oil price whets merger appetite, page-11

Interesting take, here’s mine:

While there is a hedge in place existing oil contract expires EOY09. Cap and collar sees Co sending a cheque based on spot. While not ideal hardly earth shattering.

What we’re talking about here is effective oil price to the Co of $90/bbl. 1H08 Ave oil was $74.19/bbl, 1H08 Ave gas was $7.34. Current spot: $115 oil and $10.5 gas

Importantly while oil prodn is capped at $90/bbl there’s no negative effect from cap and collar on gas prod which is increasingly becoming AMU’s future. In fact with Henry Hub gas pricing at $10.5 you’d argue the 30% increase in gas pricing from last year more than compensates for the forgone revenue above $90/bbl for oil produced. And the downside here is zero with a floor of $8 under AMU’s gas production.

My opinion is that its highly unlikely AMU will cap and collar oil prod again - expect to see use of another device.

As far as valuations:

Bear in mind MATURE oil and gas assets are going UP in value for a number of reasons: Herolds oil replacement rate is rising $15/boe, Long term O&G pricing is rising out to 2015 not falling.

Valuations on mature US O&G assets I’ve seen from Wells, the Co, brokers and indeed from Corporates are done on a 2P basis. You’re opinion may be that you can’t value assets on this basis but then current deals are being done on exactly this. Another Oz minnow in the same region has.is looking at assets valued this way by Wells.

Current US market 2P rule of thumb is between $15 and $20/bbl for oil with about $4/mmcf for gas. Note more recent deals have been done in advance of these numbers if only because the rising spot price coupled with rising 2015 pricing.

(In fact Raccoon was done @ $17.70 from memory at a time of $65 oil)

Current 1P/2P reserves are in the order of 15-16 mmbbloe, so with the 1P/2P view you easily get north of $1ps.

Throw in exploration: worth at least 15cents: compare AMU’s E leases with the market cap of other micro explorers in the same region a lot of which are now $50m+.

Case in point:

Amro’s most recent AMU valuation was done at (long term) $65 oil and $7 gas, with oil/gas/exploration coming in at A$339. Less debt, still amounted to a valuation of $1.26ps

Shaws was more again while also allowing a fixed $35m for exploration again at much less than current spot pricing.

Throw in a control premium and AMU’s worth a lot more than 59cps.
On any measure (EPV/bbl anyone?) AMU is one of if not the cheapest E&P in the oz market... and it has ongoing growth in both.

But then you know that don’t you? ;-)

Either way I guess we’ll disagree