Based on current and highly probable oil and gas production...

Based on current and highly probable oil and gas production alone, and likely production from its first biodiesel plant in Adelaide, I estimate that AMU will generate EBIT of over A$12 million this financial year.

Applying a conservative PER to that estimate and, with a fully diluted issue of around 153 million shares, AMU have a fair value of well over A$1.00.

Rubbish you say. Well read on and see why I think this is a reasonable value.

This projection is based on current and highly probable oil and gas production, and a conservative estimate of profit from the first biodiesel plant.

Lets look at the numbers.

OIL PRODUCTION.
Last quarter FY03-04 oil production was around 75,000 barrels. On an annualised basis this represents a yearly production of some 300,000 (this alone would be 17% up
on FY03-04).

AMU have already announced a 10 well drilling program for Raccoon Bend, to be completed before end-2004, which they expect to AT LEAST double current production there. In other words, to deliver at least a further 264 bopd. Assuming drill success spread over the period - say one third by start October (ie 264/3 = 88 bopd), one third by mid-November and one third by end-December - this should deliver 88 X 60 days and 88 X 45 days to end 2004, and 264 X 182 days until end FY04-05. All up this represents an estimated extra production of just over 57,000 barrels.

In addition, their two announced Halletsville South deep gas successes have associated oil production of around 10 bopd attributable to AMU. A full year of that production of represents around 7,200 barrels.

Adding all that gives a likely production of 300,000 + 57,000 + 7,200, or around 364,000 barrels of oil. AMU have hedged 10,000 for US$38 for six months (revenue US$2.28 million) which leaves 364,000 - 60,000 to sell on
the open market. Applying an estimated average price of that same US$38 a barrel (today's WTI price is an incredible US$44.80 or A$62.70 a barrel!) would give an estimated FY04-05 revenue of around US$13.8 million.

Given AMU was turning a profit when oil was selling below US$20, it seems a fair assumption that a huge chunk of this will drop to the bottom line. My estimate is that if prices hold to an average of US$38, then at least US$15
of that will go to AMU as free cash, ie around US$5.46 million (or about A$7.6 million with today's 0.71 exchange rate).

This flight of valuation fancy ascribes no value for any future drilling success on their highly prospective Red Creek lease, or for further drilling on Raccoon Bend, or on any other leases such as Morgans Bluff.

GAS PRODUCTION.
Last quarter FY2003-04 gas production was around 50,000 mscfg. That indicates that production is currently running at an annualised rate of around 200,000 mscfg (representing a 33% increase on total FY03-04 production of 150,000 mscfg).

To that annualised production we can add the gas production of the two recent Halletsville South wells. Production results from the first of these suggests attributable production to AMU of somewhere around 400 mscfg a day. Production test results for the second well are due out any day now, but until then it seems reasonable to assume the second will approximate this rate too (ie 400 mscfg a day). Production at those rates would deliver some 290,000 mscfg over FY04-05.

Adding this to the likely annual production indicated by the Q4 production gives a total gas production of around
490,000 mscf. Assuming an average Henry Hub gas price of around US$5.00, this would deliver revenue of about US$2.45 million. Even with their stated intention of paying out drilling costs for the HS wells ASAP, this should still deliver to AMU an EBIT for the full FY04-05 of at least US$1.2 million (or A$1.7 million at a 0.71 exchange rate).

No value is ascribed for any future gas well drill success in 2004-05.

(As an aside, for each HS well, I estimate AMU would pocket around US$0.3 million after paying operating expenses and drilling/completion costs. After the drilling/completion costs are paid out, I expect each well to deliver close to US$0.6 million net to AMU per year for decades!)

BIODIESEL
Assuming AMU has the Adelaide plant built and producing by start 2005 - it is a fairly simple and modular construction after all - the plant could well deliver half year profits of around A$3 million. (Don't forget they got a $7.15 million grant from the Australian Government to build the plant. That will drop their cost for this plant quite a bit, so this figure is fairly conservative).

Full year production in 2005-06 and on can be expected to deliver to AMU profits of around A$6 million annually FOR THIS PLANT ALONE! This little excercise builds in no value for the next four planned plants.

SUMMARY
Adding likely oil, gas and biodiesel contributions to AMU's coffers could easily see FY2004-05 deliver EBIT of A$12.3 million (A$7.6, A$1.7 + A$3 million).

With 153 million shares on issue - fully diluted for the conversion of AMOUBs (which itself will top up the kitty by over A$5.5m) the above indicates earnings of just over 8 cents per share. For a company with such impressive production and earnings growth rates over the last three years, a PER of 15 would not be excessive.

On this basis, AMU shares would have a fair value of A$1.20.


Any out there care to comment?