aed oil limited rating upgraded to buy

12m price target: A$11.48

* Event: FY07 net losses of $4.1m (pre-abnormals):
* Net losses (pre-abnormals) for FY2007 were A$4.1m. This compares to
our forecast loss of $4.2m and a loss of $4.5m over FY2006. The FY07
result was impacted by one-off significant items, namely a change in
the fair value of convertible notes and a share based payment expense.
The result was also impacted by a net FX gain.

* Impact: EPS forecast changes: FY’08 -7%; FY’09 +84%:
* We have reduced our FY2008 EPS by 7% as we expect higher operating
costs are required for development and expansion of AED’s assets. We
have also included production from Puffin SW commencing in 2H08 which
has increased our FY2009 EPS outlook by 84%.

* Action: Upgrade rating to Buy:
* We have upgraded our AED rating to Buy (prior Neutral). Puffin
South West, with its 40mmbbl estimated recoverable resource, together
with encouraging initial simulated flow rates and the signing of a
charter agreement for an FPSO, suggest Puffin SW may be an asset
similar in scale and value to AED’s Puffin Main field.

* Valuation: NAV A$10.29 (prior A$5.29) based on DCF at 10%
* Our AED NAV is now $10.29 (prior $5.29), which incorporates Puffin
SW as a stand alone development. Our share price target is now
$11.48, reflecting our NAV, plus risk weighted exploration upside.