Stock Analysis Special Edition on MEO Australia

Written under AFSL: 259730
14 July 2016
By Peter Strachan
First published in StockAnalysis Issue 23, Volume 13 - 13 July 2016
MEO Australia
Capital Structure
Indices and Prices
5,433.20
8,284.60
All Ordinaries
Energy Index
Code
Shares
Options
Perf Rts
Price
Market cap (est)
Net cash (est)
MEO
891 m.
3.7 @ 50 cts
26.3
$ 0.029
$ 26 m.
$
4 m.
Recommendation:
MEO has gained a
reputation for amassing projects that try to
shoot the lights out, but so far without
success. A recently advanced exploration
programme is just the sort of thing that
punters look for with plenty of risk and
reward. However, StockAnalysis smells a
new issue in the pipeline and would look for
a speculative buying opportunity on the
back of this predicted capital raising.
63.30
Brent AU$/bbl
0.7626
AUS$/US$
1,750.66
Live Gold/AU$
As at close 12 July 2016
MEO has outlined plans to explore oil & gas projects
onshore Cuba, as well as in the Bonaparte Gulf, the
Browse Basin and in New Zealand.
Risked valuation
$m
$/shr
Cash (est)
New Equity
Tassie Shoal
Exploration
Corporate
$ 4
$ 5
$ 1
$ 62
-$ 20
$ 52
0.004
0.005
0.001
0.057
-0.018
$0.048
StockAnalysis assumes some dilution for an
estimated $5 million of new equity required before
January 2017, to arrive at a risked valuation of 4.8
cents per share.
Gold Live AU$
1850
1800
1750
After making project equity dilution
assumptions, StockAnalysis assesses a 43
cent per share value for success at the
two major project areas in Cuba and
$2.38 per share for a Beehive oil
discovery or 16 cps for the gas case.
1700
1650
1600
Jul-16
S&P ASX 200 Energy Index
Brent Crude Oil $AU/barrel
5,500
8,750
75.0000
5,400
8,500
70.0000
5,300
8,250
0.760
55.0000
0.740
0.720
Jul-16
Jun-16
May -16
Apr-16
Mar-16
Feb-16
Jul-16
0.700
Jun-16
Jul-16
Jun-16
May -16
Apr-16
40.0000
Mar-16
6,750
Feb-16
4,800
Jul-16
45.0000
Jun-16
7,000
May-16
4,900
Apr-16
50.0000
Mar-16
7,250
Feb-16
5,000
May -16
7,500
60.0000
Apr-16
7,750
5,100
0.780
65.0000
8,000
5,200
AU$/US$
0.800
Mar-16
All Ordinaries
Feb-16
Jun-16
May -16
Apr-16
Mar-16
Feb-16
1550
BLOCK 9 PSC, ONSHORE CUBA (60% AFTER CLAW-BACK BY PETRO AUSTRALIS LIMITED)
Since MEO became involved in Cuba, strengthening of diplomatic relations between Cuba
and the USA has improved the investment climate for projects in Cuba.
Unlike targets in the Gulf of Mexico, where
oil and gas are typically found within
sandstone sediments, sealed by shales or
against salt diapers, in Cuba petroleum is
trapped in carbonate formations, similar
to the oilfields of North Africa.
Recovery of oil from carbonates often
relies on natural fracturing in dolomite
formations
that
have
undergone
significant tectonic activity with overthrust folds, similar to those found in
PNG. Other reservoirs can have massive
natural
porosity
and
permeability,
depending on their history of burial and
erosion. But experience in the region
suggests that oil will be a heavy grade
and recovery of just 5% of oil in place is
seen as the norm. Some oil may contain
sulphur, which would reduce its value.
Block 9 covers 2,380km2 along the north
coast of Cuba. The permit is adjacent to
producing fields at Majaguillar and San
Anton as well as the 18,000 BOPD,
Varadero oil field and has legacy wells
that discovered hydrocarbons at the
Motembo field, proving the presence of a
functioning petroleum system.
The company has identified three play types at increasing depths. While much of the oil
produced in Cuba is heavy low grade oil, historic finds in the Block 9 show relatively light
22° API oil.
For example, the historic Marti-5 well
recovered light oil with 24°API, with oil
shows over a 390 metre gross interval
from the Lower Sheet target. Recent
seismic data indicates that the Marti-5
well was drilled outside of mapped closure
for that structure, improving prospects for
Leads I, J and O, which are now
candidates for early drilling.
TARGETS
MEO has identified a total of 15 exploration leads with potential to yield 395 mmbbls of oil
at a best case scenario. Further work will be required to mature these leads into prospects
that are ready for drilling.
Leading the list of targets is Lead A2, to which the company ascribes a 25% probability of
success (POS), with upside to 222 million barrels of recoverable oil. The A2 Lead is close
to two historic wells that recovered oil from the shallow Upper Sheet above the deeper A2
Lead target:
 Guadal-1, drilled in 1970/71, recovered

more than 30 barrels of light oil (24°
API) on test.
Bolanos-1 drilled in 1991 recorded a
recovery of 22° API oil.
MEO is attempting to design drilling
programmes that can test multiple targets
above the A2 Lead.
Page 2
Peter Strachan © 2015/16 Pex Publications Pty Ltd
ACN: 59 077 704 146
For the sake of this study, StockAnalysis ignores the whole pantheon of leads to assess a
risked value for the A2 Lead and combines leads I, J & O as a single project.
PEP-51153
30%
In the Taranaki Basin, MEO retains a 30% interest in the 0.6 mmbbls Puka oilfield and
has identified the Shannon prospect in the Tikorangi Formation with a target of 5.3
mmbbls of oil.
This may prove to be a viable target in a better oil and gas market.
WA-488-P
100%
MEO is the last man standing in this Bonaparte Basin permit in which it has mapped
the Beehive oil prospect, just to the south of ENI’s producing Blacktip gas field. The
company assesses potential for ~860 mmbbls of oil in the Carboniferous and
Ordovician Formations.
Interestingly, StockAnalysis
suggests that Buru Energy’s
discovery of excellent
quality oil, in high quality
Ordovician reservoirs at the
Ungani oilfield in the
adjacent Canning Basin,
lends some support for oil at
Beehive, rather than gas.
MEO has plenty of equity to offer out to fund drilling and would be prepared to dilute to
20% to see the target drilled.
StockAnalysis assesses gas and oil targets with a 70% chance of gas and 30% chance of
oil in the case of success.
AC-P 50 & 51
55%
MEO has mapped several leads, including the Ramble On and Jur’maker prospects on
these permits along trend from Shell’s Crux gas and condensate field. The company
targets oil discoveries, but assesses potential for gas. In the event of gas
discoveries, StockAnalysis believes that they would be too small to develop on their
own in this location.
StockAnalysis believes that there is little doubt about the quality of the petroleum system
in this location, but the prospects are remote and woud require the discovery of at least
30 mmbbls of oil in order to be rendered commercial.
In order to defer costs, MEO has introduced a partner who will carry it through 3D seismic
reprocessing work and update prospectivity on the reprocessed seismic data so that farm
out support can be sought in 2017.
Risked exploration value matrix
Disclaimer
The information or advice (including any financial product advice) herein is believed to be reliable and accurate when issued however, Strachan Corporate Pty Ltd ABN 39
079812945; AFSL 259730 (“Strachan”), does not warrant its completeness, reliability or accuracy. Strachan, its Directors and their Associates from time to time may hold shares in
the securities mentioned in this report and therefore may benefit from any increase in the price of those securities. Opinions and estimates constitute Strachan’s judgment. The
author certifies that the views expressed in this document accurately reflect the analyst's personal views about the subject company and are subject to change without notice.
Strachan, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted
by law. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be
suitable for all investors. In preparing such general advice no account was taken of the investment objectives, financial situation and particular needs of a particular person.
Therefore, before acting on the advice, you should consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. There may be a
product disclosure statement or other offer document for the securities and financial products we write about in StockAnalysis. You should obtain a copy of the product disclosure
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investments discussed may fluctuate in price and changes in commodity prices and exchange rates may have adverse effects on the value of investments.
Recent Strachan Corporate commissioned research or corporate advisory services have been supplied to the following companies, for which it has received a fee. Rawson
Resources, Incremental Oil & Gas, Peel Mining, Mining Projects Gp, Horizon Oil, Kingston Resources, Aurora Minerals, Real Energy Jacka, Carnarvon Petroleum, Lion Energy, FAR
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The author has small holdings in shares of WIN, SUN, SGC, RFX modest holdings in IGO, AZZG, TDO, IDR, SRI, ADX, ANZ, NAB, PTM, FAR WSA & WPL and larger holdings in
AWE, FZR, RIC, HAV.
Page 3
Peter Strachan © 2015/16 Pex Publications Pty Ltd
ACN: 59 077 704 146
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