Invicta Oil & Gas (TSXv:IGG)

Malcolm Bucholtz B.Sc, MBA Analyst

Feeding the Hungry Chinese Dragon

The writing is on the wall. China National Oil Company (CNOC), Exxon, Merrill Lynch and Interoil are all scrambling to secure one of the few remaining untapped oil and gas regions in the world.

And with $30 billion already slated for investment, you can bet we’ve reached the tipping point for the 50 TCF of natural gas these energy giants once wrote off as completely useless.

Papua New Guinea (PNG), with its largely tribal society, dense rain forests, and rugged mountain terrain, tucked away just north of the booming resource production of Southeast Asia and Australia, seemed absolutely worthless. With nearly 50 TCF of land-locked gas ready for production, gas resources cast off as “uneconomical,” are set to become wildly profitable and the making of billions of dollars will begin.

Papua New Guinea is loaded with gas. But if you can’t move it, you can’t produce it, and if you can’t produce it, you can’t sell it, so it’s absolutely worthless. But not for much longer….

China National Oil Company (CNOC), Exxon, Merrill Lynch and Interoil have now declared they will be building the $30B key to unlock PNG’s reserves. They’re building Liquefied Natural Gas (LNG) terminals. The 50 TCF of “worthless”gas in PNG isn’t going to be worthless anymore.

LNG has seen the most profound pricing agreements in commodity history over the last 6 months.

Invicta Oil & Gas – Creating a Stir on the Street

Invicta is wrapping up a C$45 million private placement financing priced at C$0.56 with no warrants attached to hold back the future value of the stock. C$25 million is earmarked to acquire a 90% interest in 8.4 million acres of land right in the gas-rich heart of Papua New Guinea.

These acres cover 6 large blocks of property, as illustrated below. Neighbors include InterOil, Exxon/Mobil, Woodside and even Oil Search Ltd. who currently is in negotiations for a $5B buyout. The big boys are moving in.

China, Japan, India and others are fighting over LNG contracts and with Papua New Guinea located within easy shipping distance, the LNG effort not only makes sense but is going to make early investors big time profits.

Signed, Sealed, and Delivered

Invicta has already made a swift move ahead of the closing of the acquisition by asking one of its neighbors to the dance floor. Invicta has signed a memorandum of understanding (MOU) with InterOil that provides for some joint exploration activity and also for Natural Gas off-take agreements to the LNG plant to be built by the consortium that includes InterOil.

This is a huge move, for building a plant would have cost IGG in the range of $2 Billion. InterOil, by allowing IGG to tap into their plant, makes finding any gas economic. Now IGG won’t need to find a trillion cubic feet (TCF) of gas to be wildly successful. Even an economic ¼ TCF will be

worth big bucks when one stops to consider that in Papua New Guinea 1 TCF of gas equates to $1 Billion worth of LNG.

It’s a Matter of Months

The team at Invicta will be wasting precious little time in making progress in 2008. Invicta’s neighbors have already identified an estimated 25 trillion cubic feet of gas resource and with cash in the bank, Invicta is picking up the pace.

$800 million natural gas producer and Invicta’s PNG JV neighbor, InterOil, has already uncovered a hydrocarbon pay zone of 3255 feet. This is enough to make even the most emotionally hardened of investors weep tears of joy.

Invicta’s plans call for an airborne magnetic survey, 150 line kms of 2-D seismic, and up to 4 wells to be drilled. Invicta will not be sitting around.

Look for news from all the neighbors including Interoil, their proposed JV partners. What could really drive the stock is approval on any one of the proposed LNG terminals. Once approved, a now uneconomic pool of gas becomes wildly profitable and land valued at $10 per acre should start selling for multiples.

I have seen prospective land in North America surrounded by 50 TCF’s of economic gas sell for well over $300 per acre. Invicta has 8.4M acres.

That puts Invicta’s pre-exploration value at $300 million. Invicta’s market value is mere $30 million. That’s a 90% discount and Invicta has not even ramped up the drilling…yet!

Put Invicta on Your Radar Screen

At The Market Traders, we will be watching the Invicta story with intense interest.

We are initiating coverage of Invicta with a Speculative Buy rating on the stock. Invicta has all the makings of something special. However, there are still a few questions to be answered.

For instance, how much oil and gas is contained on Invicta’s property? And, what will be the economics of the gas resources discovered on Invicta’s property?

Nothing is a sure bet. And Invicta isn’t a 100% sure bet either. But with the likes of conservative heavyweights ExxonMobil, Merrill Lynch, and CNOC betting billions on the deal, Invicta’s about as close as you’re going to find.

For further information, be sure to visit the Invicta website located at www.invictaoilandgas.com.