looking good ...

AMU's December quarterly was released today, and flags higher production and profits from its core oil and gas business.

AMU's FY2003-04 production looks to be on track to deliver a 40% increase on FY2002-03, with expected profits from oil and gas sales of around the A$3m mark - marginally up on the A$2.7m reported last year.

My own view is that this FY will see lower reported amortisation charges as a result of past provisions, which would add significant extra dollars to the reported profit from the core oil and gas business. So my estimate is that AMU will report a book profit for this FY of somewhere around A$3.5m.

Forecast full FY sales and profit growth in US$ are much more impressive, but have been obviously been cruelled by the rapid rise in the A$:US$ exchange rate. Looking forward though, the current strength of the Aussie dollar will not last and inevitably it will return to its long term falling trend rate and trade below 65 cents to the US$. When that inevitably happens the Aussie dollar denominated profits of AMU will benefit commensurately.

Latest quarterly indicates AMU will deliver full year production of around 280,000 boe - a major increase over last year's 200,000 or so boe. In the face of continuing high oil prices this will deliver an impressive increase in US$ sales and profit, but the current exchange rate has pared this back substantially in the short term. This 280,000 boe is derived from doubling the reported FY2003-04 first half production of 108,000 bbo and adding seven months of 8,000 bbo monthly production from Raccoon Bend (available for all of December plus the six months to end FY2003-04) and gas production equivalent to some 14,000 bbo per annum.

The 8000 bbo is based on an AMU's 50% net revenue interest (not the 60% working interest) in the current 530 bopd, which gives 265 bopd X 30.4 days = 8000+ bbo per month.

I consider this 280,000 bbo estimate for the FY2003-04 to be a conservative one, as it makes no allowance for any added oil or gas production likely from AMU's drilling program or future acquisitions to end June 2004. An indication of just how substantial such additions might be may be found from slide 10 of the investor presentation on AMU's web site. This foreshadows a steady increase in production from December 2003 (AMU share about 20,000 bblo) to end December 2004 (AMU share around 40,000+ bbo).

Looking forward, current oil and gas production (with Raccoon Bend included) is already running at an annual rate of about 310,000+ bbo. Although the slide noted above suggests this will be well and truly left behind before too long. Indeed, if that slide is an accurate forecast, next FY could well deliver to AMU production in excess of 450,000 bbo, with sales and profits proportionately up too.

As an aside, the current strength of the Aussie has worked well for AMU as it has used the A$5.2m proceeds of the recent conversion of its November 2003 options to pay off its US$ denominated debt with Wells Fargo Bank.

As another aside, the Raccoon Bend acquisition should add another 900,000 barrels to the AMU reserves - taking their 1P and 2P reserves to around 8 million barrels. That lot would have a conservative market worth of around US$80 million. Even with today's strong Aussie dollar that represents a hefty asset backing of A$106 million. Yet the company has a current market cap of around A$50 million. And this leaves aside the value of the emerging biodiesel business .

One to watch!