aem- must read

The Following post was done by a good friend who is from another forum and has given me permission to post on HC,
Thank you Eddie.
Enjoy






Okay Chaps & Ladies lets begin on AEM. My usual break up.

General Information & Background

AEM (Artist and Entertainment Group) - gas & oil explorer.

AEM latest ann stipulates that they are in negotiations for the Wailawi Oil & Gas Project taking rights from UPT.

The Wailawi Project, located in East Kalimantan, Indonesia was discovered in 1975 and was in production in 1979 and was a significant gas producer from ONLY four wells with peak production reaching 18 million cubic feet of gas per day in 1985. Production continued to 1999 when the project shutdown due to the asian finacial crisis, this results in the oil/gas field being put under "care and maintenance".

AEM has now reached the terms of the proposed PSC and are at the final stages of signing the agreement. This is expected within the next week or so (So Eddie Says "Jump" . . .

A further ann will then be made by AEM and a new timetable furnihed regarding obtaining shareholder approval of the acquisition if an interest in the Wailawi Porject from UPT and for compliance with Chapters 1 & 2 of the ASX Listing Rules.


Calculation & Evaluation

Please refer to the attached table for Eddies' Evaluation.

I have three difference scenarios
(1) Worse Case, (2) Most Likely, (3) Best Case

I will talk you through the 'most likely' case and you can refer to the table for other information.

'Most Likely' - assume that AEM will produce 14M ft/3 of gas per day with revenue from gas production @ $4.00, this leaves AEM with a profit of 0.00013/litre. 14M ft/3 is equal to 450M litres of gas per day. assuming that the wells are operational everyday expect PH that means that the wells are opertaional for 335 days a year. That means that the wells produce 115Billion litres of gas a year . . . @ $0.00013/litre that = $15.2M/year in profit. Over the operational life of the project (which is calcaulated as 6 years for the most likely scenario) that equals $91.5M in profit (LOW -Life of the Wells). . . Eddie applied a DCF of 7% and a maintenance fee of 10% for the LOW. It is important to note that AEM has the potential to go from a explorer to a producer in the matter of a few months and that they essential have little or now capital costs in getting the wells operational along with anything else.

Leaving total profit after elements at ~$78M.

Current Market Cap = $5,000,000

Shares on Issue = ~417,000,000

Current SP = $0.012

Potential SP (SPS) = $0.187

% increase on Current SP = ~1500%

Please note that the contract with UPT does stipulate that they will share in the profits from the project. I do not know what the terms of the contract are but I can provide a margin of safety (MOS) @ 50%. This brings down the SPS to $0.09, which undervalues the current SP at about 7 times its current value.

With that kind of MOS, AEM is a no brainer for those who have done their research.

So Eddie says "...", What do you think I say?