1. West Vermillion is far more profitable than West Cameron, as follows:
WC profit contrib was $10M vs amortisation of $10M
WV profit contrib was $14.4M vs amort of $5M
2. WC is almost fully amortised. There is only $4.5M left to come through the 2005 books vs $10M in 2004. At 4mcf a day, they are suggesting that there is about 5 months left in it. I suspect that may be a conservative view. For every month past 5 mths, there will be no amortisation left to match the $A8-900K of revenue coming in, therefore it will be straight profit.
3. If we think West Vermillion has more marginal profit than West Cameron, well then what happens if Main Pass is successful? The BBY report has already pointed out to us that Main Pass is way less to discover and develop than West Cameron, so it would be even more marginally profitable. If Main Pass is even close to expectations, the share price and 2005 profits will rocket.
4. The first onshore well looks like it was successful. Previous posts the past few days have said that it could provide 3.4mmcf a day net to PSA. Onshore wells are miles cheaper to drill than offshore and development is usually several multiples less. These onshore discoveries also look like they could have a high profit margin in them as well. Can only add to the kitty.
5. Look at how much closer the independent reserves figures are this year vs the directors figures. Indep is 16.3B and directors are 22B. So it looks like the directors figures last year were reasonably kosher. If they produce 6-7Bcf this year, well still 3+years of production in the kitty. Not a great deal, but still significant. Not going to run out of gas next week.
6. Look at the cash position in the balance sheet. They said actual cash was A$12M, but when you add trade receivables and take away trade payables, real cash figure is A$16M. With only onshore drilling going on at present and US$5M coming in per month and Main Pass deferred to April, COULD PEOPLE PLEASE STOP TALKING ABOUT A PLACEMENT. IT IS GETTING VERY IRRITATING. They have piles of cash.
7. It looks like they made a smart move on the hedging front. Hedging is a hiding to nothing for these companies, yet they seem to have done well and locked in some reasonable prices. Good on them.
8. Dividends? Fine, none now, but in second half of 2005 if Main Pass is successful, I see plenty of scope for dividends. Remember 10cps would only be A$12M.
Personally folks, given the higher marginal profitability of West Cameron and hopefully some success at Main Pass, porfitablility levels in 2005 could be way higher.
The whole thing is open for discussion.
PSA Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
