lavaca county results: big $$$ ahead

Yesterday’s weekly drill report contains excellent news on current and expected production from the two most recent drill successes on AMU’s Lavaca County ground.

The star performer is Byczynski #1 – which is now producing gas (and making sales) at an initial rate of around 2.45 mmcf a day and oil at a rate of 142 barrels of oil a day. Production should soon be upped to about 3 mmcfg a day with associated production of about 174 bopd (pending an upgrade to compressor facilities). And, unless any undue pressure decline occurs, the intention is to increase production to 4-5 mmcfg a day, which should see associated oil production of between 230-290 bopd.

AMU has a 25.75% interest in the well, so its share of production after royalties at the various production rates would look like this:

At the initial 2.45 mmcf flow rate: AMU would get 500mcfgd and 29 bopd
At the 3.0 mmcf flow rate: 615mcfgd and 36 bopd
At the 4.0-5.0 mmcfg flow rate: 824mcfgd to 1.0mmcfgd and 48-60 bopd.

With WTI oil now trading over US$53.00 a barrel and Henry Hub gas at US$6.97, this well is a cash cow for AMU. At today’s prices, just those initial flow rates mean it is delivering total revenues of around US$5000 a day.

The likely effect that a 4-5 mmcfgd production rate will have on AMU’s revenue over the next 12 months just screams of hefty profits down the track.

To get an idea of how much profit this one well might be expected to deliver, let me hark back to AMU’s announcement of 12 Aug 2004. That announcement noted that ‘At current gas prices in the US [a tad lower than now], the Gerdes and Scheinemann South wells will add between US$1.2-1.8 million to Amadeus’ bottom line on an annualised basis’.

That profit outlook was on the basis of those two wells delivering a combined production to AMU of around 0.6mcfgd. Byczynski #1 looks certain to deliver at least that when the compressor upgrade is complete. On that basis, we can look forward to this well alone delivering annualised profits of US$1.2 to US$1.8 million.

More exciting though (at least for AMU shareholders like me) is that it looks set to produce well in excess of that, and at the upper levels of 824mcfgd to 1.0mmcfgd it could be expected to deliver annualised profits of some 37% to 66% higher. In other words, it could drop between US$1.64 to $2.5 million and US$1.99 to $2.99 million to the bottom line on an annualised basis. Now that is an impressive result!! And lets not forget these wells will produce for decades – what a cash cow.

I will leave it to you to figure out what this well is really worth to AMU’s share price. But to my mind, earnings of this magnitude suggest added earnings per share of between A1.3 and 2.5 cents. Using a conservative price earnings ratio of X10, the results of Byczynski #1 suggest it is worth between A13 and 25 cents per share to AMU.

With 2 wells a quarter scheduled to be drilled on Lavaca County over the balance of 2005, AMU share price looks set for plenty more movement upwards. Add all the other wells they have scheduled - on the productive Red Creek and Raccoon Bend, and the forthcoming South Gross Tete spud - and the future looks bright indeed for AMU.