Given the recent retreat in oil prices, AMU's hedge begins to...

Given the recent retreat in oil prices, AMU's hedge begins to look prudent rather than overly cautious. The arrangement (figures taken from the recent Investor Presentation) is as follows:

Date Quantity (Month) Commodity Structure USD
Commodity Hedge Position:
Jun – Dec 2009 24,000 BO Oil Cap/Collar $55.00 ‐ $84.30

With oil accounting for around 80% of revenue at present, it's reassuring to know that the company enjoys some buffer should prices slump further. Personally, I can't see a return to US$30 / barrel or anything like it, simply because the supply tap will be turned off well before that point. Too many of the world's major producing fields are simply not economic below US$60 per barrel (and many producers struggle at $70).

Amadeus is fortunate to enjoy very low production costs relative to peers at only around US$16 per barrel so - coupled with the hedge - very healthy revenues are possible even in this demanding market.

Somehow though, the company is just not getting the recognition it deserves for its significant daily production - around 2,200 boe and the upside represented by the Longville programme which will add a further 250 bopd in coming months. They earn 12.6 cps, trade at 2.6 times earnings and still the market cap languishes at $65m! I can't find another oiler of similar production profile that is so cheap.

Maybe the market is not fully aware that the debt position is now perfectly manageable through earnings and is being paid down at a rapid rate. Most brokers rate it as worth around 70 - 80 cents on peer comparison (not that anyone pays any attention to such sources any more). There must be some reason. Anyone got a handle on the disparity in valuation relative to other junior producers?

DYOR.

Gupper