A greatly undervalued oil stock
America’s Wells Fargo Bank must regard the Australian-listed Amadeus Energy (AMU.AX
AMADEUS ENERGY13 August,200813/08/2008 14:11 Sydney, Australia.
Price Change % Change
0.480 +0.015 +3.230%
Company overview
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AMU.AX , 0.480, +0.015, +3.230%) as one of its best paying customers.
From record revenues from operations spread over Texas, Kansas, Oklahoma and Louisiana, the company has been delighting Wells Fargo with hefty premiums from its price-hedged production, while, at the same time, still maintaining high returns to itself.
Yet Australian investors remain unimpressed, with Amadeus shares falling from a 12-month high of 90.5c to a recent low of 44c and this week trading at 46c. More puzzling, the company announced initial results from its latest well on Monday ”” the Wolf Cowling No 2 ”” with 237ft of gross oil and gas pay over four zones between 10,200ft and a bottom hole depth of 11,375ft.
“All four zones appear to have well developed porosity and permeability,” the company reported “with high hydrocarbon saturations, and each zone appears to have potential to support commercial production on an individual basis.”
Production testing begins next week with expectations that a multi-well productive trend could be present in which Amadeus has interests ranging from 27.75 percent to 44 percent.
Amadeus earlier announced record revenues in the June quarter of $US16.5 million (previous June quarter $US11.2m) from an average realised oil price of $US108.36 a barrel (previously $US59.24) and an average gas price of $US11.06/1000 cub ft ($US7.77).
Amadeus has a cap and collar hedging arrangement with its banker. For the six months to December, 2008, 180,000 barrels of production are guaranteed a minimum of $US55/barrel and a cap price of $85.30/barrel. So Wells Fargo (which advanced Amadeus a $US40 million draw-down facility for development two years ago) trousers the windfall premium above that.
The good news is that although the hedge covers about 73 percent of oil production through to December, in the 2009 calendar year it will reduce to about 60 percent of rising production with the balance of high oil price premiums accruing to Amadeus.
We added Amadeus Energy to the “Magazine Only” portfolio in July at 59c. On June 30, the company placed 27 million shares to Perth’s Wyllie Group Pty Ltd and associates at 55c taking issued capital 208.42 million shares. The canny management of that group doesn’t throw money away on reckless investments ”” and their new shares cannot be traded for they are escrowed until mid-2009.
Amadeus’s newest executive can see the share price is grossly undervalued. On August 8 the company awarded one million options exercisable at 90c by August, 2012, as part of a remuneration package for Ms Betty Dieter, newly-appointed president of the US subsidiary, Amadeus Petroleum Inc. Ms Dieter was formerly director of acquisitions for Fidelity Exploration and Production Co., a subsidiary of the New York-listed MDU Resources Group Inc (NYSE: MDU). In the past 8 years she has overseen $US1 billion in acquisitions.