wolf cowling hits 237 ft net pay, page-17

Gral

Great post, I could not agree more. Most of Amadeus' production is from a few hundred wells throughout Kansas producing a few barrels of oil a day each, year in, year out. It is like farming more than oil exploration, and prices are very high for oil, relatively speaking. Production costs are minimal and production decline is also minimal. A few wells plus polymer treatments enable production to stabilise or even increase slightly overall. Not exciting stuff from the market's perspective, but extremely profitable at anywhere near current oil prices.

The recent success at Wolf Cowling provides cream on top. I would prefer the company to focus on lower risk exploitation than wild cat drilling - currently they are doing both with reasonable success.

The fact that oil is well above the top of the hedging range shows you the value that has been created since the acquisitions around 2006. It would be like hedging today at a cap of $200/barrel and then in 2 years time people on this site complaining oil is $250 and why did the company agree to hedge at $200! Hedging was needed to secure the debt for the acquisition, and it was a classic case of buying unloved unexciting assets when prices were low.

There is no doubt in my mind that Amadeus is very cheap. I also don't think there are many price catalysts, but at some point Wyllie, Towner and the other shareholders will sell out to a bid if the market does not fairly value the company. There is strong demand for their assets, and put simply they are not correctly valued by the Australian market today.

The share price has been drifting on minimal volume. Substantial shareholders are not selling, but equally there is minimal buying interest.

If you do not have patience, sell out. If you do have patience, put them in your bottom draw knowing it should be a safe investment and one day you should make money. If you are worried about the oil price you either should not hold a small oil and gas company, or hedge the oil price (but then you will complain about losing money when the oil price goes up no doubt).

The current profit result will look bad because of a mark to market of the hedge book, but if you look through this I expect very strong cashflows. These cashflows can either be used to fund exploration (we are back to Wolf Cowling) or rapidly pay back debt. I personally only want to see the second lien debt repaid, with c. $40m senior debt easily supported by the current assets.

Just my opinion
Monty