produces a net 2bcf in dec quarter

In its 5 January update Petsec announced that it had achieved a net production of 5.7 billion cubic feet of gas equivalent in 2004. This means that PSA produced 2 Bcf in the December quarter for an EBITDAX of around US$8 million or A$10.5 million for the quarter. UP until September PSA had produced 3.7 Bcf for the year.(see September quarterly report)

The December daily production rate would have averaged around 22 mmcf a day to achieve those figures and this is consistent with the production data put out by the company.

And the above figures assume an average December sales price in the US$5.20 to $5.50 range, probably a bit conservative.

The 5 January statement also announced that PSA was then producing at the rate of around 25 mmcf
(allowing 0.5 mmcf equivalent from Ship Shoal).

Further it hoped to have the second accelerated development well in production by the middle of January (say around 4 mmmcf a day) which, allowing for natural decline in the other producing sands could see Petsec producing around 26-28 mmcf a day by the end of January.

If the onshore wells are successful then there could be a small addition to Petsec's net production of say 2-3 mmcf a day given its relatively small stake in those wells.

My conservative guess is that Petsec will probably average 25 mmcf a day for the March quarter or a total production of 2.25 Bcf. Extrapolating from all the other variables in play in the September quarter, ie LOE and D D &A then we get a March quarter EBITDAX of around US $9 million or A$11.8 million using an exchange rate of 0.76.

I can't see how Petsec would improve on that in the June quarter as there would be no new production coming on stream. If the Main Pass wells are successful they won't be in production until the September quarter.

So allowing for natural decline ar West Cameron and Vermilion, successes at Main Pass and a small daily increment in production from those onshore wells I can't see Petsec averaging better than 25 mmcf a day for the whole of 2005.

But that would still represent production for the year of 9 Bcf or EBITDAX of around A$47.2 million. Not a bad result for a company with a current market cap of A$140 million. As most of that EBITDAX would be profit given PSA's tax credits we could conservatively see PSA earning A$40 million in 2005 ie a P/E of less than 4.

The question for investors is whether Petsec can achieve these results and book an increase in reserves at the same time. This depends on success at Main Pass, further drilling at East Vermilion, success onshore with the current deep wells and success at the newly acquired onshore St James Parish acreage (PSA 37 % NRI).

And we will have to see what Petsec bids for at the March GOM auctions and also see whether anything comes of China.

As producing junior oilers go few have the production and revenue figures of Petsec. But along with Tap Oil Petsec remains a grossly undervalued counter IMO.

And the problem is not really one of management being poor on the information management side, rather it reflects the fact many institutional investors are not going to be interested in such an illiquid stock. Others are not convinced that Petsec has really turned the corner. Indeed many remain to be convinced that higher oil and gas prices are here to stay.

The speculators thankfully all appear to have left the stock and gone elswhere. Whats left appears to be a few sellers wanting out but having to sell down in small lots for fear of sending the price back to a $1.00.

Holders of Petsec(and yes I am one) are going to have to be very patient. It will be a slow year. The 2004 profit result ( down on 2003) will not help in the next few months unless and until there is some drilling success, more broker coverage and/or higher gas prices.