WGP - Westralian Gas and Power - Shale/CSG/W.A. Exploration

[upside_umop]

I have mentioned these a couple of times at some sharetrader meetings and thought it was time to post given they have heated up in the Shale sector.

-WGP have been listed since 2005
-Have ~250m shares on issue, and market cap ~8m (share price ~ 3 cents)
-WGPOA options with a strike price of 5 cents, expiry 01/10/2011. Currently trading ~0.5cents
-About a quarters worth of cash left. Expect a capital raising. They do have a debt facility which will give them slightly longer, but I'm not relying on that.

WGP as per the title are involved in:
-Shale exploration
EP455. An AWE joint venture whereby AWE will spend $7.5m on studies to earn a 90% share of the permit. WGP are free carried for their 10%. I can't help but feel AWE already knew the prospectivity in and around this permit and got it on the cheap.

DR11. This permit is probably the most exciting for WGP in terms of company making potential. Its right adjacent to where AWE have recently intersected 300m shale beds and estimate between 13 and 20TCF gas in place...in one of the shale intervals (yes there is potentially more).

AWE are in the process of securing a rig to drill EP455 in early 2011.

http://farm5.static.flickr.com/4058/5168022718_10e3dc029a_z.jpg

AWE has a heap of acerage though huh? WGP will piggy back off developments/announcements around this - as they already have.

-CSG

I really haven't focused too much on the CSG side of things as they never made much progress in the last 5 years on it. They had the right idea, W.A. has huge domestic potential given the high gas prices, but they seem to have failed to deliver. WGP claim to have the most prospective CSG acerage in W.A. - not sure on validity of this statement but must have some merit. Just find some seams now...

However, they have come out with an independent evaluation of the 'Vasse Coal Seam Methane Project' and basically concluded:
"Further seismic data should be undertaken to delineate the extensions of the known gas horizon and fault/fracture patterns of the area." BHP noted gas pressure when drilling there in 70's and this is what attracted WGP to the area.
For the full announcement on the 11/11/2010 see here (http://www.westraliangasandpower.com.au/documents/551.pdf)

-W.A. Offshore permits
WGP initially carried out an assessment of existing reprocessed seismic data for W05-21 and W05-22 showing the existence of previously unmapped structures. This led to reassessment of the prospectivity of these areas. Past exploration produced a live oil and gas show at Araucaria #1 near the recently discovered gas chimney and oil indications in all five of the other wells drilled in the blocks.

They have now farmed in ROC, which in short are earning a 20% interest for $2m spent, 20% interest for funding a $5m 2D/3D seismic, an additional 40% interest the funding of 100% of a well in each permit up to a total cost of A$15 million per well in the permit the well is, and finally 80% if ROC exercises all its options and spends $37m.

This information is summarized off their website.

http://www.westraliangasandpower.com.au/default.asp

This is a brief run down, I don't know too much regarding their oil permits. CSG doesn't seem to be the focus either. Shale is were the drivers are coming from with this stock. Oh yeah, they have some oil fields in Lousiana that are 'almost cashflow positive' to cover their US operations. I'm with SC on this one....get rid of them. US onshore invariably seems to be unprofitable for ASX juniors.

Here is a shale fact sheet from one of their presentations (http://www.stocknessmonster.com/news-item?S=WGP&E=ASX&N=491128) which I thought will help some people out.

http://farm2.static.flickr.com/1213/5167421313_3929195b52_z.jpg

Disc: Have a few heads. As always, you wish you had bought more....

[upside_umop]

Since the last post, there hasn't been too much activity. WGP fluctuated down to 1.8 cents from 2.7 at time of last posting and has now settled to 2.5 cents with increased liquidity since the shale induced hype by AWE's announcement.

Here is some analysis of the acerage to market cap:



COMPANY ACRES (NET) MARKET CAP ($M) LEVERAGE (ACRES PER $M OF MARKET CAP)
AWE 620,000 $936 662 acres/$M
NWE 376,000 $31 12,129 acres/$M
WGP 66,000 $7 9,429 acres/$M


It's quite accurate to directly compare these as they are all in the same vicinity (compared to the states where Eagle Ford is different to say, Woodford).

Cleary, NWE is most leveraged and AWE is the least leveraged. AWE has got identified targets of 13-20 TCF, and net tangible assets above it's market cap, so is a safe bet for the more conservative if they don't want full exposure to the shale outcome in W.A.. NWE has a bit of leverage with its 12000+ acres per $M of market cap but is out of the micro cap range that WGP is sitting at. WGP also has the benefit of having 11,000 of those acres amongst the highly prospective resources that AWE announced. They also have the 100% permit that looks to intersect the mapped prospect by AWE.

Either way, I've got some of each but do want to be more weighted in NWE and WGP than AWE.

http://www.stocknessmonster.com/news-item?S=WGP&E=ASX&N=515917

See the above link for the acerage of WGP in relation to the mapped prospects by AWE.

I'm still waiting for someone experienced to come out and say whether they expect condensate amongst the shales...I've done a little bit of research but can't determine exactly what is needed. However, this is a different beast to the US where gas prices are ~$4 and in W.A are near $8 as it makes gas viable just on it's own.

[upside_umop]

I mentioned WGP to a few at the last sharetraders meeting, but even I was a little weary of their cash position.
Today WGP came out and clarified a few things:
-$562,000 was raised since 31/12/2010 as part of its raising announced in November at 2 cents per share.
-Cash expenditure was unusually high due to repaying costs (why they didn't mention this in the quarterly, I don't know).
-This quarters costs look to be around $232,000.
-The company is pursuing 'several' joint ventures with Australian and International companies in the area of unconventional gas exploration.

Note the operative word in that last point. 'Several.' This is the first time they have said they have more going on than with just one company, namely AWE.

For the full announcement, see here (http://www.stocknessmonster.com/news-item?S=WGP&E=ASX&N=529377).

WGP should be funded for $246,000 + $562,000 = $808,000.

To reiterate where WGP lie in respect to AWE and the mapped structures, see below:

http://farm6.static.flickr.com/5054/5452461579_3c31acf245_b.jpg

The announcement on the cash position gives me a little more confidence in WGP for the time being, and considering there is 190m options at 5 cents expiring this year, I would think the management will be pushing hard to get these over the line ($9m for the coffers would go a long way...).

WGP still going cheap. $99 an acre...

Anybody else got any, or anything to share?

[skeet]

Could move this week based on good results from EGO, possibly bigger upside in WGPOA