latest research

Amadeus Energy - March 2007 - Euroz
(AMU $0.80) Hold

Key Points

Low risk exposure to US oil & gas market.

12x FY’07f PER – not cheap.

Up to 40 expl’n/appraisal wells planned for the next 12 months.

Market awaits further results from its Kansas workover wells.

Target price $0.75/sh.
Comments
As a small producer with limited growth, AMU is highly exposed to the
rising costs across the oil & gas industry – we see this as a major
hurdle that may stunt its upside going forward. We are yet to see the
step change in production and earnings promised from last year’s
White Eagle acquisition.
AMU recorded a $4.8m NPAT for the Dec H’06, in line with our
expectation of $4.4m. However, the result was some 20% below our
expectations 6 months ago – mainly due to higher costs, ARW and
other write downs applied previously.
We are forecasting a production increase to 815 kboe for the current
FY (v’s FY’06 647kboe) driven by signifi cant Lavaca County gas
production increases and full year contributions from the Dec H’05
acquisitions at Kansas, Ford and Stephens Counties. This is a 10%
downgrade mainly due to delays in bringing on successful exploration
and appraisal wells.
Although we forecast a rise in forecast production, we are forecasting
a drop in earnings this FY to A$13m (v’s A$14m normalised for FY’06).
Higher operating costs and D&A are the main reasons for the drop
along with a lower expected oil price.
Revenues from oil & gas production totaled US$9.1m for the Dec Q
(v’s Sep Q US$11.2m). Sep Q oil production totaled 125 kbbls (v’s 132
kbbls) and gas production totaled 615 mmcf (v’s 313 mmcf). Whilst oil
production was lower, the higher gas production was in line with our
estimates and showing a promising trend. AMU should record Q on Q
oil & gas production growth for the foreseeable future as its expanding
acreage position is appraised and developed.
AMU is budgeting US$18m to be spent on exploration on its US
properties for the FY’07 (v’s US$5.3m for FY’06), of which US$1.3m
was spent for the Dec Q. We doubt AMU will achieve this, mainly due to
the relatively tight rig market in the US. Of the remaining wells planned
for FY’07, we understand the approximate mix will be: 70% gas / 30%
oil, consistent with exploration over the last 2 years or so. Exploration
and appraisal success rate for the Dec H was 93% (14 from 15 wells)
v’s 67% for FY’06 (16 from 24 wells).
AMU anticipates ~8 exploration wells on its Lavaca County acreage
over the remainder of CY’07 – with an 80% success rate to date,
value add should continue. Two deep gas plays in Louisiana on the
Grosse Tete prospect (AMU 50%) will be drilled this CY. Both wells
offer signifi cant upside potential if successful.
Consistent with AMU’s high level of debt (~A$90m), it has hedged ~55%
of our forecast oil production and ~20% of our forecast gas production
for a period of 18 months. This totals: 480kbbls at a fl oor of US$52/bbl
and ~600 mmcf at a fl oor of US$8.00/mmcf.