Market Impact: Negative, but not unexpected given a 5% chance of success. Given we had carried this well at $2.19/share in our risked NAV, we will revise our risked NAV to $4.53/share (from $6.73/share).
Rodinia Oil announced that the Mulyawara-1 exploration well was plugged and abandoned on October 13, 2011. Due to poor quality logs, a petrophysical interpretation of the deeper zones was not possible. While drilling, gas shows were recorded over sands in the Mundallio and Emeroo sections, totaling 150 gross metres. Logs indicated that the developed sandstone sections had porosity less than 10%. The sub-salt section had poorer than expected Pindyin sandstone development and contained no oil shows.
Due to delays caused by drilling and mechanical issues at Mulyawara-1, the well took three times longer than expected, resulting in 75% cost overruns. We had factored in some cost overruns into our estimates; however, this is a greater overrun than we had envisioned. Prior to these additional overruns, we had expected a cash balance of $22.5 mm at the end of Q3 2011e. We now estimate that current cash is closer to $20.0 mm.
Even with current drilling cost saving initiatives, the Company may have difficulty completing the remaining three wells in the drilling program. Excluding long lead time materials purchased to date, we expect the company will need to drill each remaining well for approximately $6.0 mm. This is a decrease of approximately 65% from the drilling of Mulyawara-1. Should only two further wells be drilled without further funding, our risked NAV would fall an additional
.50/share to $4.04/share.
The next well drilled will be Kutjara-1, located 45 km south of the Mulyawara-1 drilling location. This well will be drilled using modified drilling techniques, which are expected to improve efficiencies and lower costs. Management has outlined a number of advantages for this well, including: recently acquired infill seismic, access to existing infrastructure, fault patterns isolating the potential source from Mulyawara-1, and the ability to use PDC drill bits to lower costs.
Shareholder Rights Plan
Rodinia has also adopted a shareholder rights plan. This plan has been approved by the TSX Venture Exchange. Management has indicated the adoption of this plan is not in response to a specific proposal to acquire control of the Company.
Leadership Changes
Peter Philipchuk has resigned as a director of Rodinia for personal reasons. Matthew Philipchuk has resigned as Executive Vice-President to pursue other business opportunities in Australia. Sedi reports that Peter Phillipchuk holds 0.5 mm shares and 0.52 mm options, and Matthew Phillipchuk holds 0.5 mm shares and 1.0 mm options. Additionally, through ODIN Capital, the Phillipchuk's jointly hold an additional 6,360,036 shares. Previously, in May 2011, ODIN Capital disposed of 1.0 mm shares.
Rodinia is now recruiting for the position of Chief Operating Officer, to lead it operations in South Australia.