AMU announced today a successful result from the second of three...

AMU announced today a successful result from the second of three deep gas plays in Lavaca County.

Until production testing confirms flow rates, the true impact of this on AMU's fortunes wont be known - but it certainly looks promising for now.

As a purely speculative flight of fancy, my crude back-of-the-envelope estimates of the worth to AMU of this latest success goes something like this. Assuming current prices (which in the light of the state of the oil market and the imminent start of the US summer driving and air conditioning season seems reasonable to me) and based on announced production estimates:

Lower zone (28 feet of net pay):
2.0 to 2.5 mcf gas per day X Henry Hub gas price US$6.50
Upper zone (20 feet of net pay - ie 40% less)
Estimated 1.2 to 1.5 mcf gas per day X US$6.50
Gives estimated (say) 3.0 mcf per day X US$6.50 = US$19,500 per day

Plus associated condensate of 15-25 bopd per mcf of gas = 45 to 75 bopd.
Say around 50 bopd X US$37 cited in ASX release =US$1850 per day

For a total of around US$21,350 per day. At exchange rate today of 0.7015 = A$30,434 per day (and likely to increase as the Aussie dollar weakens against the greenback).

Applying AMU’s current working interest of 22.5% to this indicates its attributable share of revenue is around A$6,848 per day, or some A$208,000 per month. [At that rate, AMU’s 22.5% of the US$1.8 million cost of the well could be paid back with around six months of production from just the first of the pay zones to be brought into production – or around 84 days of imputed full production from both zones.]

On top of this, the announcement notes a step out well location has been identified and will be drilled after payout. That offers the juicy prospect of more of the same not too far down the track!

Given the highly profitable nature of similar wells in nearby areas, this success should deliver handsome returns to AMU. Just how much that will be, I guess we will have to wait until the production testing is complete.

Any others care to comment on the expected worth to AMU?

(Here’s hoping the next well comes good too).