) is that  JPM acted illegally and virtually stole WAMUQ.

Now the story accelerated on Thursday  where a hearing should take place.This hearing was postponed to march 12th next week.See this Reuters article for details:

http://www.reuters.com/article/idUSN0424397920100304

WaMu may reach deal soon on $3.7 bln deposit 

WILMINGTON, Del., March 4 (Reuters) - Washington Mutual Inc could reach agreement with JPMorgan Chase & Co and a government agency over a disputed $3.7 billion bank deposit in the next week, the bankrupt company's attorney told a court on Thursday.

He said the U.S. Federal Deposit Insurance Corp and JPMorgan requested the added time but Washington Mutual was reluctant, an indication that the company might expect a favorable ruling.

He also said there was "momentum" to the negotiations, and Thursday's hearing was delayed for an hour while the parties held talks in the hallway outside the courtroom.

Bankruptcy Judge Mary Walrath granted the request to postpone the hearing for one week.

So now you should have  good general picture what this was/is all about.Now to the speculation what this could mean for shareholders.

WAMUQ is currently traded at 0,39 USD/share giving the company a marketcap of 663 Mio USD-with 1.7 Bio shares outstanding. (quite a lot for a company that filed for bankcrupcy ;-)  )  Now people are speculating that there might be a settlement before the time of the next hearing,because JPM managers might face legal action in case the judge Mary Walrath delivers a judgement which is not in their favour. The question is,are these people willing to take this risk?

As JPM made a take over offer for 8 USD/share in the past which was  rejected under dubious circumstances,this number is what shareholders are hoping for (in case of a settlement), which would translate in a 2000 % gain from todays shareprices.

Trading has increased immensely since the day of the hearing with about 100 Mio shares traded a day in the USA and Germany combined. The sharprice shot up sharply.

As it is by no means certain,that a settlement can be reached,nor that WAMUQ may win a trial one should only invest the kind of money that one is prepared to lose. 

However,i think chances were seldom so much in favour of betrayed shareholders.

Disclosure: The author holds WAMUQ shares

Attempt at an Nganzi valuation, copied from the analyst notes thread:

If I was doing the analysis, I would be starting from an assumption that one might discount any company's CoS a bit.....so if they say ...as they do....20% (which, in fact, I believe to be a fairly conservative number based on what has been said to me about how positive the technical team are about Nganzi....and therefore probably includes a discount already to reflect the fact that the basin is undrilled), I'd probably use something like 15% CoS.....

....and then there is the question of how much they will retain? .......It is completely clear from the conference call that they will be retaining operatorship and a MINIMUM of 40%. It would be my guess they'd aim to retain 50% (versus 85% now - so farming down about 35%) and give themselves the option of a further farmdown later on better terms.

And then the question is: how much might it be worth per barrel, when one takes account of the fact that it requires a "mere" 100km of pipe to the coast, all within one country?  I'd think $5 per bbl is perfectly reasonable for now.......

......so......$5x600mn = $3bn........and 50% of that would be $1.5bn unrisked or $225mn risked at 15%

Shares out now total 82,623,820 (after the placing but net of Treasury shares)......so that would be 272 cents per share risked....or, say, 169p at $1.61=£1. Using the same exchange rate would give 1128p per share unrisked.

In practice, of course, it is perhaps unlikely that three geologically distinct plays would all come off and we would see a 1128p per share outcome. OTOH, there are other prospects to be derisked.

In sum, it doesn't seem unreasonable to me to think of a risked (aka mean expected) value of about 169p per share......though of course the outcome could be anything between zero (less than zero, given that the wells will cost around $30mn net to SIA with 50% retained) and £10+ per share

For comparison:

Merrill go for 30p risked, 305p unrisked (today's note)

JPMorgan go for 111p risked, 810p unrisked (today's note - assuming a farmdown to 42.5%)

MStan go for 89p risked, 717p unrisked (prior to last week's events)

Citi go for 57p risked, 1890p unrisked (ditto)

UBS go for 124p risked, 1242p unrisked (ditto - but note this also assumed only two wells of 150mn, whereas we now know the campaign should be targetting twice as much!)

....and, based on the above (since my unrisked numbers are pretty well in the middle of the pack but my risked numbers are at the high end), it seems to me that there is some significant scope for SOCO to surprise on the upside with Nganzi, since I think the street as a whole is risking the prospects there too conservatively!! I imagine that they'll get a better grip on it as drilling approaches and the identity of any farminee is revealed - and I'd expect them to start raising their risked valuations.

ee

ps....it is also worth noting here and now that the valuation of SOCO's assets may well not be limited to the Nganzi block!  ;-)

Thanks Kirkie, here's a link to Kirkie's notes: http://boards.fool.co.uk/Message.asp?mid=11811153

---------------

Brief scribbles from conference call (much is in the RNSs):

Vietnam and West Africa potentially transformational... drilling post monsoon Q1/Q2 this year.

Nganzi - 3 prospects > 200m barrels mean recoverable - weather induced start post rainy season, expected July / August, to complete in Q3.

Congo - not as large a programme prospects wise - about trying to generate operating cashflow to suport high impact exploration.

TGT - new appraisal wells (July / Aug) based on depth migrated seismic - shows that previous wells weren't on the expected crests, so potential reserve upside if they go according to hopes. ON schedule for first oil Mid 2011; long lead items being ordered. Production hoped to go to 100k BOPD 24 months after first oil.

Q: Cazenove - TGT potential upside? TGD - timing of well and intentions re higher impact?
A: TGD: spud end May / June, 60 day well. Only 1 well planned. 1 year for appraisal period, so must prove commerciality in 12 months. TGT: only booked our share of 250m barrels of 2P. Guided market to 300-500m barrels. New seismic has increased size epectations. "Very confident we're moving upwards in that range'.

Q: Morgan Stanley - no change in reserves in Vietnam - what's being carried in terms of reserves in CNV? Risk of revision? Offshore Congo - secured rig? Prospect size? (100m each, or in total?)
A: CNV - all about pressure maintenance. 2009 - pinching back to maintain pressure. Frac connectivity not sufficient to maintain; hence further well. "Not less blood, just poorer flow rate". Reserves unchanged (our share of 150m). Offshore Congo - 50m each prospect, so 100m total. Not retained a rig for this; have financial flexibility, plenty of jack-up rigs available there.

Q: Nomura - TGD - will you sidetrack to the fan, or target that through second well? Nganzi - pre drill estimates? TGT - cap ex estimates for 1st phase (2010/2011)?
A: TGD - go for the 'slam dunk' - over 90% probability of success; not fan. Not planned to sidetract across fault (which has no seal); second well next year more likely with significant sidetrack. Nganzi - first oil well onshore DRC. Not dissimilar to Uganda Heritage). 100km pipeline needed (was that them or Uganda?). confident of 'kitchen' and structures; don't yet know if there's a reservoir there. Different geology in all 3. Migration also unknown. 20% CoS from technical guys. RC thinks that's high, he would prefer 10% CoS. TGT - 185m budget; 100m in 2010. Includes fabrication of 1st platform; 4 appraisal wells in H1 fault block. 2nd phase similar, hanging more steel, so perhaps a little more.
Q: Nganzi - looking to farm or keep? A: Both! (chuckle) - 2 major players in that part of the world interested, but they don't like our terms. Lot of sentiment in boardroom to drill this thing ourselves. Risk reward great - 60m Cap Ex vs 3 x 200m prospects. We would probably farm down if they meet terms; would keep >40%, and operate.

Q: RBS - capex - why gone up so much from interims last year? Finance - debt unattractive vs equity; why? (analyst clearly hasn't read the last few presentations!)

A: 185m due to drilling and development in vietnam. 100m TGT; 25m TGD well (16-1 no govt participation yet) - increased wells in Africa, and TGT (hence why the increase from 110 in last year's interims to 185). 1st oil targetted 1 July 2011.
Financing - 1st time they've been back to market (ever?) - didn't take decision lightly.. Banks are open, but price is dear. Unique situation - $250m of convertibles that could be put back to us. Binary decision. We have different situation - 2 years ago; bond was at 40% discount; bunch of equity holders now hold both (D&E). No incentive for equity holder to convert, so conversion rate no more than 70%? Planned for 100% conversion rate. Reserve based lending facilities skewed towards proved rather than 2P. Accessing finance for an event that may or may not occur. True cost of debt around 8% if drawn; but if not, then an astronomical cost. Discussions re warrants; but didn't want to go there.

Q: Vietnam - TGT - if drill this year; clarity to upside on reserves or need production history? TGD - if going for slam dunk; will you go for development or wait for deep?

A: TGD - wouldn't wait for deeper pay off, but wouldn't rush production. Easy to hook up to current lines. Want to see upside from step-out well; if deep exists, production plan would need to change. (i.e. hedging bets - but leaning towards latter). TGT - don't need production history; can upgrade based on appraisal. Final upgrade would bepend on production recovery factors.

Q: Mark Bentley - TGT - so far only talked about appraisal - when development? A: they are really both.

Q: Oriel: Nganzi - rig contracted? A: No, not yet. Didn't want to overcommit until financial flexibility achieved. There are rigs there; initial discussions with Chinese co's in situ up north re potential cost. Q: Access roads? A: not yet - monsoon, but will be done as soon as they can. From North, roads exist to within a few miles of first location.

RBC: A: production guidance - CNV 2010? A: 6400 bopd 2009; comfortable giving similar guidance for 2010. could change +ly - additional drilling (small explo), injection drilling Q4. A: Capex 185m assumes farm down of Nganzi interest. Class V estimate 50-60m for 3 wells in Nganzi - 'one step away from wild ass guess' (speaking to Chinese?

Investec AM: Q: big picture - what is end game for vietnam? prove up and sell, or develop? A: We are explorers; haven't changed. Good at exploring (>60% success ratio) and finding reserves. Prepared to become more of a production co if that's dictated by conditions beyond our control. Everything for sale at right price. Don't do data rooms or solicit bids. A: Are there co's looking over your shoulder? A: never stopped. Forced to make an announcement 2 years ago - HK reporter got hold of info. Drilling is so near - it demystifies 90% of portfolio. Buyers dominated by NOCs. They'll pay squat for Explo or upside. International OC's - want earlier involvement.

[Didn't get questioner] Q: Timing on phase 2 TGT? Day rate for FPSO? Facility updates required in order to target upside? A: day rate - can't give. around $200,000 per day? [Anthony - 220k per day?] need to check; still moving, will get back. TGT Phase 2 - 18-24 months after first phase. Harder planning than phase 1. If phase 2 involves increased reserves, need to rethink strategy - might need production platform. Then; interaction with TGD. Most likely plan for that is to feed into most southern plan on TGT field. Development plan is for 100k bopd - if not big enough, then good problem!

BoA: Q: [missed qu]; Nganzi - security in North Cabinda? A: TGD - don't expect surprises on rig.. (50 - 55m cost). Overdesigned well in tech peoples well, purposely, can't risk tech failure. Bigger rig, additional casing string. TGT - 'pretty simple drilling', rigs plentily available, not expecting nasty surprises. Cost on TGT, phase 2 development - steel mill only allower pre-order for 1 platform. If steel prices rebound, cost could grow.
Nganzi - re African Nations Cup shooting; can impact general situation. So far, no impact on our operations. Looking at bringing rig in from North, overland from DRC? Over Sea?

Odey AM: debt financing: new convertible? A: Did consider, terms of existing convert prohibit, so would need to exchange. Advisors - would need to include some cash, and sweetning of terms (yield - existing 4.5; +100bps). Ratchet re change in control - close to prevailing share price - probability of major change in control even pretty significacnt in next 12 - 18 months - so dilution could be at v low price. Hence didn't want. Analyst didnt agree re pricing; will follow up off-line.

Goldman, Q: step out and explo in Thailand? A: 3D seismic needed, program planned this year. Money in budget for bit of explo and development. Not in same league as Vietnam and Africa.

---------------
That's it - probably not much new, but perhaps some. Presentation on the website apparently as well. Would be interested in others thoughts - I'm off to dip my fingers in hot water and get a coffee!

Cheers
K

Here is a summary for Marenica Energy an Australian uranium explorer (formerly known as West Australian Metals):

As this company had a complete change of managment in the spring of 2009 i will start from that time ignoring earlier developments,as they have little significance for Marenica today.

In the spring of 2009 Marenica was nearly broke,which was prevented by Batavia Mining who bought 30 Mio shares for 0,07 AUD each-giving Marenica 2.1 Mio AUD CASH.

 On the 5th of June MEY raised another 9.9 Mio AUD through a placement which was signed by POLO Resources (49.56 Mio shares at 0,12 AUD) and associates (who signed the remaining 33.04 Mio shares at 0.12 AUD)

After this capital raising Marenica Energy announced a drilling program for their Marenica project which they conducted in the summer and fall of 2009. This led to a resource upgrade after they evaluated 39 % of the drillings: They now have 38.6 Mlbs uranium at an average grade of ~ 150-160 ppm. (from 34 Mlbs at 140 ppm)

The final grade is not quite clear as they make a difference between indicated resources (170 ppm) and inferred resources (140 ppm ) The final resource upgrade is expected in January 2010 and should lift the overall resource somewhere in the ~ 45-50 Mlbs category (more would be a pleasant surprise) It is also expected that Marenica will be able to increase the average grades to ~ 180 ppm. (Especially the last drilling results with average grades of 196 ppm could prove to have a positive impact on the final resource upgrade)

MEY also had some drillings done at the Phillipus Dome,which were dissapointing and some more at Springbok which are still pending,but are expected to be released very shortly. According to management these results are expected to be more promising than the Phillipus results.

The third Dome hasnt seen some drilling yet,but was overflown in September to target promising drilling zones. It is expected that MEY will start drilling here in March or April of 2010.

On the corporate side MEY was able to get its license extended in the fall.

The most significant development for MEY is the entry of AREVA on th 23rd of december,who swapped their Berkeley shares for nearly all of Polos Marenica shares. Polo kept its options though,which are exercisable at 0.25 AUD (expiry date in the summer of 2010) along with 2 Mio shares.

So AREVA now has a 10.5 % stake in Marenica ( 47.56 Mio shares) for which AREVA paid a 75 % premium to Polo at the time of the deal (= 0.184 AUD/share)

Marenicas ore is of the same nature as AREVAs ore at Trekkopje,so it would make sense for AREVA to acquire Marenica, as the French already built a processing plant for 1.4 Bio USD as well as a desalination plant at Trekkopje. According to management both facilities will not be running at full capacity from Trekkoppjes ore alone.

Marenica furthermore announced that they are looking into other interesting projects,which they might like to acquire but so far nothing definitive has been announced.

So I am looking forward to the Springbok results and the final resource upgrade for the paleochannels,which might have a very positive impact on the shareprice. As AREVA is not known to be an investment company,there is of course speculation about a future takeover.

The shareprice has performed poorly from the 2009 height (after the entry of Polo in the summer) = 0,245 AUD,but made a nice jump after AREVA announced its entry. Volume has increased considerably since then,but there is still some selling pressure.

Marenica is currently valued well below 2 USD/lbs so IMO this could be a bargain.

It is speculated that Batavia Mining (ASX:BTV) might be the seller,as they are on the brink of buying into a new iron ore project,where they would need huge amounts of money:  a total of 16.5 Mio AUD over the next 6-7 months which is massive for a company with a market cap of only 17.5 Mio AUD. But up to date no formal announcement has been made concerning this issue,so it will be very interesting to see their next financial statement which is due in a couple of days.

So happy investing for everybody and dont forget to DYOR

Wantedman

Disclosure: I own Marenica shares

why don't you just refuse to post on any silly thread like this?

There has been some discussion on this subject on this Aminex thread.

Ingledew makes the case that:

certain well-respected posters should exercise a greater duty of care... not from a legal but a moral point-of-view

I disagree with this, save to say that everyone should observe the rules that S'pedia have set out here in their guidelines. This includes legal requirements...

It is a criminal offence to deliberately create a false or misleading impression as to the market in, or the price of, any investments thereby inducing another person to acquire or dispose of those investments.

... as well as behavioral elements such as:

making statements that are inflammatory

However, the most important element is this:

Stockopedia is a place for people to share their investment thinking

In other words, no-one is making any recommendations or urging others to follow a particular course of action. Further, it's evident that no-one can ever claim to know what is going to happen and it's common sense for anyone that they should do their own research and satisfy themselves that a particular course of action is:

• something they believe in;
• fits with their appetite for risk;
• fits their own circumstances, including - obviously - their finances.

This is sometimes referred to as Do Your Own Research or DYOR, which should be a by-word for any Private Investor.

On the subject of 'well-respected' posters, I think this is also a fallacy. Putting your trust in someone's words on a stock is rather like believing someone who tells you who will win next year's Premiership. If someone you know, indeed who you respect and whose judgement you value says that Liverpool are a dead cert to win the Premiership can you honestly believe them? And if you gambled on that outcome, who would be responsible if it turned out not to be the case?

There can only be one answer in my view. It's you.

Now, imagine if you were intrigued by the idea. Wouldn't it be better to ask a few questions? What makes your friend so certain? Have they got any insights you haven't? Do you believe them? Why not test with your friend your theory that Chelsea are a much better bet? Engage in debate (robust and on-topic!) and get hold of more information that will help you to make a decision. Your decision.

There are many cases of 'respected' posters agreeing on one thing and not another. That's good, those differences are often where the light comes in. Be part of it.

SW10

Hi,

As another attendee at the AGM,  I dont have much to add to what DIG3Y and Darron had to say. I also asked Brian about the warrents, and

had the same response. I understood that they were going to activly look at the possibility of extending the expiry date. There was a question

from the floor about the SP and the reply  was that one insto was selling 50k per day

for the past four months, and that plus a relative lack of recent news had probably affected SP. Brian felt that AEX had had a very good year,

in fact the best year ever and that funding concerns re Ruvuma may be a hold on SP. He said that talks re SC and Ruvuma were making

good headway and that he would like to prove the market skeptics wrong.

As regards SE 2,  he said that operating costs unlike  Somerset were very low, and described it as a big success. He rated El Paso highly

as operator and said they also  liked Alta Loma. He said that production from Upr Andrau was very steady, and that it was tricky to comingle

with other levels with a fear of thus damaging current production. However should production show signs of falling off, they were in a

position to quickley be ready for the S sands. He also felt that Shoats Creek would be a big success and said that they had seismic 3D

in satisfactory shape and that Wilcox is quite exciting. A big US company was keen to farm in, but that negotiations are tough.We are

spending a great deal of time on this and are working towrds a very nice project indeed. It was also mentioned that they are looking

at other opportunities especially in the range that they operate in in Texas. South Westlaco was described as having high royalty costs

and it was thought it might be sold and that they would buy elsewhere in the US.

I dont have much to add on Tanz, other than he said he wished Anadarko would drill before us.

There was mention of DPRK including the fact they they had been asked to meet their contacts there within the past three weeks, and

there was the usual talk of the East Sea being more interesting-large structures-lots of industry interest etc.

Brian started presentation by saying that company was in good shape-under control and moving forward with a good balance

of exploration and production, and that really was the overall impression I took away from the AGM

Hi,

Here are my notes from yesterday’s AGM. In addition to the notes below, I observe that the AGM statement RNS: states that a water-cut increase is being seen in East Zeit. I don’t recollect that being mentioned in the actual meeting. If it had been, I expect more questions would have been asked about it!

The AGM had a strong Foolish presence, as ever, including: NotherHubbard, emptyend and KingMcKong, amongst others. Tom Cross & StuartPaton, delivered a comprehensive presentation before the formal business of the meeting. I have a hard-copy of it but I guess any non-attendees wanted a copy will have to ask the company. Here are some points that I noted, questions & answers.

Bow Valley Acquisition

• The BowValley acquisition is mainly about production. Whilst Dana is reviewing BV’s Alaskan licences, these are likely to be either sold or dropped. BV adds the following producing fields (shares): Kyle (14%), Enoch (12%), Blane (12.5%), Chestnut (15%). It also adds a 12% share in the Ettrick development project, with first oil expected in July 2009 [Nexen operated].
• There are >US$70m of UK tax losses available from the BV acquisition, which Dana expects to be able to utilise.
• Taking the tax losses into account, the total cost of the deal works out at $9.47/boe
• As Bank of Scotland were a creditor of BV, Dana’s negotiating position was improved wrt to agreeing BoS finance for the deal (thus improving BoS’s security).
• Speaking to David MacFarlane after the meeting, I learnt that BowValley had parked C$40m in ABCP (which was part of the problem leading to their “forced” sale). This has been written down by 50%. He expects that write-backs may be possible in the fullness of time

UKCS

• I asked about CIECO  backing in to the Rinnes licences. TC advised that this will not happen until the FDP has been approved. They will have to pay a penalty £42m to do so. Neither CIECO’s potential interest nor the penalty are reflected in Dana’s AR.
• TAQA is now active in the Hudson area, having taken over Shell & BP interests and discussions re Melville and Rinnes development/tie-ins are ongoing.
• Project sanction for  Barbara/Phyllis is expected in 2010 and first gas in 2011.

Shetland-Faroe

• The Shetland-Faroe basin was described as having “world class discovery potential”. Tornado & Anne-Marie (ENI operated) explo wells are upcoming in 4Q09/1Q10 and 2Q10 respectively. TC emphasised that drilling plans were flexible and would be moved to take advantage of lower rig rates when possible & sensible. This can result in drilling either being brought forward or slipping.

 Norway

• Dana’s view is that prospects in Norway are better that in the UKCS, because Norwegian waters have not been as extensively explored. Norway is making blocks available that have not been explored at all previously, whereas all UKCS blocks have been previously evaluated, so only relicensing opportunities are available.
• Three Norwegian wells planned for 2009: Fulla (10% Dana): successful gas discovery, 60-105MMboe; Trolla (30% Dana) 3Q09, P50 390MMboe, 25% CoS; Jetta (30% Dana) Sept 09, P50 40MMboe, 33% CoS.

 Egypt & Morocco

• Two wells upcoming on WEB (50% Dana, 50% GdF), following up on earlier discovery. Papyrus (3Q09 schedule) is  similar to the WEB-1X well. Bamboo (4Q09 schedule) is a deeper and more difficult prospect but has multi-tcf potential.
• I asked about the sharp drop in realised price/boe for Egyptian production in 2008 vs 2007. This was due to exceptional charges in 2008 and the fact that Dana held the Egyptian assets for only the last quarter of 2007.
• I also asked about the impact of oil prices on realisations in Egypt and was advised that +/-$1 in the POO translated to +/-$0.40 in realisations.
• Anchois has 100bcf P50, 15% Dana interest. Derisks similar prospects in the area.

 General

• Given the increased workload, I asked whether the Aberdeen technical staff complement would need to increase. The response was “no”, as many of the projects controlled from Aberdeen are not Dana operated.
• Dana currently has  a portfolio of 20 discoveries to be developed.
• I spoke to TC after the meeting about Centrica’s Venture shareholding. His view is that Centrica WILL take over Venture in the fullness of time. He has already spoken to Centrica about swapping gas for oil assets.

Cheers,

Mark

Tullow Oil is a FTSE 100 stock, with a market cap of £9bn. Not, then, a junior oil exploration company, or a fly-by-night with a couple of prospects. But what's interesting is that it offers a very different style of oil exposure from FTSE companions Bp and Royal Dutch Shell B - where the majors are actually beginning to exhaust their resources, Tullow is still increasing its resources with new discoveries.

Tullow's core area of operations is West Africa, where it is already producing in Gabon, Cote d'Ivoire, Mauretania, Congo and Equatorial Guinea, and has development programmes in Ghana and Uganda. Its success rate in the area has been almost 100 percent. It also has interests in the North Sea, South America, India, Bangladesh and Pakistan.

And unlike most of the juniors, it's profitable. Its profitability did fall at the latest interim results, as the result of lower production as well as a lower oil price. Turnover fell 23% - with 16% lower volume - and profits were down 81% [ref] H1 2009 presentation: http://www.investis.com/tlw/docs/Tullow2009Halfyear.pdf [/ref] . But production should increase again in 2010, once the Jubilee field begins to produce, so this is a short term issue. (Jubilee is expected to start production in the second half of 2010, at a rate of 58,000 boepd – almost doubling the 59,265 boepd production of H1 2009 [ref] Tullow Oil fact book: http://www.tullowoil.com/tlw/ir/reportspres/finreportspres/2009/reports/facaug2009/facaug2009_n.pdf [/ref] .

However, it's not really current production you're buying Tullow for. Tullow could be transformed by the success of its exploration programme. New fields are important not so much for increasing production, as for the room they give the company for significant upgrades in resources, and consequent increase in the company's net present value.

In Ghana for instance the exploration programme in the Tano licence (of which Tullow, the operator, holds 49,.95%) and West Cape block continues to test plays close to the existing Jubilee field. (Jubilee itself might be more important than current figures show - further appraisal wells are being drilled in 2010, and the field could move on to a second production phase dependent on well results. But Mahogany-4 and Mahogany Deep-2 have to be drilled first, and rig availability is something of an issue, so further development is unlikely before 2011.) Teak-1, for instance, is testing plays up-dip from Jubilee; if hydrocarbons are found here too, that would increase the resources considerably. In March this year Tullow announced a significant discovery at

Tweneboa-1 – a highly pressured light hydrocarbon accumulation which is now being appraised. Tweneboa and Teak are both substantial prospects, with upside potential of over half a billion barrels each. The geology looks good – Teak-1 is testing plays up-dip from Jubilee, and there are large Turonian leads east of the Jubilee field.

In Sierra Leone, where Tullow is partnered with Anadarko, the company has recently announced a major discovery at the Venus exploration well. Tullow owns 10% of this prospect. Venus, the first deepwater test well to be completed in the Sierra Leone / Liberian basin, encountered more than 45 net feet of hydrocarbons. Anadarko will be drilling a further 2-5 wells in the trend over the next year.

This discovery is much more important than it looks, because it's likely that the Jubilee field at one end and Venus at the other are 'bookends' to a major hydrocarbon bearing geological system lying between the two of them, offshore Liberia and Cote d'Ivoire. The West African Transform Margin is a single geological structure, covering this whole area, which makes major hydrocarbon discoveries more likely and derisks much of the exploration portfolio. Tullow's interests in Liberia and Cote d'Ivoire (the South Grand Lahou prospect) will take another couple of years to explore; satisfactory results would further increase the company's resources.

However, investors should remember that while such overall geology stories look tempting, they can be disappointing in practice. The Chinguetti field, offshore Mauritania, was one such - Dana Petroleum failed to prove any significant reserves from its exploration programme there. While there is certainly good potential for Tullow from its African offshore permits, it can't be guaranteed.

 Tullow's other major area of exploratiion is in Uganda, where it operates Block 2 with 100% ownership, and has 50% in Blocks 1 and 3a. In 2008 Tullow announced that it had discovered five metres of net oil pay and nine metres of net gas pay at its Ngege-1 well in the Lake Albert Rift basin. This confirmed a well developed reservoir, and was the 11th well in the basin to encounter hydrocarbons. In May this year, the Nsoga-1 exploration well found further hydrocarbons. Tullow now estimates 100-400mb of oil under the Ugandan side of Lake Albert – and though there's no firm data on the Congolese side of the lake, has already secured an agreement to explore there. (The agreement still has to be ratified by the President, though, and might end up getting more expensive as Ugandan oil proves up.)

Total resources in Uganda already exceeded 700 million barrels of oil, before adding another discovery at Ngassa (block 2), which was announced in September 2009. Morgan Stanley estimated the Ngassa-2 discovery as worth 160p a share on its own [ref] Morgan Stanley note, http://ftalphaville.ft.com/lib/data/filecache/attachment/m/s/ms-oil-E-P.pdf [/ref] . This has de-risked the follow-up potential for the Ngassa oil field, which has the potential to be the largest oil field in the region. It's worth noting though that the Ugandan resource is waxy crude, which has higher cost of production and processing than most oils.

Tullow is now moving into South America. That sounds at first like a diversion from its West African core. However, there's a good reason for management's interest in the area; the geology is believed to be analogous to the Ghana field. Jubilee-type leads have been discovered on the Guyane Maritime licence, in French Guiana. This raises the tantalising possibility of discoveries of equal importance to those made offshore Ghana and Sierra Leone.

In order to ensure sufficient finance to complete its exploration programme and bring the Jubilee field into production, the company has secured a new $2bn debt facility, with net debt of £430m at the end of H1 2009 [ref] Tullow Oil - Half year results presentation [/ref] . In fact, cash flow from operations was positive in the first half of the year to the tune of £105m [ref] Half year presentation [/ref] – the company needs finance only for its new developments and is not burning cash.

Capital expenditure this year will be £750m, with a 65/35 split between production/development and exploration/appraisal. The focus is strongly on developments in Ghana and Uganda, which will take £500m of this total [ref] H1 2009 presentation [/ref] .

The shares' performance over the past five years has been exceptional, increasing from 72p to over £12. However, this may not all be down to the company's exploration success; the Investors Chronicle points out that Tullow is one of the shares most strongly correlated to the oil price [ref] Investors Chronicle, 16 June 2009: http://www.investorschronicle.co.uk/Tips/FairlyPriced/TipsOfTheWeek/article/20090616/fc4927c6-5a6e-11de-b342-0015171400aa/Tullow-back-on-form-in-Uganda.jsp [/ref] .

While West Africa is clearly a major area for the group, its involvement in the area is split between several nations, mitigating the political risk of its operations. According to the company, its value is fairly evenly split between Ghana (23%), Uganda (33%) and other Africa (36%). Tullow has clearly built up some very specific expertise in the region and in particular types of geology, which gives it a competitive edge – it claims a 90% global exploration success rate [ref] First half presentation [/ref] .

Tullow continues to enjoy a remarkable record of success with its exploration programme, announcing new discoveries on a regular basis. This month alone has seen finds in both Sierra Leone and Uganda. The shares saw a flurry of activity earlier this month as ENI considered a bid. However, the share price fell after ENI pulled out after completing its due diligence [ref] Guardian, 16 September 2009: http://www.guardian.co.uk/business/marketforceslive/2009/sep/16/tullowoil-enrc [/ref] . Nonetheless, they remain close to a one year high at 1124p.

But is the share price up with events? Citigroup thinks so [ref] Investors Chronicle, 26 June 2009: http://www.investorschronicle.co.uk/Tips/default/TipsOfTheWeek/article/20090626/517ed3a0-60b7-11de-8d5d-0015171400aa/Five-rules-for-the-new-oil-age.jsp [/ref] , stating that at above £9, the share price discounts further discoveries. There has been some further success since then, though, de-risking the portfolio and adding to the value of the resources.

On the other hand Panmure Gordon believes that with an 850p existing asset backing, the shares could achieve a 1500p value within the next twelve months. Panmure justifies this by assessing the wells proposed over the next year as a 2000p potential, and risking them at a 30% success rate. That's very conservative compared to Tullow's 90% success rate so far, of course.

I think on balance I'd be tempted to go with the Panmure view. The geology looks good, as far as I can judge, and the company's track record suggests it's spending its exploration money wisely. Moreover, unlike many other oil companies, it doesn't have any problem funding its exploration programme, so it won't get pushed into a corner and have to sell off or farm out its fields at low prices – shareholders should get the full benefit of any discoveries. And of course it's a nice big liquid stock – again unlike most oil stocks with this kind of exploration potential.

This article was first published in Oilvoice.com. OilVoice features a global selection of oil company profiles in one location, alongside continually updated industry news, operational data and focused regional information.

Nothing is more difficult than the art of maneuvering for advantageous positions.

Sun-Tzu
Chinese general & military strategist (~400 BC)

As we approach the end of 2009, what can we say about the shape and health of global exploration?

Firstly, I believe that we can observe that innovation, the exercise of “Know How”, the smart application of technology, are all alive and kicking in the world of exploration and there have been some noticeable successes, for example:

• In the Balmer Basin of Rajasthan
• In the Lower Tertiary of the Deep Water Gulf of Mexico
• In the Albertine Basin of Uganda
• In the sub-salt of the Santos Basin, Brasil
• In Deep Water Angola
• In the Jurassic of the southern end of the West Siberia Basin
• Chasing unconventional gas onshore in the USA
• Along the West Africa Transform Margin, especially Ghana.

Secondly, we should admit that this list slides off the keyboard too easily and disguises the fact that exploration is getting harder and harder compared with the ‘easy days’ of the second half of the 1990’s when the advent of regional marine 3D allowed us to explore young-ish Tertiary deep water clastics with comparative ease.

Consider for example what was involved in the recent Tiber discovery in the Lower Tertiary of the Deep Water Gulf of Mexico:

• To begin with, there was the imagination; the imagination to perceive that there would be a thick pile of slope and basin floor fans fully 400kms from the Lower Willcox shelf edge
• Then there was the “Know How”; the “Know How” to figure out after the first handful of discoveries where the porosity and permeability ‘sweet-spot’ might be
• And then there’s the technology; the technology to drill the small matter of 35,000 feet or so.

A fantastic achievement, don’t you think!

Thirdly, an interesting sub-plot is the relative failure of the Majors as a whole to participate at the tough frontiers of exploration and their possible replacement at the ‘cutting edge’ by the likes of Petrobras & BG, Cairn Energy, Tullow Oil, Anadarko Petroleum, and a host of small companies in the USA.

This is a topic worth its own article but what we I want to consider in this article is where some of the tough frontiers lie.

We at Finding Petroleum have plan a two day Conference in January. We will consider the Sub-salt plays of the South Atlantic; Onshore Rifts – in particular West Siberia and Uganda; we’ll devote a whole Forum to Iraq; we’ll hear about the West Africa Transform Margin, especially Ghana; and opportunities on the North Atlantic Margins; around the Falkland Isles; and in East Africa.

And we’ll major on the technologies and ideas that can lead to exploration success.

At our Forum on 20th October, we began with talks on Sub-salt. The first presentation took us on a tour of the South Atlantic Pre-Salt and was given by Neil McMahon of Bernstein Research.

The second was by Tom Ziegler of PGS and took us into the realm of sub-salt seismic technology, visiting inter alia the Gulf of Mexico, the Southern North Sea, Brasil. Videos of these talks can be viewed in full at www.findingpetroleum.com/open

The questions these talks provoked in my mind are:

Is there such a thing as leadership in sub-salt imaging technology?

Does it sit with the Majors, for example Exxon and BP who clearly have big in-house efforts, or is it available to all?

If the technology leadership sits elsewhere, were Petrobras and BG just lucky in the Santos Basin?

The answer seems to be that Petrobras have demonstrated clear leadership, with real skill and “Know How”, in their work on the Santos Basin Pre-Salt, with careful application of depth imaging conditioned by the fact that they had excellent velocity models derived from their unique wells data base.

From these two presentations and the discussions (also available on the videos), I feel I can support my contention that exploration is becoming harder offshore where either extreme depths or sub-salt or both represent the new frontier.

Or perhaps we might think that exploration has always been hard – it’s just that there was a period when the availability of big regional 3D surveys made offshore exploration for young-ish deep water clastics easy!

The next two presentations concerned themselves with onshore rift systems which are indeed harder to explore successfully……

The first is the grand-daddy of them all, the West Siberia Basin where the Soviets managed to discover in access of 400 billion barrels oil equivalent using a massive number of geologists, some 2D seismic and above all, the drill bit.

In the modern era, this Basin is being extended to the far south in the Uvat area which is just coming into production and to the far north in Yamal whence will come the gas for us all to cook our Christmas turkeys in about 10 years time!

I heard that at one time the Soviet Ministry that undertook exploration had more geologists than the Defence Ministry had military experts; they were very successful…….three West Siberian oil fields are listed among the world’s twenty biggest: Samotlor – 6th biggest in the world, Priobskoye and Fedorovsko-Surgutskoye.

The scale of the West Siberia Basin is in contrast to the many Tertiary basins of South East Asia that have been well documented by Harry Doust and his colleagues from Shell.

Here, typical field sizes are relatively small – averaging less than 100 million barrels oil equivalent – and these basins have established the reputation that exploration of onshore rifts is relatively arduous, requiring many wells…..there always being “just one more well and we’ll find the big field”!

This reputation began to be undone with Cairn’s exploration of the Balmer Basin in Rajasthan….although there is a slide in Cairn’s most recent presentations showing the exploration history of the Balmer Basin – the slide is titled “The impact of Drill till you Drop”!

However, reflecting on recent events in the Albertine Basin, I’d say we have seen this reputation broken…..but as a Non-Executive Director at Tullow Oil perhaps I am biased!

The first presentation was from Chris Einchcomb, recently of BP and TNK-BP and now Executive Vice-President of the Russian contractor Integra, and he talked about West Siberia. The second presentation was by Paul Burden of Tullow Oil and took us into the last few years’ exploration efforts in the Albertine Basin of Uganda. Again, both presentations and subsequent discussions can be viewed here.

The questions these talks provoked in my mind are:

Am I right to think that the most effective and efficient exploration programme would be to begin with gravity and magnetics, Full Tensor Gravity if you can, and then follow up with a more focussed 2D seismic programme, followed by an even more focussed 3D programme?

Peter Hutchison of Scotforth reminded us that onshore additional early help may come from satellite data which reveals where vegetation and soil mineralogy have been impacted by leaking hydrocarbons – visit www.scotforth.com to see some examples.

My observation is that we were fooled, over the period 1995-2005, into believing that exploration is 'easy' because offshore we could use vast quantities of cheap 3D seismic as a blanket-coverage ‘crutch’, provided we had the regional geology broadly right. The reality is that exploration is 'tough' and we are confronted with this as soon as we are onshore. Therefore, beginning with satellite data and then following it up with FTG (Full Tensor Gravity) and then 2D seismic and then 3D seismic, focussing in after each step, makes sense.

I’d hoped that this Oct 20th Forum would also be discussing the Arctic but, aside from the fact that a big chunk of West Siberia is inside the Arctic Circle, we had no presentations that focused specifically on the Arctic. This wasn’t for the want of trying!

It may well be that the Arctic is the last great frontier, almost completely unexplored, that we are ‘creeping up on’ via Alaska, and West Siberia, and Sakhalin, and perhaps Greenland….but nobody seems to want to talk about it!

I suspect this is because, despite the hype, there is very little known, the economics might not work at current oil prices and besides that there is a suspicion that it might be ‘gassy’, the politics seem messy etc etc. Thus real exploration seems like it might be several years away.

In contrast, Iraq – and in particular Kurdistan - seems very much part of the here and now, with some recent discoveries being touted as pretty large, at least in terms of oil-in-place.

Of course, the fantastic mountain range that is receiving so much attention at the moment was first explored pretty well 100 years ago. Occasionally, we – or at least I being an uncouth geophysicist– can be misled into assuming that because our predecessors did not have modern technologies such as 3D seismic then they were somehow dumb as well.

However, I think they worked out in their time that whilst there may well be oil-in-place all over this mountain range – the critical question is whether the reservoir rocks actually offer commercial flow rates.

After some effort, they managed to find a place where they did – and that’s in the vast oil field that is Kirkuk. The question their ambitious successors face is – is there anywhere else?

Our 6th Finding Petroleum Forum – remember these are Forums where we examine issues of business, exploration and technology - focused on the Middle East, in particular Iraq. All presentations can again be seen by clicking on www.findingpetroleum.com/open  .

In constructing the agenda for the day, I had a couple of straightforward questions in mind:

Firstly, a business question -

What should we think about the field development and re-development deals that are on the table in the current series of licence rounds, run by the responsible Ministry in Baghdad? In particular, what scale of production might they bring forward and are they valuable to the international oil companies, whether western or Chinese, that are pursuing them?

Secondly, an exploration question

What should we think about the potential for exploration in Kurdistan? Is it one of the great hydrocarbon provinces of the future or was it simply one of the great hydrocarbon provinces of the past?

Hopefully, our speakers – and the audience’s questions – went some way towards answering these questions!

To set the scene for us, we began with Neil McMahon of Bernstein Research who addressed the broad question “How does Iraq fit into the Global Oil Industry - and is there hope for the international oil companies?”

Our next presentation addressed the very important question of whether it’s possible for international oil companies to work safely in Iraq. John Drake of AKE helped us understand “Security in Iraq”.

We then spent the rest of the morning hearing about Kurdistan.

I began by showing a movie of some geologists from the Iraqi Petroleum Company out in the field, in Kurdistan, back in the days of silent movies!

Surprising as it might be to modern geoscientists, yes, the IPC folk did actually get out in the field, in fact they spent most of their time there, they hit rocks with hammers, they plane-tabled, they drew cross sections, and yes, they knew a seep when they saw one and sampled it. They didn’t spend their life looking at computer screens!

And wells were drilled.

Unfortunately, some analysts and brokers - and some companies – have exaggerated the significance of this fantastic fold belt, which is undoubtedly soaked in petroleum, talking as though it is one of the great unexplored frontier hydrocarbon provinces. It is not!

In reality the first well was drilled at Chia Surkh, just inside modern Iran, not so long after Queen Victoria died, in 1901/2 in fact. After that, the geologists of the Iraq Petroleum Company got to know the rocks quite well: they mapped the reservoir horizons from wells and outcrop, understood the palaeogeography and what we might call today the Gross Depositional Environments. They figured out that the reservoirs were quite poor in some places and also that the hydrocarbon phase varied along and across the fold belt. They realised that there might be a “sweet spot” – in which the 30bn+ barrel Kirkuk oil field was discovered.

The history of this pre-existing, IPC, data base is a tale in itself but suffice it to say that it is almost certainly not available to every company currently operating in Kurdistan.

One modern day lesson learned about the exploration of fold belts – and of course something that should be available to anybody exploring today that was not available to IPC geologists – is that excellent seismic is need to both define prospects and to get individual wells into exactly the right place to test a prospect and to reliably predict what will be encountered en route to the target. And that getting such excellent seismic requires real “Know How” and patience and money!

It was with this for context that we heard two presentations from current operators focussed on exploration opportunities in Kurdistan, The first was from Andrew Grosse of Sterling Energy and the second was by Tony Atherton of Talisman Energy.

As always, we await the evidence of the drill bit but, putting my small, ill-fitting geophysical ‘hat’ on, I’d say that Talisman clearly understood the regional context and in particular the need for top quality seismic data.

So what are we to make of Iraq as a whole, and how does Kurdistan exploration fit in to it?

In my humble opinion, we can say- yes, it’s possible to work in Iraq and there are some massive fields waiting to be developed or re-developed. Indeed, you can look at the last 30 or 40 years as having simply interrupted the normal pattern of development in a major hydrocarbon province, namely that the biggest fields get developed first.

So once Rumaila, West Qurna and perhaps Kirkuk are ‘in motion’, doesn’t this mean that smaller discoveries in the south of Iraq and exploration in Kurdistan will simply take their place in a conventional ‘queue’ – and wait for a long time???

Doesn’t this mean that shareholders in the Majors and bigger Independents are the ones that are going to be pleased, in the end? Those in AIM-sized companies are going to be intensely disappointed.

----

About Oilvoice.com: OilVoice features a global selection of oil company profiles in one location, alongside continually updated industry news, operational data and focused regional information.

So after one of your weaker stocks underperforms, odds are it is due to soon see better-than-average performance.

Well, I'm sorry but over my 25 year investing career, I've seen little evidence to support this theory and the advice suggested: to sell your winners & buy your losers strikes me as rather poor. In my experience one needs to judge whether the fall or rise is for a good reason, decide whether that fall or rise is justified and act accordingly.

The advice given is only sensible if a stock has risen or fallen for no good reason.

In reply to marben100 (post #42)

Following initial acidsation, I observe that the oil flow rate declined to just 1,100 bopd - but this is with vertical drilling. Ed sounds more positive

Just to be clear, the flowrate didn't decline to, it stabilized at after reducing the choke size. And, as has been observed, this is a well from which to get data rather than one from which to get hydrocarbons.

The objectives of the well are to further delineate the field, gather data that
would allow the 3D seismic to be used to map the distribution of reservoir
quality limestone and to test the effectiveness of a completion strategy that
could be applied to high angle development wells.

That's an interesting little sentence tacked on the end there... it sounds as though they had a practice run in this vertical well of something they'll be doing in the horizontals. I wonder if it's to do with the acidization or even the nature of the completion string. Pushing supposition even further, I'm wondering if the well wasn't perforated (perforating can be a tricky operation in horizontal wells - nowhere for tubing conveyed guns to be dropped off, almost impossible to get wireline guns down) but that a slotted liner was run, followed by acidization. If so, those production figures would be all the more impressive.

Alternatively, they may have used coiled-tubing conveyed guns, in which case the opportunity for the CT and wireline crews to work together would have been useful.

Or quite possibly none of the above...

SW10

PS. Reading through some of the recent posts on this thread, I have to express some dismay as to how long it's taking one or two of you to accept and understand SW10's Law!