American Energy Production Inc(fka AENP)

[falconer66a]

I’ve got a good number (in mid-six digits) of AMEP shares. So I’m very interested in AMEP developments. I was first attracted to the company with its unique heavy oil extraction material, the HOA-800 product. The reported increase in production yields from depleted wells was very interesting – and could result in some very nice revenues in the future.

But the AMEP story has changed dramatically in the last few months with the emerging Barnett Shale play. The current story is no longer the HOA-800 additive. That’s a future AMEP chapter.

The emerging story is the Barnett Shale formation and what it portends for astute AMEP investors.

An AMEP press release (http://www.americanenergyproduction.com/PR-04-07-27.html) states that one of its first Barnett Shale wells had the potential of producing $5000/day of revenues. Another PR notes that AMEP has drilling rights on over 8000 acres of Barnett Shale (http://www.americanenergyproduction.com/PR-04-09-14.html). A recent posting stated that well densities in these properties will be as much as one well per 40 acres. That would be a total of 200 AMEP wells over the very productive and untapped Barnett Shale.

What might these data mean to an AMEP investor? The outright multiplication of each of these numbers is too great to realistically imagine. Two-hundred Barnett Shale wells producing $5000 of revenue each per day totals out at one million dollars each working day. That, of course, yields a revenue total of $365 million each year. With, perhaps, 250 million outstanding AMEP shares, that’s an amazing future return on a 2-cent stock.

I’m not anticipating the realization of any of those large numbers, nice as any would be. But what if AMEP is able to achieve just a quarter of the total?

It’s fair to presume that 200 wells would be drilled (drilling leases provide for drilling). But let’s presume that instead of $5000 of daily hydrocarbon sales from each well, only $2000 is earned. That’s a 60% reduction from the initial yields of the first test well. Fair enough. What final numbers then result?

Two hundred wells breathing out $2000 of methane and oily liquids each day means that AMEP takes in daily revenues of a mere $400,000. For the year, that totals $146 million. I’m not an experienced O&G investor, so I don’t know how much of that can be expected to flow past taxes, operating expenses, and other costs down to the dividend-generating bottom line. I’ll let others offer their projections on the final potential dividends.

But whatever the figure, the potential returns are enormous. Let’s presume, for example that only one quarter of these revenues are left for dividend distribution. One quarter of $146 million is $36.5 million. At 250 million shares, that's a potential annual dividend of 14 cents. If the share count inflates to 300 million (perhaps to internally finance more Barnett Shale acreage) the dividend drops to a mere 12 cents.

The potential of AMEP is apparent. I’ll buy a 2-cent stock that can yield a dime or more of dividends any day – even if I have to wait a few years for this yield to develop.

Bashers will state that I haven’t read nor understood the company financials, that there are inordinate outstanding obligations, and that the company will fold after enough vaporous shares have been issued to gullible investors like me. They will claim that several reputable posters on this board (who actually know the O&G business inside and out, and have visited AMEP field sites) are nefarious insiders perpetuating purported schemes.

As an investor, each will have to personally decide if AMEP is an appropriate investment. For those with questions, check everything and decide. If the bashers’ posts seem relevant, put all of this on delete and never come back. If the bashers seem reasonable, you have no business considering any OTC stock whatsoever.

But if AMEP appears to be what I believe it really is, a rare opportunity to participate handsomely in a rather pure play of the developing Barnett Shale hydrocarbon resource, stay tuned. Fourth-quarter production results will appear in January or February, and there is every reason to believe that, once again, they will be orders of magnitude above previous results. Wells will be drilled into the Barnett using new fracturing techniques, resulting in high successes, both in percent of successful wells and in large production outputs.

A long series of posts by an astute AMEP investor has shown how numerous other O&G companies are rushing to get Barnett drilling rights. It’s not just AMEP operators who have discovered the great potential of the Barnett. AMEP has gotten in early and has rights to 8000 acres.

If you think any of this is a sham, go back to Index funds or large cap blue chips. CD’s are yielding 3% at some banks. But if you’ve got some funds that your budget allows to go for promising investments, AMEP is where some of that should be.

The key is that AMEP actually has drilling rights, and actually has wells in the Barnett, with distribution pipe nearby. I’ll be watching this closely in 2005.

My best to all.