more drill success - will boost profit

AMU has announced the results of its last four wells over the last few days - and for the few that follow this company it has been great reading.

Their last 4 wells have delivered the following results:

* Knox County - Clont well (AMU 81% working interest) target depth reached and current logging the results;
* Raccoon Bend - Diemer well (AMU 60.5% working interest) intersected 9' of pay in the DY3 sands and is being sidetracked to intersect the more productive DY1 and DY2 sands. Results should be know by 28th October;
* Raccoon Bend - Payne #44 well (AMU 60.5% working interest) intersected 60' of net pay;
* Red Creek - Rash Barrett #6 (AMU 60% working interest) intersected 9' of pay zone.

These wells are part of a prolific drilling program for AMU -- part of 2 back-to-back wells on Red Creek and the start of 5 back-to-back wells on Raccoon Bend (with up to 10 originally planned for R.B. before end 2004). On top of these, a recent issue of AOG review noted that 2 further deep gas wells are likely to spud on AMU's Lavaca County ground before end 2004.

This is an impressive program of drilling, and one which is already set to deliver commercial oil and gas flows judging by the announcements to date. Just how commercial will soon be seen when the production testing is completed in the near future.

If the future wells planned for between now and end-2004 have even half the success rate exhibited to date, AMU is in for a hefty jump in oil and gas production (and likewise in revenues and profit).

This jump in production and profit is in addition to the profit scenario recently announced, which indicated profits from their oil and gas business will be north of at least $6 million for FY2004-05, and if oil prices stay around US$50 could come in around A$10 million.

Given the highly likely prospect of a lot more oil and gas production from the balance of their drill program still to spud this year, AMU is surely looking at yet another year of major production growth (and that is without even considering their drill program for H1 2005). The company's record of year on year production growth over the past few years is particularly impressive and they give every indication that this will continue in the immediate future.

Aside from the welcome addition of more oil and gas revenue and profits -- don't forget that these wells can be brought into production in a matter of weeks and can go on producing for decades -- this drilling success and ensuing production has the added bonus of adding materially to AMU's already impressive reserves.

At present these stand at 13+ million barrels of 1P & 2P reserves. Based on observed market values for proven oil in the ground in the US, those reserves have a value around A$200 million!! And yet AMU at today's closing prices has a market cap of what - under A$80 million!

For any institutional investor looking at the company and its prospects. that underlying value gives a lot of comfort. It also means that, even with conservative bank valuations, the company can access bank finance to pursue more of the canny deals they have shown they are so good at.

Bottom line for me is that, despite exhibiting some very healthy increase in the share price over the past year, AMU still has plenty of production and profit growth to look forward to. (And this is just on the oil and gas side - don't forget their biodiesel business when it gets going is going to deliver profits that will equal if not exceed those of the o&g side).

I hold so I am clearly biased (I was biased in my post of 7/2/2003 too when I was saying exactly the same thing as now - but since then AMU has gone up 600% and AMUOB up over 1500%). I might also add I will be keeping my parcel of fully paids for what I expect will be a very tidy dividend stream down the track.