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Analysts turned on by Tap's performance

Tap Oil's solid June quarter production numbers have prompted analysts to re-think their ratings ...

Analysts turned on by Tap's performance

Tap's oil and condensate production for the period ending June 30 of 0.632mmbbls was up 176% on the previous quarter - the result greatly helped by the strong performance of the Woollybutt oil field.

Gas production was also strong at 994tj driven by higher customer demand.

Tap's revenue of $27.4 million was in line with broker forecasts, however, the company made its dollars on a much lower realised oil price. This quarter's average was A$40.18/bbl compared to last quarter's A$54.42/bbl. The company currently has $11.029 million in cash at hand but debts of just over $6 million, meaning its net cash position is $5.026 million.

JB Were has upgraded its FY2004 earnings forecast for Tap by 5% to $38.4 million and FY2005 by 8% to $17.4 million. This is driven by the inclusion of the Linda field in the forecast - Linda is expected to be contributing to the bottom line by the second quarter of next year.

"The short-term production outlook for the company remains strong with significant additional cashflow generation potential from the Woollybutt field," JB Were analyst, Anthony Bishop, wrote in a recent research brief. "Furthermore high levels of exploration activity for the remainder of 2003 will provide further share price support for the stock.

"Tap is currently trading at a roughly 10% discount to our valuation of $1.72. This valuation does not include any upside component for the exploration program currently being conducted. We believe the potentially high-impact exploration of the second half, the likelihood of tying-in future discoveries quickly to existing infrastructure, and the possible upward revision of Woollybutt reserves is likely to lead to sustained outperformance in the short term."

Woollybutt is likely to be the source of much interest in coming months giving the impending sale of ExxonMobil's 20% stake. This sale will give a good pointer to the value of the field.

Previously Tap Oil increased its stake from 10% to 15% when they pre-empted PanCanadian's sale of equity to Marubeni. AGIP, the current operator also pre-empted. Given that Tap paid $6 million for its 5% stake, then Exxon's stake could be valued north of $24 million.

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