ARD 2006 Capex

For the rest of 2005 it looks like the increase will result in drilling an extra well on F-M property and acceleration in the consolidation and modernization of the infrastructure of the lease in preparation for future developmental drilling. I think this is a good thing. They are preparing now for a big 2006. I think this can not be understated. 2006 budget is slated for $35 million. This is subject to be increased at year end. I think they probably will increase it at year end as oil prices continue to climb.

Last year at year end they announced a capital budget of $15 million for 2005. They have basically increased that amount by 60% to the current $24 million.I look for ARD to boost 2006 budget at year end to $40 million. THEN, I expect them to bump it up a few times throughout 2006 for a final tally that is $40 million + an extra 60% for a grand total of $64 million in capex. With 139 drilling locations looking ARD right in the eye they are probably going to get an extra rig and drill DOUBLE TIME in 2006. This is not beyond the realm of possiblity as they will have drilled 35 wells on F-M in 2005.

I see ARD doubling the amount of wells to 70 in 2006 on F-M property. I believe they will get a second rig in second half of 2006 and the majority of these wells will be drilled in Q3 and Q4. (Remember when ARD mgmt stated in Q2 earnings release, "We believe that the drilling activity and infrastructure improvements we began in the second quarter will have a very positive effect on the second half results.") I think they will again look for a BIG second half of 2006.

Where will funding come from for 2006 Capex program?

2006 capex program will come from cashflow from operations. ARD will EASILY pump over 1 million BOE in 2006 (just rough estimates here.) With average realized price of oil around $65 per BOE in 2006 (the trend higher in oil prices continues) and a 50% net profit margin due to increased production and prices ARD should easily NET $32.5 in 2006. Based on 14.1 million shares that comes out to about $2.30 per share in EPS. It gets better when you talk cashflow...

Hibernia Research Report dated 9-26-05 projects 2006 cashflow from operations of $50,027,000. Hibernia came in way low in their Q3 revenue and net income estimates. I also think they will come in low when ARD outperforms in 2006. $65 million in cashflow from operations is very much a realistic target for ARD in 2006. This will be more than enough to fund an agressive CAPEX program of what I think will be over $60 million when all is said and done.

If ARD decides to INCREASE capex in 2006 they drill more wells and this = more $ for MORE capex spending. No dilution or borrowing from credit line is necessary. As Sherlock Holmes used to say, "It's ELEMETARY my dear Watson."

Now is the time to be acquiring shares of ARD especially if you are of the belief that we are at or near worldwide peak oil production. I along with many other investors still think ARD is the best small cap oil play on the planet bar none.

Why?

Three Reasons:
1. Reserves......Well over $100 in oil assets per share based on $60 oil.
2. Production...Growth in production is nothing short of jaw dropping.
3. Cost Structure...It's like fine wine: it only gets better with each passing day.