Great Artesian is making the transition from explorer to producer through its 2004 Smegsy-1 discovery in PEL 106, which will come to fruition early next year, and Kiana-1 in PEL 107, which was discovered just a couple of months ago and is currently the subject of production testing.

Kiana was the first well in the company’s 11-hole exploration program, which will finish midway through the second quarter of 2006.

“At the end of the day, the more wells that are drilled, the more chance we have of success – it’s not rocket science,” says managing director Ray Shaw.

Great Artesian has been operating mainly Cooper Basin, South Australia since listing on the Australian Stock Exchange in August 2003.

Shaw described the Cooper Basin as a breeding ground for junior companies, which can have a “substantial future”.

The company originally had three former Santos permits – PELs 91, 106 and 107 – that were wholly owned, giving it important leverage for farm-in partners on the brownfields ground.

Now its strong position in what has become a booming oil and gas market is making the going relatively easy in terms of finding interested joint venture parties, according to Shaw.

The Smegsy-1 gas field is a 75:25 joint venture with Enterprise Energy, while at Kiana, Great Artesian has farmed in Beach Petroleum at 40% and Magellan Petroleum Australia at 30%.

Smegsy-1 is waiting on a $700,000, 4km pipeline to be built connecting drilling to existing pipeline infrastructure.

At Kiana-1, Beach is installing two 880-barrel tanks as the joint venture operator.

“Beach will do the production testing and put the oil into the tanks and then we’ll sell that down at Moomba,” Shaw said.

“We’ll actually get some revenue during the production testing. I would anticipate that if everything goes to plan we’ll have income from that before the end of the year.”

Kiana-1 produced 1100 barrels per day of oil in the initial test and 2.8 million cubic feet gas.

The drilling is about 5km from a gas pipeline with the plan to eventually put a separator on site and pipe them down individually.

Kiana-2 will probably be drilled early next year.

Shaw said cash flow from Kiana may provide an important additional source for ongoing exploration.

“For us, production will be quite significant and I expect it to certainly help fund our exploration over the next year or two,” he said.

The company has also recently completed a $7 million raising through Bell Potter Securities, with the funding structured over a $2.4 million tranche and a $4.6 million tranche, which has taken Great Artesian’s working capital to $8.5 million.

It is now armed and ready to attack its tenements with a considered approach designed to cast a wide net with low “capital burn”.

Great Artesian’s exploration strategy, as can be seen at Kiana, is to farm out its exploration projects to expand its opportunities.

The management team has so far been successful in structuring farm-in partnerships that succeed in spreading the exploration risk without taking control of the projects completely out of Great Artesian’s hands, by operating on a “no discovery, no earn” basis.

Shaw said the policy was security against the development of “unwieldy” joint venture groups, allowed Great Artesian to retain control of its key areas, and was a response to the market’s failure to validate 100%-owned discoveries.

“Whilst we’re cashed up, we’re trying to preserve our cash reserves by farming out whatever we can, bringing investment down to reasonable levels,” Shaw said.

Farminees are footing the bill for exploration on Great Artesian holdings to the tune of about $18 million, with Oilex alone committing to $8 million of exploration spending.

“We’re distinguishable from some of the other junior explorers, including Cooper, who had to farm-in to all its interests and earn a premium, because we’ve got the shoe on the other foot. We’ve held these blocks 100% and companies have to farm into us.

“We don’t see any reason at all why in a year or two we shouldn’t be a company that has a much more substantial market cap than we have at the moment.”

The second well in the continuing exploration program was Tyringa-1, which was plugged and abandoned last month after recovering a full string of formation water and no hydrocarbons.

Moving forward, the third well to be drilled will be Rossco-1, to start late this month targeting typical 15 billion cubic feet reservoirs in PEL 106, before the rig moves over to PEL 91 and drills the condensate/oil Udacha-1 target by early January. The rig will then head back to PEL 106 to drill Middleton-1.

They are the pending holes at the moment. Most of the remaining six wells will be constrained to the Cooper Basin. Burt one well will be drilled in ATP 552 in the Surat Basin, and Oilex will drill in EPP 27 in the offshore Otway Basin.

Great Artesian is also open to other opportunities that may arise in the meantime and seismic work in the Cooper Basin is in progress to identify new targets.

“If we can continue to come up with quality prospects we will continue to farm them out on a prospect by prospect basis,” Shaw said.

All the planned wells will be at least partly funded by farm-in partners and the drill rigs have been mostly locked in.

Though the current boom has supplied Great Artesian with more farm-in partnering options than it can poke a rig at, the buoyant oil and gas industry continues to deal with the related problems – the main one for Great Artesian being rig availability. Smegsy-1 was previously due to come on line in the middle of this year.

“We’re like everybody else – it’s all been pushed back,” Shaw said.

“One of the things we’re trying to address is that next year we get a more even distribution of drilling. This year has not been good from shareholder and potential investor point of view – to have a long period of inactivity.

“We’re more mindful of trying to stitch up and trying to get rig slots.

“We’re sitting on the launch pad waiting. I think Kiana is a case-in-point where we will very shortly be re-rated as a very serious explorer and producer whereas clearly at the moment we’re just not quite there as far as production goes.”

Great Artesian…at a glance

HEAD OFFICE

Level 2, Walker House

Walker St

North Sydney NSW

Ph: +61 2 9929 3383

Fax: +61 2 9929 3883

Email: [email protected]

Web: www.greatoil.com.au

DIRECTORS

Norm Zillman, Ray Shaw, Michael Callahan

MARKET CAPITALISATION

$27.605 million (at press time)

MAJOR SHAREHOLDERS

CVL Resources (Barbados) Ltd 14.31%

Rockmaster Pty Ltd 7.31%

Jetan Pty Ltd 2.6%

*This profile, first published in a different form in ResourceStocks, was commissioned by Great Artesian Oil & Gas