Introduction

On Energy Inc. (ON) held its 3rd Annual General Meeting November 23 2006; it had previously been postponed from the originally planned date of October 12th. Despite the company having a fair number of Guyanese shareholders, attendance was largely limited to those present in an official capacity, with just a handful of minority shareholders present.

Official Business

The formal part of the meeting proceeded rapidly: The Chairman, Mr Kerry Sully; Director, President and CEO of CGX Energy Inc, ON's parent company brought the meeting to order and introduced the Directors. ON's previous President and a Director, Warren Workman retired 6 July 2006 for personal reasons, and Mr Edris Dookie, director of ON since September 2003 was introduced as the new President. Mr Anand Beharry was introduced as a newly elected member of the Board, effective September 2006. Mr Sully apologised for the delay in the AGM and indicated that the company had been in discussion with the Securities Regulator (The Guyana Securities Council) regarding policy disclosures. He indicated that these issues would be addressed for the financial statements for the financial year ended 2006 and these could be expected "early 2007".

The first item on the Agenda was to receive the report of the Directors and the Audited Accounts for the year ended 31st December. In my recent analysis of ON (SN, Sunday 22nd) I indicated two areas where I felt further explanation was necessary: a breakdown of US$6.1 million deferred exploration and administration costs for 2005, and the significant difference between the estimate of the final drilling costs shown in the Chairman's 2005 half-year report of US$9 million and the figure shown in the Chairman's report in the 2005 annual report of US$12 million. I thus raised these points at the AGM. Mr Sully pointed out that geological and seismic exploration amounted to US$1.5 million and that total exploration cost all in was US$10.7 million. (This figure ties up with the figures I extracted from the 2005 annual report and 2006 half-year report). Costs were higher than budgeted for a number of reasons, including an increase in the cost of oil exploration services, difficulty in unloading equipment at the wharf and indeed some equipment breaking down; the Chairman noted that though the terms of hire for the equipment covered the costs in respect of the breakdown itself other costs incurred as a result of delays would not be covered by the terms of hire. The significant gap between the figures in the Chairman's two reports was due to slow transmission of invoices from overseas consulting firms, which were not accrued in the system at the time of writing. With no further questions from the floor the accounts were adopted by the shareholders and the remaining business (election of Directors, Directors remuneration and the appointment of Auditors) proceeded swiftly and the formal part of the meeting was brought to a close.

Prospects

With the formal part of the meeting concluded Mr Sully outlined ON's current position and laid out some possible scenarios for the future of the company noting that the data from the existing exploration can be used for further analysis of the region and be incorporated into existing data.

He highlighted the existence of a cretaceous band spanning from Suriname crossing the Corentyne inland. If there was any merit in the new data the cost of the exploration would then have to be assessed. It was now up to the Board to develop a strategy with respect to financing.

The Chairman indicated there were several possibilities available, including farming out exploration to a firm in Texas; sharing equipment with Sadhna Petroleum Company Ltd from Trinidad, who have announced their intention to drill West Bank Berbice in 2007, noting any success there would lead to benefits for ON; similarly drilling which is expected to take place 3rd quarter 2007 in the Takutu basin could potentially lead to the sharing of rigs with all three locations. Mr Sully then introduced Mr Fazal Hosein, who has 34 years of experience in the petroleum industry, who gave an informative presentation on the prospects in the ON block.

Risked Recoverable Reserves of 50 million barrels?

Mr Hosein, in his presentation, described the features which are necessary for hydrocarbon exploration: being a source rock for hydrocarbons, a reservoir to which they migrate and a trap or seal which prevents the hydrocarbons from further migration. He highlighted that the source which feeds both Guyana and Suriname (the Canje Source Kitchen) is oil prone and thermally mature.

The presentation included an analysis of the plays in Suriname, which highlighted 140 million barrels of oil recoverable at Tambaredjo and 50 million barrels recoverable at Calcutta Field. These fields have formed as a result of Stratigraphic pinching out leading to a trap - essentially where bands of stone become narrower moving onshore eventually leading to overlap between layers permeable and non-permeable to oil. If two non-permeable layers are pinched together with a permeable layer between, migrating hydrocarbons will not be able to move further, leading to a field.

The presentation went on to show that the Suriname plays were applicable to Guyana, and combined data from previous wells, and the three wells drilled by ON in 2005. Mr Hosein indicated three potential locations which he indicated had a probability of success of 15% - still putting them in the high risk category, though it should be noted that the original chance of success quoted by ON was just 10%. With potential acreage of 70,000 a 50 foot depth and a recovery factor of 100 barrels per acre this would give rise to 350 million barrels of oil - so called unrisked reserves. Multiplying for the probability of success gives rise to the risked recoverable reserves of 50 million barrels. Given current oil prices in the region of US$60 per barrel, this still represents an attractive proposition to those with sufficient appetite for the risk.

Conclusion

Before I attended the AGM I had resigned myself to there being little prospects for further development of the company. However, having attended the presentation it has highlighted that there is still some potential for the ON block. Whether anyone will step in to pick up the mantle remains to be seen. One thing is certain: the outcome of the exploration by Sadhna Petroleum Company Ltd will have a large bearing on ONs ability to secure financing. If nothing else though, the post AGM cocktails revealed a very pleasant 10 year rum - always a nice discovery to those who enjoy a tipple!