Great Eastern Energy Co.- Interim Results and Site Visit -Buy: Arden Partners

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GEEC has today released its interim results for FY 2011, and an
update on its operations at its Raniganj Block, including details
of drilling and fraccing rates and expected production ramp up.

􀂋 Production up sharply from July; growth rate set to increase. GEEC
has reported current production of 4.54mmcf/d, a 22% increase on the
3.72mmcf/d it was producing in July. Although this is below what we were
forecasting, due principally to longer than anticipated well dewatering
times, it is still an impressive growth rate, and the pace of production ramp
up is expected to increase with the addition of new equipment.


􀂋 Increased development capability going forward. GEEC has now
begun work with new coil tubing fraccing equipment, which has already
increased fraccing rates from 1.36 wells per month to 2 wells per month,
and this is expected to increase to 2.5-3 wells per month. The third
workover rig has now been commissioned, and the second drilling rig is
now expected in March/April 2011. This will enable GEEC to drill 40 wells
per year, up from 25 currently.

􀂋 Offtake contracts progressing. GEEC now has 24.8mmcf/d of
production under contract/MOU, and is in negotiations for a further
25.2mmcf/d, providing a ready market as it ramps up production.

􀂋 Forecasts and valuation. GEEC has now made significant progress
through its Raniganj development, including engaging a US-based reservoir
engineering firm to help optimise production. As such, GEEC has now
been able to provide more detailed guidance on production, including six
monthly point estimate production rates (low and high case) and guidance
on expected producing/dewatering wells to September 2012, and an
expected well production profile. This has allowed us to update our
forecasts based on this new information. As such, we have revised our
numbers, based on GEEC’s lower production base case and gas price in H1
2011, which leaves room for potential upside. Taking into account a full
year of interest and depreciation, we see the company about breakeven in
FY2011. Following this, and our recent site visit to GEEC, we have also
updated our valuation, which now gives a NAV of 636p/share, at c.46%
upside to the current share price. With steep growth to come in the next
few years, the shares are a strong BUY.