AJL - AJ Lucas Group

[Col Lector]

Gas content 12 to 20m3/t and flows proving very promising from initial wells within large tenement. Augurs well for 70% AJL & 30% MPO.

MEDIA RELEASE
Gloucester Project Update – Gas Production Commences and Expanded Pilot Announced
23 November 2007
Molopo announces today that its LMG03 coalbed methane (“CBM”) well within the Stratford Production Pilot in the Gloucester Basin has commenced initial gas production at a strong rate of 358,000 standard cubic feet per day (scf/d). Production continues to build on a daily basis as the water levels are reduced.
“The well has already demonstrated production capabilities well above the expected minimum threshold for a commercial project,” Molopo’s Executive Director, Mr Ian Gorman, said today.
The latest results for LMG03 remained of an interim nature as production was still increasing. Fluid levels in the well were at around 254 metres from ground level. The ultimate peak gas production rate may be higher once the water levels are drawn down below the lowermost producing coal seam at 403m.
In Feb 2006, LMG03 reached an interim production rate of 667,000scf/d of CBM. Gas production was still increasing when mechanical failure necessitated a pump replacement.
LMG03 is included in the previously announced five well Stratford production pilot. The JV has recently expanded the Stratford pilot by an additional well to further expand the reserves base. Two wells, Stratford #4 and Stratford #8, have been drilled, successfully cased and await fracture stimulation, while Stratford #5 and Stratford #6 have commenced. Drilling of the new well, Stratford #9 will commence this month.
The Gloucester JV has progressed reserves certification for the project, with independent certifiers Netherland Sewell & Associates Inc. engaged to prepare the initial reserves report expected by the end of 2007.
Work is well advanced on reviewing a range of market options to commercialise the Gloucester Basin permit through the initial development of the Stratford Pilot. This includes small scale power generation. The JV is in discussions with a number of potential gas buyers, and is progressing gas sales agreement negotiations which are the remaining step in securing the initial reserves certification.
The new six well Stratford production pilot has been designed by the Gloucester JV to further expand the reserves beyond the anticipated initial certification level and to ascertain production capabilities prior to a development decision. It is anticipated that the five new pilot production wells will be fracture stimulated during December and progressively on production.
Molopo’s holds 30% of this permit. Lucas Energy Pty Limited holds 70% and is also the project’s operator.
Issued by: Molopo Australia Limited

 

[Col Lector]

Currently AJL-watchers are fixated on the soon to be released independent reserves report for AJL's Gloucester Coal-seam project. Confirmation of success at Gloucester could open the way for some major expansion energy/electricity projects to flow.
Note Babcock & Brown's involvement in recent AJL discussions with Sydney Gas where they are said to be advocating that AJL take management control of SGL.
Definitely a vote of confidence in AJL. With plenty of stategic possibilities attached....... particularly given the imminent privatisation of NSW electricity assets....and the likely move to the more greenhouse friendly gas-fired generation to meet e.coast demand (in a carbon-credit environment).
Initial indications are that Gloucester gas resource is significant...talk is of local power-generation; and also pipelining gas to the nearby high-margin Newcastle market. These could expand if reserves exceed expectations &/or other parties become involved.
AJL's diverse engineering & construct capabilities must be considered a big positive should Gloucester be fully developed. all AJL divisions will be available to be utilised ....water; oil/gas; csg; electricity infras; drilling; pipelines; engineering &construct....with benefits to both project costs, & AJL's revenues.

 

[pointr]

Yes Col Lector, I think it is a potentially very good news story in the making in the Gloucester Basin. I hold some AJL and some MPO. I posted in the ASX chat forum on Saturday regarding an article in the Newcastle Herald about CBM projects in the Hunter Valley and Gloucester particularly. I also noted a few weeks ago a NSW Gov't Dept advertising for a geologist to work in the assessment of CBM projects in the area. I think these things indicate that "real" things are happening in this area, not just exploration hype! I also have a few SGL shares, it would be nice to get back into the black with them. pointr

 

[michael_selway]

Yes Col Lector, I think it is a potentially very good news story in the making in the Gloucester Basin. I hold some AJL and some MPO. I posted in the ASX chat forum on Saturday regarding an article in the Newcastle Herald about CBM projects in the Hunter Valley and Gloucester particularly. I also noted a few weeks ago a NSW Gov't Dept advertising for a geologist to work in the assessment of CBM projects in the area. I think these things indicate that "real" things are happening in this area, not just exploration hype! I also have a few SGL shares, it would be nice to get back into the black with them. pointr

Hm interesting company

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 11.8 21.0 32.5 28.1
DPS 2.5 175.1 0.1 0.1

Business Description
AJ Lucas Group (AJL) specialises in the engineering, design and construction of projects relating to horizontal directional drilling (HDD), pipelines, degasification of coal mines and well head monitoring, gas exploration, building and civil engineering services, and facilities management

Company Strategy
AJL strategy focuses on improving the quality and maintainability of earnings streams, increase involvement in the growing Asian economies and leverage the Companys engineering expertise into sustainable services businesses. AJL operates in sectors where high barriers to entry exist and in which it sees opportunities for growth. Thus, AJL aims to be a niche, focused, vertically integrated infrastructure services business with an emphasis on the oil and gas, water and waste water, mining, property and construction sectors. In order to achieve its business strategy objectives, AJL has acquired on December 2004 the facilities management business of the Mace Group, with the intention to build a quality maintainable earnings stream. Further, the completion of the SEA Gas and Bass Gas pipelines will help establish a reputation which may aid AJL in securing several of the larger projects planned in the next few years. In the meantime, the company will attempt to secure small/medium pipeline projects to maintain a base level of revenue and work. Additionally, AJL plans to establish a solid presence in Hong Kong with the objective to secure additional projects in China. The company also seeks to capitalise on the buoyant coal sector by creating a service unit within the gas management division to provide a full service capability to clients in the coal and coal seam gas industries. AJ Lucas Group reported NPAT up 114% to $3m for the year ended 30 June 2006. Revenues from ordinary activities were $171.2m, up 130.4% from last year. Diluted EPS was 6 cents compared to (42.8) cents last year. The net operating cash inflow was $15.7m compared to an outflow of $6.6m last year. No dividend was declared.

 

[Col Lector]

Gidday guys...AJL holding up well in the face of a volatile market. Small volume....as generally the case, but up another 1 % or so today. Functioning well as a "defensive" holding while this continues. There remains a constant demand but limited selling......shares are being held tightly in anticipation of events to come.....
Hard to place a target price on these guys given good revenue growth expected with all divisions firing, in addition to the difficult to quantify upside of Gloucester (& associated projects)

 

[Col Lector]

Micheal, FY2007 results (below) are a big improvement on the FY2006 figs the extract quoted. This despite events such as the Goro site riots impacting results.
FY2008 results should give a clearer indication of AJL revenue potential ongoing from non-Gloucester operations. Gloucester income potential remains to be quantified...with the pending indep.reservres certification being the next key step to calculating this.... I'm sure more than a few trembling hands will be running over the figures..

2007 results announced Friday, 24 August 2007
Highlights of the results are: revenue of $216 million, a 26% increase on the FY2006 ; profit after tax of $6.4 million, a 111% increase on the previous year.
The company has announced a dividend of 2.5c per share, fully franked.

as compared to the quoted FY2006....

AJ Lucas Group reported NPAT up 114% to $3m for the year ended 30 June 2006. Revenues from ordinary activities were $171.2m, up 130.4% from last year. Diluted EPS was 6 cents compared to (42.8) cents last year. The net operating cash inflow was $15.7m compared to an outflow of $6.6m last year. No dividend was declared.

 

[michael_selway]

Micheal, FY2007 results (below) are a big improvement on the FY2006 figs the extract quoted. This despite events such as the Goro site riots impacting results.
FY2008 results should give a clearer indication of AJL revenue potential ongoing from non-Gloucester operations. Gloucester income potential remains to be quantified...with the pending indep.reservres certification being the next key step to calculating this.... I'm sure more than a few trembling hands will be running over the figures..

as compared to the quoted FY2006....

Do you know whtis companyonly started to run since Aug06?

Before thenit was heading downwards unlike WOR fore example

thx

MS

 

[Col Lector]

Another piece of the jigsaw in place with yesterday's ann. of AJL taking management control of Sydney Gas.
SGL's tenements (prospective but mismanaged) stretch from SW Sydney to Newcastle ("The Hunter Project") & nicely complement AJL's Gloucester tenements where reserves are pending.
With methane reserves undercontrol/left in safe hands, the bigger plans can now be rolled out.
This AJL/SGL arrangment has been done with the backing by BNB - a key SGL stakeholder with 2 board members. It has also been forced upon SGL by the fact that under the terms of the previous facesaving 50% asset sale/supply agreement to AGL (ie,AGK) subsequent payments were dependent on confirmation of reserves size before a defined date and specified supply volumes.
AJL is the white knight here for all parties....SGL particularly, but also BNB, AGK. I was surprised that AJL didnt head north on the news. The terms appear to offer considerable upside for AJL...IMO it is a reflection that without AJL's expertise maybe no-one would win, and expansion plans would have to be delayed. AJL holds the cards ...they are the ones with the highly sought expertise, contacts & equipment.

Interestingly, on the back of this news FN ARENA today released an article "Strong Earnings Growth Suggests More Upside in AJ Lucas" that notes Intersuisse has called AJL a Buy on the basis of anticipated strong revenue/profit growth from all existing divisions, and for the blue-sky potential the SGL deal, & Gloucester tenements, bring
Intersuisse expect 08 rev of $350 mill, up from 216 in 07; Profit tipped to rise from 6.4 to14.6 mill....with further growth expected in 09 .

Read the non-price sensitive ann from Jan14 carefully...once again there are hints that big things are afoot...offshore ventures....maybe a spinoff...or...

 

[Col Lector]

Do you know whtis companyonly started to run since Aug06?

Before thenit was heading downwards unlike WOR fore example

thx

MS

Hi Michael...Combination of factors...including relative obscurity to the market. AJL geared up for some major pipeline projects 05/06 that were pulled and left them in the lurch time/costwise. Took a while to work its way through. Growth in CBM industry generally, but expectations for Gloucester, in particular have spurred the SP since then.

 

[Col Lector]

Superb half-yearly results from AJL reflecting the strength of the diversified business model. Coal seam projects where AJL operates as an equity-partner offer considerable upside. AJL are positioning for this...as is evident when reading between the lines of the actual half-yearly (21/2)& Analysis Presentation(22/2).
The media release below summarises...

Record profit of $8.2m for six months to
31 December 2007
Thursday, 21 February 2008

AJ Lucas Group Limited (ASX: AJL) today announced a 569% increase in net operating profit to a record $8.2 million for the six months ended 31 December 2007.
The latest first half result - which easily exceeded the Company's most recent full year profit - was achieved on total revenue that rose 141% from $85.0 million to a record $205.3 million.

Earnings before tax increased 10-fold from $1.4 million to $15.7 million after adjusting for non-recurring items.

Interim dividend has been re-introduced with a fully franked 3.5 cents per share dividend to be paid on 28 March 2008 to Lucas shareholders registered on 3 March 2008. It follows the payment of final 2.5 cents per share dividend out of 2006-2007 earnings.

"Outlook extremely positive"

Mr Allan Campbell, Lucas Executive Chairman and CEO, said the decision to resume payment of an interim dividend had been made in recognition of an extremely positive outlook and strong cash flow.

Cash flow from operations in the latest six months improved by $19.7 million, or 435%, to $24.2 million.

Looking ahead, Mr Campbell said the outlook over the balance of fiscal year 2008 was particularly strong with a record order book and all sectors of the business experiencing strong demand.

"We have upgraded our full year turnover forecast for the current full year to be in the order of $430 million to $450 million - double the company's previous annual revenue of $216 million achieved in 2006-2007", he said.

"Our current order backlog of $472.5 million, including the Bonaparte project, works required to complete the Eastern Pipeline and long term drilling contracts underpin the Group's operations over the next year, with many other projects also under tender."

Margins are expected to be similar to those experienced in the first half, subject to the impact of any rain interruptions in Queensland.

Strong performances from all Group divisions

Lucas, which recently acquired a strategic 15.35% shareholding in Sydney Gas Limited (ASX:SGL), is a leading provider of drilling and infrastructure services. Lucas is now:

* the leading supplier of drilling services to Australias coal and coal seam gas industries;

* one of two principal cross country pipeline contractors operating in Australia, offering a full engineering, procurement and construction service;

* a major Sydney building and project management company;

* a leader in trenchless technology; and

* a partner in major civil engineering infrastructure projects.

Mr Campbell said all Lucas divisions contributed to the record first half result following a substantial increase in activity.

"The result reflects the benefits of the positioning of Lucas in each of those sectors most likely to experience strong growth over the coming years, specifically oil and gas, water and waste water and resources," he said.

"The drilling division in particular is growing extremely rapidly, with its focus on drilling for the coal and coal seam gas industries. The group is now the Australian market leader in this activity due to a combination of acquisitions and organic growth," he said.

"We are also applying our coal seam gas expertise, both technical and drilling, to the development of our own gas assets, with the Gloucester Basin expected to announce its first reserves shortly, leading to an eventual divestment of this asset."

"The Company also has high hopes of replicating its coal seam gas success at Sydney Gas where the recent purchase of a 15% shareholding makes Lucas SGL's largest single shareholder."

 

[Aussiejeff]

AJL is up 45c or 11%+ right now on the 1/2 year results news. Thin trading so far though (likewise most stocks today). Should be good for the SP looking forward....


AJ

 

[Col Lector]

Aussiejeff. Sp response (up 9.5% to $4.16) was mainly due to today's ann....ie, excellent initial reserves for Gloucester with considerable upside.

~ 525 BCF
1P 14.9
2P 170.2
3P 359.2
Contingent 166.2
The certification identifies a potential 525.4 Bscf of recoverable gas (3P plus contingent
resources) from a mapped volume of approximately 1600 Bscf (1.6 Tscf) of gas in place.
The current exploration data, on which NSAI has based its assessment, covers only part of the
Basin. As the exploration program is expanded, this should lead to additional areas being
included in future reserves certification exercises.
Lucas and Molopo currently estimate the overall Gas-in-Place potential for the Basin to be in the
range of 2.5-3.0 Tscf. It is anticipated that a reserves upgrade will be announced in late 2008 or
early 2009 once further exploration results are available and the production performance from
the recently expanded pilot (five new production test wells) are known.

Also very bullish report from Baillieu out too on the back of these reserves...tho yet to see it myself. Comments particularly on the high strategic value of AJL's (&SGL's) NSW reserves.

 

[Col Lector]

Baillieu's recent report on Molopo website highlights how potentially lucrative AJL's 70% holding of the Gloucester Basin project could be....noting the 100% project "will likely have a terminal valuation (upon development) in excess of $1 billion..."
Noting that the market cap of (diversified/profitable/dividend-paying) AJL is currently less than 200million.....

E L & C Baillieu Stockbroking Ltd
Molopo: Gloucester and South Africa developments increase valuation ranges

Recent exploration success in the Gloucester Basin (New South Wales) and the signing of an LNG gas sales memorandum of understanding in South Africa have led to an increase of our valuations for both projects.This has led to a material upgrade in our valuation ranges for Molopo Australia Ltd. Our new valuation range is between $1.28 and $2.52 per share (with a mid point of $1.77), up from a range between 86 cents and $2.20, (with a mid point of $1.29 per share).
Most of the increase in valuation range is due to an increased valuation for the Gloucester Basin
coal seam gas field, which is now nearing development. Our valuation range for the Gloucester Basin
CSG fields has increased from $66 million to $250 million to a new valuation range of between $266 million
and $400 million.In our view the Gloucester Basin will become the next major coal seam gas province in Australia and will likely have a terminal valuation (upon development) in excess of $1 billion.

 

[Col Lector]

AJL's prospects are only getting rosier as the coal-seam gas sector booms and the coal industry continues to expand. The pending NSW power-privatisation and the flagged spin-off of Lucas Energy make thing even more interesting.
AJL continuing to attract strong buyer support on low volume... recovered ~25% over last few weeks to push back through the $4 barrier. A testament to the solid earnings profile & big upside potential of this company
IMO the move into Sydney Gas was v.strategic and really spices up AJL's growth potential. The fit with the Gloucester project has huge upside and it cements AJL's position as a critical player, (as both resource-holder & as a key drilling/pipeline etc service provider)in the anticipated boom in NSW CSG sector.
Initially AJL was happy to pay 38c for their large SGL stake, later reduced to 34c as the sub-prime hit the markets.
Interestingly SGL shares have (unexpectedly)been under pressure since then, hitting 23.5c last week.It appears certain that the broker debacles are to blame, in particular Chimaera. The publicised "rescue" by ANZ has had a significant effect on SGL's market depth over the last few days. The dumping of shares appears to have ceased and confidence is returning to the buy-side, as evidenced by SGL's ~40% appreciation this week to return to around the levels that AJL initially purchased...ie, 34c.
I hold both. IMO SGL's potential has been overlooked by investors due to the broker-related underperformance noted above; also debacles & bad management of prior years. AJL's expertise, management nous and good relationship with key stakeholders (eg, Babacock & AGL)will be on display as it seeks to unearth SGL's recognised potential.

And then of course there's also AJL's Gloucester Project nicely cooking away to keep investors interested....looking v.tasty IMO

 

[pointr]

I agree with your sentiment Col Lector. As a holder of AJL & MPO & SGL and a resident in a nearby area I would not be surprised to see further minor delays with the Gloucestor project as there has certainly been some rain up here and it has caused delays in the past. That said, such issues are minor as we see the NSW CSG industry head onward and hopefully upward.

 

[Col Lector]

Giday Pointr, Not a bad week....! All time high for AJL and appears no barrier to further appreciation given outlook for sector activity, and the flagged spinoff of Lucas Energy....
The price paid for Origin (North of $1.50/GJ) gives an indication of what Lucas Energy may be worth.

 

[TheAbyss]

Surprised AJ Lucas hasnt run as far as the others in the CSG sector. They have a lot going for them and should be a major winner of the new QGC pipeline build which will add to their CSG interests.

AJL are the largest Australian coal and CSG driller. They have,

■ cash flow from operating businesses
■ 70% interest in Gloucester Basin, NSW _ Important with the new QGHL pipeline
■ attributable 2P reserves 119 PJ
■ drilling to increase reserves
■ 100km pipeline required to market
■ 15% interest & management of SGL

AJL’s objective is to prove up additional 2P reserves in Gloucester Basin and SGL assets and spin off Lucas Energy (CSG Assets) as a separate vehicle by calendar year end and commercialise the assets. Its operating businesses have the usual broad range of operating risks.

 

[Aussiejeff]

Surprised AJ Lucas hasnt run as far as the others in the CSG sector. They have a lot going for them and should be a major winner of the new QGC pipeline build which will add to their CSG interests.

AJL are the largest Australian coal and CSG driller. They have,

■ cash flow from operating businesses
■ 70% interest in Gloucester Basin, NSW _ Important with the new QGHL pipeline
■ attributable 2P reserves 119 PJ
■ drilling to increase reserves
■ 100km pipeline required to market
■ 15% interest & management of SGL

AJL’s objective is to prove up additional 2P reserves in Gloucester Basin and SGL assets and spin off Lucas Energy (CSG Assets) as a separate vehicle by calendar year end and commercialise the assets. Its operating businesses have the usual broad range of operating risks.

A more realistic wholesale gas price might help. The current scenario where the rest of the world appears to be paying around $12MMBTU while Oz producers get around $3 is crazy. It's no wonder QGC would prefer to bottle up and sell most of theirs overseas!! I bet most Oz producers are "fuming" at the price differential ATM.....

AJ

 

[Col Lector]

AJ, pointr, The A...
thought AJL was surprisingly subdued following the Petronas/Santos deal ann. given reaction elsewhere.
IMO take some comfort from the fact that the deal values Santo's 2P reserves at $4.91/GJ of2P (widely quoted)
AJL's share of INITIAL Gloucester cert reserves of ~119PJ has a parallel value of ~$585 million.
Importantly this without considering AJL reserves Qld & via SGL holding & the fact have been drilling furiously several months at Gloucester since this reserve figure released.
AJL total mkt cap currently ~300mill at $5.60....can be largely justified on basis of current non-production earnings (pipelines, drilling etc).
IMO, eitherway the CSG projects &/or AJL earning businesses are not fully reflected by current AJL mkt cap. eg, Gloucester assigned 30%of 300mill mkt cap =$90mill vs inferred 585.
The Santos deal infers an enterprise value for 2P Gloucester on the basis of initial reserves only that dwarfs that of the full profitable entity.
Some would argue that AJL CSG assets deserve a further premium given stand-alone potential/proximity to key Newcastle/Sydney market.
Thoughts to comfort.

 

[pointr]

Hi Col Lector,
my only concerns with AJL is why I have so few of them. But then your share dollars can only go to so many places. Both of the Gloucester players have been quiet for a while as far as announcements go. they are probably busy developing energy busnisses as compared to running PR / Spin enterprises