ayo and psa compared...postscript

Amity Oil versus Petsec Energy

A postscript on a comparison I madeearlier today between Amity Oil and Petsec Energy.

Having just re read the recent Shares article on Amity I note that a production rate of 20 mmcf pd returns $18 million a year to Amity before interest and tax. (That’s according to Tim Treadgold, the article’s author, who knows a lot more than I do about these sorts of calculations). And this return is on Amity’s 50% interest in the field. On this sort of return Treadgold sees an eps of 5.4 cents a share in 2003 (based on a share price of 50 cents at time of writing. This he says, represents a P/E of 8.8 in 2003. Earnings should rise to 7.8 cents in 2004, a P/E of 6.1 cents on same share price. Treadgold reckons Amity will rise to $1.0 a share based on these returns.

Now lets say Petsec in 2003 is producing around 20 mmcf pd (the platform due to be completed in January will actually accommodate 30 mmcf pd). PSA has a slightly higher percentage of the West Cameron field than Amity does of Gocerler but for arguments sake lets say the return to PSA is the same ie. around $18 million a year. This represents an eps on PSA’s smaller number of shares of 8.1 cents a share or a P/E of 3.2. And that is without the contribution of the 7% ORRI from Ship Shoal which could contribute as much as an additional 1.5 cents a share.

The difference in the markets assessment of these two stocks is I guess the fact that Amity is in production whereas PSA is not scheduled to produce its first gas until some time in January. PSA also still has some sceptics out there as a result of its past problems which saw the share price hammered down from above $5 some years ago to a low of less than 15 cents earlier this year following a court settlement which saw the rebirth of PSA with $20 million in cash, no debt, control over 5 GOM leases, and most importantly control over a data base on the GOM that PSA had built up over 10 years. But those things aside PSA has done everything right this year, appears determined not to repeat the mistakes of the past and has focussed sensibly on the area it knows best, the shallow waters of the Gulf of Mexico, with a potentially very profitable side flutter on Beibu Gulf offshore China because of its similarity to the GOM..

Anyway, based on the above figures and assuming PSA actually gets into production and its three wells produce at expected rates of production between 5-10 mmcfpd per well (the historical average for West Cameron wells) PSA should soon be worth at least if not more than AYO’s current price and potentially well over a dollar by end 2003. JMHO.

The market is a funny place. I hold PSA in preference to AYO. JBC