amadeus article - hellyeah

Hot 50: No 1 Amadeus Energy
30/11/2005
Tapping into old American oil wells to produce valuable crude. Alan Deans reports.

Amadeus Energy is worth a handy $180m these days, but back in 1995 when Geoff Towner was ­trying to get started he struggled to find backers. He believed he was onto something – buying old Texas oil wells then ­reconditioning them so that they produced more valuable crude. He had lived in Dallas, knew some reputable oil people and proved his concept after buying wells there for ­Sydney-based Bridge Oil.
“People wanted to know why they should back a West Australian company to buy into Texas,” Towner says of the first days of ­Amadeus. “They asked how we could do it. They thought if you roll into Texas and go up to a good ol’ boy, they would take your money.”

So Towner sold his home in Perth’s elite Peppermint Grove, and paid over the proceeds. “That was a good indication to people that we knew what we were doing. Anyone who has skin in the game has to be serious. After I sold the house, one of our most loyal shareholders from Melbourne put in the same amount of money. We had our first $1.6m.”

A decade later, Amadeus has hundreds of oil wells that last year earned it a net $11.2m, a gain of 200% compared with 2003-04. Its success, which includes a place in the ASX 300 shares index, also has enticed other Australian companies into the US oil patch. With soaring oil prices and a favourable exchange rate, it would have been hard not to report huge growth, but in this case it is due to more than good fortune.

Amadeus expects to double production in the current year, from 280,000 barrels of oil to more than 600,000 barrels. It has been signing new deals at a giddy pace, and boasts substantial exploration prospects along with producing wells across four American states. What started as a venture working over lowly producing holes has ­blossomed into a multi-faceted operation.

Towner credits his US partners for much of the success. He and his brother initially went to Texas to advance their family water-pumping business. His wife bumped into the first of his new oil buddies when she took their daughter to the local playground and met other parents. One thing led to another.

Key were DeWayne and Chris Travelstead, two petroleum engineers who hunt out the deals for Amadeus and take a cut for themselves. In fact, Towner says all the people working for him have a direct stake in the ventures. They think more clearly, he says, when their own money is at risk.

The Travelsteads are well connected, like Texan “royalty”, says Towner. They arranged, for instance, for Wells Fargo Bank to lend the fledgling Amadeus funds within weeks of the venture first being formed – before Towner had even been personally introduced.

It is a financing relationship that has endured, despite some tough early days. After buying its first wells, Amadeus floated on the stock exchange, raised $3.2m and bought more oil. But its shares slumped, flat-lining at around 10¢ each until 2003 because of low crude prices. The wells kept pumping, however, and the bank was being paid.

Now that the price has taken off, the outlook has changed dramatically. Amadeus’ wells are very profitable, and it is quickly buying more. Towner increasingly is jazzing up its prospects by acquiring exploration acreage. Next year $16.5m will be spent drilling, and so far the company has enjoyed a heady strike rate of 70%.

Typical of the deals is one just completed in Kansas covering 7300ha. Eighteen wells have been drilled before, with 15 ­successful. Amadeus has another 52 targets to test, and is hoping to outline an extra 130 well sites after conducting seismic surveys. “Based on what they have found so far, we could drill 180 wells there over the next three years,” Towner says.

But there’s more. Amadeus is ­embarking on its largest single play next year by ­spending $3m on a half-owned well in ­Louisiana. It is seeking gas, a rapidly increasing component of revenues. Towner says that if that well comes in it will produce $43m in annual sales, a real company-maker. If not? “If it’s a dry hole, it’s far from a company breaker.” Towner reacts sharply, however, when asked if he is being timid. “We are not being timid. The best place to look for oil and gas is where it has been found already. That’s what we are doing.”

Perhaps the best acknowledgement of Amadeus’ success, in Towner’s mind, came when he recently issued $23m in shares to pay for a new deal. Remembering that he had to sell his house in 1995, he told his Texas bankers simply that he would let them know when they asked how long the raising would take. His Australian stockbroker began selling the shares immediately, and were swamped. Pledges came in for $40m. The offer closed after 75 minutes, and Towner telephoned Texas. “The bank simply didn’t believe that it had been done.”