more black gold to bank

AMU's recently announced result from its Red Creek drilling is more good news to shareholders.

That announcement noted that the Rash Barrett #3 is the fourth successful completion in this immediate area and is expected to add an additional 80 barrels of oil per day. AMU has a 60% share of that, so the well will deliver around 50 barrels of oil per day to the company.

While some might dismiss such results as meagre, think about the significance of that flow rate. Assuming oil prices north of US$30 a barrel (and at current exchange rates) that represents total revenue of around A$60,000 a month or around A$720,000 per annum. But these are shallow wells, have very short pay back times and are likely to have a 15-20 year lifetime. As a result the free cash flow from these nice little earners is impressive. (My own view is that that 720K would deliver close to 500K profit to AMU - any views on this out there?)

But in addition to flagging solid cash flow for the next decade or two, the announcement provided good cheer to AMU holders for other reasons.

First was the tantalising bit about the well intersecting another producing area (the commerciality of which is still to be tested) in addition to the targetted Hoxbar 1 Sands.

Second was that the next well (Rash Barrett A #4) is also targetting the Hoxbar 1 Sands. As these sands have already proven productive in other Red Creek wells, the chance of a commercial success here must be considered high.

The rig has now been moved on location and results should be available in the next 7-10 days.

This sort of announcement is just an indication of what to expect as AMU steps up the pace of development on this exciting prospect.

I expect there will be a lot more oil to flow from their drilling program on Red Creek.

AMU is on the verge of a number of lucrative developments: plenty of oil and gas drilling (including those deep potential company making gas plays) and imminent development of its biodiesel business.

In my view the company still has a long way to go before it is fully valued.