junior oilers 21/22 december

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    Junior Oilers 21/22 December

    Interesting week geo politically. War with Iraq seemed to move a step closer as Chief UN Weapons Inspector Hans Blix joined US and UK governments in dismissing as inadequate, Iraqi documentation denying possession of WMD. Oil rose above $US30 as uncertainty in the ME affected the market, Venezuelan strikes continued and OPEC undertook to maintain supplies at current levels. January natural gas contract fell marginally during the week but remained over $US5. Rise in POG encouraging rotation out of oil sector and into gold.

    Oil stocks continue to be on the nose in comparison to gold and hi techs. Volumes remain small. Best performing stock this week among junior oilers was Mosaic (MOS) on the back of anticipated further drilling success at Churchie 1A and the Qld government’s approval of a proposed gas pipeline paving the way for the Churchie field. Worst performing stocks included DLS (wild gyrations on small volume), COE/STU (Karbine 1 looks likely to disappoint), CVN and BUY.

    Perth Basin stocks (except BUY) stirred a little during the week and generally closed higher or neutral but volumes were again small. Only a disappointing 79,200 shares in NWE changed hands on Friday. Ensco Rig 53 was reported to be on its way to Cliff Head and expected on site on 2 Jan. Well is to spud on 4 Jan. Given speed with which earlier wells were drilled (CH1 2-3 days and CH2 4-5 days) results of CH3 should be known early in week beginning 6 January. Time is running out to get on board ( or to get off if that is what your strategy is!)

    Unloved, Unwanted, Under performing and Undervalued Oilers:

    There are currently a number of junior oilers trading on small volumes and at close to year lows. The explanation for this varies from lack of - or unsuccessful - drilling activity, no new public announcements, concerns about finances or simply a movement by investors to stocks with better short term prospects. Some of these unloved junior may be worth accumulating for those contrarians with a longer term investment/trading horizon. They include:

    Amadeus Energy (AMU)

    An independent engineering assessment of AMU’s US oil and gas assets valued them at $US 12.1 million equal to a net asset backing of around AU 26 cents per share. Yet AMU shares continue to languish around the 9-10 cents mark with little buying interest. The shares got to 13 cents mid year but it has been down hill all the way since then, touching a low of 8.2 cents this week. Problem appears to be company’s inability to get its US gas and oil production up to predicted levels, uncertainty about its venture into the high tech sector (Virtual Control Systems) and delays in bringing the bio diesel project to fruition. (the project is still waiting on a farminee to put up $6 million for a one third interest).
    AMU made a bottom line loss of $0.8 million last year and revenues from oil and gas production were down from $11 million to $8 million. As the company does not put out a cash flow report with its quarterly activity statement it is hard to know how it has been travelling this FY. It would be helpful also to know the extent of the bank debt used to prepare a feasibility study on the bio diesel project and to fund the operations of VCS. AMU has however found funds to buy more US gas assets (at Morgan’s Bluff). Indeed I think investors would prefer the company management to concentrate on its base oil and gas operations and not be diverted by other activities.
    Accumulating AMU at around 9 cents may offer a 10-20% return or better next year as higher oil and gas price impact positively on revenues and new discoveries are brought into production. Some positive news on the bio diesel project would also be welcome. But I don’t currently hold.

    Cue Energy (CUE)

    CUE saved itself $500,000 by not participating in the deepening of Bilip 1 a wise decision in the light of the announcement this week that no hcs had been found at depth. The higher hc column will now be tested. Despite the less than favorable political and economic environments in which Cue operates (Indonesia and PNG) the company made profit last year, has a sound revenue flow from SE Gobe and is about to announce the go ahead for the development of the Oyong discovery. To me Cue is significantly undervalued at current levels. If Bilip 1 is found to be commercial, Cue will appreciate quickly, if Bilip is plugged and abandoned I am not expecting a significant weakening in the stock as I think a disappointment is pretty much factored into the price already. Cue will drill Wortel and West Anggur mid 2003 and the shares should rise ahead of the drilling. Reaction to a positive announcement on the development of Oyong will in part depend on how it is going to be financed and whether or not CUE will have to raise capital. It already has a lot of scrip on issue. Accumulating at current levels around 5 cents may prove to be quite profitable in 6-12. months time. I think I predicted a 2-3 bagger last week. I hold CUE.

    Carnarvon (CVN)

    A lot has been posted on CVN in recent weeks including some forward looking spread sheets so no need to cover all the ground again here. Suffice to say CVN is announcement driven and I suspect there will continue to be little interest or movement in its shares in either direction until the JV partners report again on production rates and/or announce another round of drilling to test the theory that WBN 4 and 6 have been drilled into a better quality F sand reservoir which extends further to the north. I think the market’s preoccupation with flow rates from all the wells drilled so far is a bit pedantic and misses the underlying fact that CVN is sitting on a sizeable oil field, has already had success in getting oil out of the ground and into the refinery and has a break even point lower than the current combined production rate. I think CVN will reward longer term investors and I hold. Also some perhaps self serving suggestions on one bulletin board that Shell and/or the Thai Petroleum Authority maybe interested in buying a stake in the JV. And CVN’s partner Pacific Tiger is certainly doing better on the Canadian bourse than CVN is doing on the ASX.
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