basker-2 results, page-3

Euroz Securities........!
Company: Anzon Australia (AZA $0.89) - Buy
Beach Petroleum (BPT $0.81) - Buy

Valuation: AZA $0.90/sh, BPT $0.84/sh
Short Term Price Target: AZA $1.00 BPT $0.90/sh
Reason For Update: Wireline logs results show AZA and BPT have intersected good quality oil reservoirs in line with expectation at the Basker-2 appraisal/development well in the offshore Gippsland Basin (AZA 62.5%, BPT 37.5%).
Comment:
The well came in 20m high (updip) from Basker-1 as prognosed. The net reservoir and oil content is in line with the Basker-1 discovery, ~800m south.
Although these encouraging results are expected, the news does go some way towards reducing the risk of the project. We view hydrocarbon presence and reservoir quality/continuity as being the largest perceived risk on the project in the market place.
Pressure sampling taken indicates the Basker reservoir is in communication with the basin aquifer which importantly will provide pressure support for production – this is a big plus and a pre-drill key risk somewhat mitigated.
The hydrocarbon zones encountered in Basker-2 were broadly in line with Basker-1 – zone 2 appears to be slightly below the JV’s expectations, but offsetting this, zones 5 and 6 appear to be above expectations.
The next steps for the Basker-2 well are expected to be:
• The JV plans to perform clean up flows on zones 2,3 and 4 simultaneously (and complete for production), followed by zone 5 and 6 (and complete for production separately also). This will occur in around 7-10 days time
• Complete all sub-sea manifold work
• Release Ocean Patriot drilling rig and hook up to FPSO for the first oil production phase at 6,000-8,000 bopd in mid-late October.
Reserves will be re-calculated by Gaffney Cline over the next 4-6 weeks from the Basker-2 well data. We anticipate 1P (proven) reserves will increase from 10 mmbbls and 2P (proven & probable) should increase 0-15% above the 23.3 mmbbls prospectus reserves. It is important to note that production data will always give the most accurate guidance to reserves – this will be established over a longer period.
The remaining development wells: Manta-2 should spud in Dec’05, followed by the Basker-3, 4 and 5 wells in April-June’06.
At this stage AZA remains the highest leverage entry in to the BMG project, whilst BPT exhibits a lower risk entry with exposure to assets in the Cooper Basin also. As risk is reduced on the project over the coming months we anticipate AZA’s shareprice performance will accordingly outperform BPT’s. We note that over the last few months BPT’s shareprice has outperformed AZA’s, probably due to its lower risk profile (many assets), higher liquidity and an option over a further 12.5% interest in the project.
Full field development is expected to be completed by July’06, at which time average rates from the field should be >20,000 bopd.

Back-of-envelope BMG oil project calculation for the first full year of full production (expected FY’07)
Assumptions:
@ spot US$60/bbl
FX 0.76
20,000 bopd average for Yr
95% uptime

Total project revenue = A$547m
Total opex costs = A$55m
Gross project operating cash flows in first full yr of operation = A$492m (v’s current AZ mk’t cap A$290m and capex ~A$145m and BPT mk’t cap ~A$430m and capex ~A$115m)

Investment Case:
Successful delivery of the A$260m BMG project should significantly re-rate both companies over the next 6-12 months. First cash flows are expected in Oct’05 – at this stage it is likely both companies will benefit from the high current and forecast short-medium term oil prices.

Anzon Australia Ltd (AZA)
Share Price $ 0.89
Issued Capital (m) 326
Market Capitalisation ($m) 290
Debt ($m) 0
Cash ($m) 64
NPV Valuation (A$/sh) 0.90

Year (Yr End 31 Dec) 2005f 2006f 2007f 2008f
Earnings (A$m) 7 79 42 31
EPS (Ac/sh) 2.1 24.4 12.9 9.6
PER (x) 41.5 3.7 6.9 9.2
CF/Sh (Ac/sh) 3.6 44.1 20.0 20.3
CF Ratio 24.8 2.0 4.4 4.4
EV:EBITDA (x) 23.1 1.5 1.6 1.4
EV:EBIT (x) 26.6 1.9 2.8 2.6
Div. (Ac/sh) 0.0 0.0 0.0 0.0
Div. Yield 0.0% 0.0% 0.0% 0.0%
Net Debt:Net Debt+Equity -15.1% -38.7% -102.0% -218.1%
Interest Cover 18.7 33.8 n/a n/a

Assumptions
Oil US$/bbl 55.7 48.75 36.25 35
Gross 2P reserves 23.3 mmbbl
AUDUSD 0.76 0.75 0.73 0.72

Beach Petroleum Ltd (BPT)
Share Price $0.81
Issued Capital (m) 530.7
Market Capitalisation ($m) 430
Debt ($m) -1
Cash ($m) 107
NPV Valuation (A$/sh) 0.84

Year (Yr End 30 Jun) 2004a 2005a 2006f 2007f
Earnings (A$m) 10 20 41 77
EPS (Ac/sh) 3.0 4.9 7.7 14.5
PER-post tax (x) 8.6 13.0 10.6 5.6
CF/Sh (Ac/sh) 6.5 9.3 11.1 23.4
CF Ratio 4.0 6.9 7.3 3.5
EV:EBITDA (x) 2.5 6.3 5.1 1.8
EV:EBIT (x) 4.3 8.5 6.4 2.6
Div. (Ac/sh) 1 1.5 2 3
Div. Yield 4% 2.3% 2.5% 3.7%
Net Debt:Net Debt+Equity -53% -35.3% -39.7% -104.7%
Interest Cover n/a n/a n/a n/a

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The above is an early Euroz Securities analysis based on info so far . Looks more info will become available as flow testing gets underway ; and production trends prove operational value . Looks like it is all up from here on out .

I hope Euroz dont mind this occasion of me posting client info on here . Euroz has attached the usual disclaimers to the above , so consult your own proffessional , and DYOR please .

I hold AZA