AMU 0.00% 21.0¢ amadeus energy limited

another acquisition and well on the way!

  1. 396 Posts.
    AMU is at it again. Another farm-in and another well planned for before end June 2003.

    AMU last Friday announced it has acquired a 13.125% working interest in an oil and gas leasehold, prospective for Jurassic Cotton Valley Sandstone and Smackover Dolomite reservoirs. The US$91,500 AMU has contracted to spend in order to earn their interest is to come out of its healthy cash reserves. That prospect also has an exploration well due to spud before end June 2003. A quick squiz at Texas Railroad Commission data (the body that essentially regulates field development in this neck of the woods) shows that there are plenty of successful wells on the geological formation covering the Jurassic Cotton Valley Sandstones. So the geology looks promising.

    The US$91,500 seems an inexpensive entry price for a working interest in the leasehold and an initial well, and represents a continuation of the company’s policy of pursuing a low risk-relatively high reward strategy.

    This latest move adds to AMU’s recent spate of acquisitions and farm-ins (ie Morgans Bluff; Knox City; Lea County, New Mexico; and now Chickasawhay Prospect in Wayne County, Mississippi). And the latest planned well brings to 8-9 the number of wells still to be drilled before end June 2003 in which AMU has an interest.

    Based on actual oil and gas production announced to date, AMU is currently producing around 25,000 boe (barrels of oil equivalent) a month. This is a huge increase on the 13,000 boe a month it was producing at the start of this financial year. And this higher level of production will essentially continue into the next financial year and the next etc etc: all the while continuing to feed a healthy lick of revenue and profits to AMU.

    On top of this increased production, the announced degree of drilling activity over the next 2.5 months will give AMU significant exposure to further upside in production and revenue. Given that some of these wells will be step out wells on the (to date) very successful Red Creek structure, the probability of added production must be high. Moreover, the long-lived nature of fields in this area means any production will continue for many years to come.

    Yes, the share price is languishing at levels around AMU’s historic lows. But a comparison of its expected profitability for this FY (A$4+ million?) with its current market cap (A$8.4 million), and its current share price (around A9 cents) with its very conservative net asset backing (my view greater than A25 cents) point to a good longer term buy.

    Having said that, its your money and your decision. And while it is good to be optimistic, its better to have tight stop losses!

    A word on the seemingly high costs (gap between revenue and EBITDA) raised by Arthur on 05/04/2003. My understanding is that US accounting standards impose very stringent amortisation requirements on oil and gas companies. Thus, to comply with accounting rules, they have to book big licks of dough as expenses (last Annual Report A$2.9m). Doesn’t affect free cash flow, but writes down accounting profits substantially. Given the long life of the fields that AMU is exploiting, this is a very conservative (excessive) write down of their producing assets. Anyone else care to comment on this?


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