re: bulletin: the speculators pick.full text Where there's a...

re: bulletin: the speculators pick.full text Where there's a drill ...
06/27/2006





Deep in the heart of Texas, WA-based Amadeus Resources is mapping out some tried, tested and terrific reserves of oil and gas. David Haselhurst reports.

Texans are aware they live in a big country. Big hats, big oil, big steaks and, regrettably, big bellies from the prodigious meals served up in the Lone Star state.

So it comes as a surprise when they are gently reminded that Western Australia is four times larger than Texas. Not that anyone is boasting. But a relatively small Perth-based company, Amadeus Energy, lays claim to becoming one of the largest independent holders of oil and gas tenements spread across Texas into Kansas, Oklahoma and Louisiana.

Along with its American joint venturers, Amadeus has built a portfolio of more than 25,000ha of production and exploration tenements in the past decade, most of it in recent years. The company should turn a net profit after tax of more than $15m for 2005-06, after spending heavily on exploration to boost reserves and production in the coming year. Reserves, proven and probable, stood at 14.2 million barrels of oil and 9.83 million cubic feet of gas at the end of last December. New acquisitions are likely to boost that by 20% when the latest results are out.

Managing director Geoff Towner puts much of the success down to long--established relationships with well-connected oil operators who got the company into deals when oil was less than half the present price. “Australian companies coming over here now just don’t have the relationships we’ve built up over 20 years,” he says. “You can’t put a price on it.”

Towner discovered Texas in the 1980s when he arrived from Australia trying to sell oil producers a pump with rot-proof valves. Success was only modest so Geoff moved on to exploration and production syndicates. In the process, he began to establish invaluable long-term contacts.

The extent of those associations became apparent after The Speculator visited the office block in Dallas Park that Towner shares with petroleum engineer Neil Malloy, a former managing director of Bligh Oil. He manages a syndicate of investors and otherwise lives much of his time in a manor house in England. Their landlord, Jamie Clement, also shares the suites with paintings and photographs of Santa Gertrudis cattle and a portrait of his great-grandfather, Captain R. King. Clement is chairman of the King Ranch, a 32,350ha spread with retained oil rights on the San Fernando River where the Santa Gertrudis bloodline was fixed last century.

Malloy is among the technocrats who find projects for Amadeus. Towner’s company puts up the money, and the joint venturer generally gets up to a 10% free carried interest to manage the project and invests between 5% and 10% of their own money. In Texas, mineral interests below the surface are privately owned, so oilmen must negotiate with the holder to pay a royalty. That is usually 12.5% to 25% on any production. Title to the surface of the land can belong to a third party. Royalties on Amadeus holdings mostly range from 18% to 20%.

The partners aim to secure proven but declining oil and gas properties with hopes of defining new targets through 3D seismic surveys. They then enhance well flows through gas or water injection, fracturing downhole strata or injecting polymers to restrict water flow and enhance oil flows. Malloy claims some old wells can be boosted as much as 10 times from such treatments and can go on for years.

Results from Halletsville (see map) have delighted investors. In November 2003, Amadeus acquired working interests ranging from 25% to 50% in this deep gas area. It has assessed reserve potential of 5 million to 22 million cu ft of gas and 150,000 to 500,000 barrels of oil from depths of 2900m to 3500m from each well.

Drilling so far has a 79% success rate (11 out of 14 wells) with the Hoffer 1 well hopefully due to reach target later this week. One of the early wells, Byczinski 1, brought joy to the widow Byczinski who entrusted her 20ha holding to the syndicate. The well came in 18 months ago with a flow rate of 4 million cu ft a day. It has since settled to 2 million cu ft/day along with 70 to 80 barrels of oil.

Apparently she rang Malloy and asked: “Do you think I could buy a car?” “Mrs B,” he assured her, “I reckon you could buy the dealership.” Her monthly royalty cheque has been running above $US50,000.

Some 190km north of Dallas is the city of Wichita Falls, headquarters of TNT Engineering Inc, another joint venturer owned by Dewayne Travelstead and his wife (another petroleum engineer), along with 17 shareholders who all work in the business and are encouraged to invest in company-generated opportunities.

The White Eagle project in Kansas is one of their responsibilities, with opportunities for a lot of shallow work-overs including 20 polymer treatments of old wells. The cost is $US70,000 per well. Typically, of six wells so far treated, one had been flowing 16 barrels of oil and 2270 barrels of water a day. After treatment, it is flowing 195 b/d oil and 600 b/d water.

This is a pointer to the larger picture, with Amadeus’ share of production now running close to 2000 b/d of oil equivalent. Despite borrowings against future production of $100m that is intended to pay for development, the conservative book value of its net assets at $79m compares with a bank valuation of $269m.

Amadeus has 185 million shares on issue. After trading as high as $1.40 recently, they tumbled to as low as 95¢ in the shakeout a week or so ago. They are favoured to retest their previous highs.