OFFICIAL MERIDIAN PETROLEUM WEBSITE

Buy Meridian Petroleum at 35.5p

Argues StewartDalby of Oilbarrel.com

In the UK they have become known as scavengers. These are mid tier and small oil companies which have picked up stranded acreage in the mature North Sea, which are too small for the majors like BP and Shell to bother with. They are " pools" of oil which can be anything from 1 million to 10 million barrels of oil or 25 billion cubic feet to 100 billion cubic feet of gas

Smaller companies, which do not have the overheads of the majors can often squeeze more product out of the fields and extend their lives by adding further bits of the jigsaw for consolidation. They are essentially plays on the good prices for oil and gas. Paladin and Venture Production are companies, which have done well of acquiring these North assets. Tullow and Dana are examples of explorers, which have backed into acquiring mature production for cash flow to fund exploration.

If you can do it in the UK you can certainly do in the US. More so in the sense that as the stranded fields are onshore they are cheaper to exploit. And if the assets happen to be, well ,gas, prices are sky high at the moment.

Meridian Petroleum, which has just successfully floated on London's Alternative Investment Market with its 30p shares going to a premium on day one and raising £2.3 million in the process, has assembled a portfolio of assets in three US states and also Australia. Meridian has targeted projects where oil or gas has been found before or is close to existing production. There is therefore low technical and reservoir risk.

There is low sovereign risk, that is, political risk, as the assets are not in Russia, say. There is clarity of taxation. The interests are close to gas pipelines and/or existing infrastructure.

In the US Meridian has acquired the Emery Hudson field in Michigan. Gross potential reserves and resources have been estimated at approximately 5.2 billion cubic feet of gas plus 67,600 barrels of condensate. A low cost re-entry into a Niagaran Reef previously drilled by Dominion Midwest, it flow tested at 22.8 million cubic feet of gas per day. Full production recovery rates are expected to be 4 million cfpd of gas and 52 barrels of condensate. First income started in June 2004.

Meridian has an interest in another field in Michigan, Brighton 36, a Niagaran Reef formation in a historically prolific and gas producing region area, with gross producing reserves and resources estimated at 1.3bcf gas and 526,000 barrels of condensate. In the Calvin Field Louisiana, there are stakes in two reservoirs, Sligo and Rodessa, both of which are simple shallow structures with in a producing area with extensive field history. Total potential reserves and resources are estimated at approximately 24.2 bcf and 12 bcf respectively with condensate of 980,000 and 180,000 barrels respectively. There are also interests in two fields in Mississippi, Levees Creek, an 'attic' oil p[prospect in a producing area with potential reserves and resources of approximately up to 834,000 barrels of oil in place and Middleton Creek, located to the east of the Wilcox trend in the highly productive deeper Tuscaloosa sands.

In Australia Meridian has acquired a 77 per cent interests in one Petroleum Exploration Licence (PEL) and four Petroleum Exploration Licence Applications (PELAs) in the Otway and Gippsland Basins. The areas involved cover 9 million acres and, although at an early stage could hold 125 bcf of gas just 25 kms from the Moomba to Adelaide pipeline and the populated markets of southeast Australia.

The US interests are more advanced. With Meridian's working interests (WI) ranging from 50 per cent to 82.5 per cent and net revenue interests (NRI) 38.5 per cent to 64 per cent, independent surveyors Scott Pickford have estimated proven and probable (P1+P2) working interest reserves of approximately 2.5 million of oil equivalent in the US. Scott Pickford have calculated a pre-tax, pre-overhead Net Present Value, discounted at 8 per cent of £18.7 million for Meridian's P1+P2 reserves before considering the upside potential of Australia.

A key point to note than on the day of Meridian' float, it also announced that the Emery Hudson Field is performing in line with expectations, that is it is producing around 4 million cubic feet of gas a day plus condensate. Tony Mason, Chief Executive of meridian tells us the company is achieving about US$ 6 a thousand cubic feet. This means free cash flow of between US$250,000 and US$300,000 a month. Since the field took a total of £291,000 to acquire and bring on stream, say US$600,000, then Meridian has a payback period of just two months on the field. It is also looking at cash flow of US$2 million by the end of the year. Meridian already is a nice cash flow, low cost, low risk venture. But that is not all there is. A 20 well programme starting in the second half of 2004. So there will be in all probability sufficient funds to develop the exploration upside in Australia as well as acquire more assets in the US and Canada.