announces improved oil flow, new acquisition and m

Announces improved oil flow, new acquisition and 6-7 wells to drill before end June 2003

AMU announced on April 1st that its third successful Red Creek well (AMU working interest of 60%) is now in production and flowing in excess of 85 bopd — an improvement on the initial estimated flow rate of 60-75 bopd.

This means another 50 bopd to add to AMU’s existing daily production of around 730 barrels of oil and 50 barrels of oil equivalent (from gas production).

And the good news for the long suffering AMU shareholders keeps coming (although you would never know by looking at the share price!). AMU also announced on April 2nd that it has acquired an 11.25% working interest in a gas exploration prospect in Yea County, New Mexico. Seven prospects have already been identified by 3D seismic and AMU stated an initial test well is planned before the end of this financial year.

Coupled with AMU’s previously announced intentions to drill, this latest announcement means AMU still has 6 to 7 wells to look forward to before end June 2003. As some of the 3 to 4 wells planned for Red Creek will be step-out wells on what is looking to be an increasingly lucrative patch, additional success and production seems almost assured. (Based on the success of their latest well on Red Creek, AMU expect this prospect will now be developed as a multiple-well field. This is a common form of field development in this neck of the woods and all indications to date suggest the total prospect will add significant quantities of oil to AMU’s total attributable production.)

Including this latest oil flow from Red Creek, announced production to date will see the second half of FY 2002-03 delivering to AMU 150 880 barrels of oil equivalent. This represents an increase of more than 90% on first half production, reported in their December 2002 quarterly.

The 150 880 was derived from:
 An estimated half yearly production to end June 2003 of 81 000 barrels of oil from their existing Texas operations, from the January 24 production update posted on the AMU website;
 AMU’s share of the unallocated 2700 barrels of oil produced over the December quarter 2002 from the Morgans Bluff producing lease (and announced in their December 2002 quarterly report as not included in the first half year’s production). This represents about 1580 barrels of oil;
 their share of production since start 2003 from their Knox City lease, from their two Red Creek successes late last year, and their Morgans Bluff interest. This represents some 300 bopd and gas equivalent to 50 bopd. Over the half year to end June 2003 this should deliver the equivalent of around 63 700 barrels of oil; and
 the latest Red Creek well’s contribution to AMU of 51 bopd for the remaining 91 days of FY 2002-03: which amounts to around 4600 barrels of oil.

This significant boost to production coupled with substantially higher average prices for oil and gas since December 2002 should see the value of AMU’s total sales rise markedly in the second half to end June 2003.

This augurs well for AMU shareholders as it should build nicely on the welcome half yearly financial results which saw AMU report total revenue of A$5.5 million, EBITDA of A$2.4 million and net profit of A$1.2 million.

In that same half yearly report, AMU estimated it was on track to deliver total sales for FY 2002-03 of some A$11.5 million, EBITDA of A$5–5.5 million and a net profit in the range of A$2.3–2.8 million. But current and likely production and price performance indicates this estimate is a bit too low.

Taking a stab on some assumptions (ie a weighted average oil price for WTI over the half year to end June 2003 of US$30 a barrel and an exchange rate of 0.60), second half production of around 150 000 barrels could deliver total sales of some A$7.5 million for the period. On this basis, full year sales would be around A$13 million and net profit closer to A$4.0+ million.

With a market cap of around A$8.5 million at current prices, this appears to a company worth keeping an eye on.