whats happening, page-12

Ozgem, we saw a bit more of a sell off on Friday, which was disappointing, especially in the face of a rising oil price. As I posted in the new thread "This is Cheap", AMU recorded an $8.1mUS surplus for the quarter just gone, prior to development and exploration expenditure. Now, the question is, what level of exploration exp. is required to maintain reserves. In other words, what is their true maintainable earnings. My strong sense is they would not need to expend anything like the current exploration budget, and that this is more to do with being on a mission to take their reserves to another level. The update to reserves is due out prior to the AGM this Friday...so that may tell us more.

The last page of the quarterly has a small section called "Hedging". They have a series of collar arrangements, whereby a certain % of their production is limited both to the downside and the upside by rising and falling US$ oil and gas prices. I imagine this is prudent. Looks like they are limited to $90Us oil on 225750 BOL for the remaining 9 months of this year, which at current rates of production, represents 55% of their oil production. Obviously this % drops as production increases.

Noting that they achieved $US 68.14/bol average for the first quarter (amazing how that oil price has risen so sharply in recent weeks), at current oil prices of $88, I imagine revenues for oil at current production rates will be up quite a bit in the second quarter. Of course, the A$ has a big effect too. So US$ oil may be up 29%, but A$ oil is up probably around 11%. However, what is also very important is that AMU is re-investing US$ into an elevated exploration programme. Therefore, I would argue they are reaping considerable benefit at the US$ oil level. Make sense?

The next quarter should see revenues of $15.1mUS, if production and these oil prices persist. So, I figure that should realise net operational cash flow of around $11.4mUS prior to exploration expenditure. Let's say, $2mUS per quarter is required to sustain reserves ( I will learn more about this soon I hope). That still leaves $9.4mUS per quarter in operation net revenue. I reckon this is dirt cheap at $140m market cap. Said it before and I say it again.

The sell down in the past few weeks is really bizarre. I guess the small drop in production may have something to do with it. What is their production prognosis? That's another question. Perhaps the AGM will reveal more about this. The market is odd at times. No doubt tomorrow will be a tough day given the drop on the DOW. No worries. I like the numbers on this stock. If she drops, I buy more.