Background:

• Geneva based E&P listed on the Toronto under AXC.
• Management - Financial and operations professions have extensive experience with Majors operating in Africa.
• IPO Feb 2006. The stock has made slow steady progress since then.

Massive Production Growth History:

• Acquired 4 concessions in Nigeria producing 8,800 boepd form Ashland Petroleum (ASH) in 1998.
• Increased gross production 65,600 boepd by 2005.
• Averaged 90,050 bopd.
• Exited 2006 at 116,000 bopd.

• Nigeria represents the vast majority of current production but the company is using it’s African connections and operating expertise to take advantage of other regional opportunities.

• Other areas of exploration:

• Cameroon,
• Gabon (now producing 18,000+ bopd),
• Iraq, Kurdish region (2 large wells and counting)- don’t wince at the country, these guys know how to play here too and the Kurd’s are desperate to increase oil production
• Sao Tome (offshore Nigeria)

Strategy:

• Exploit neglected oil fields in Africa, going where being a US company would have it’s disadvantages (employ mostly locals to help dissuade retaliation from militant groups),
• Exploration: offshore W. Africa, onshore Middle East

Strong Outlook: Production targets of 130,000 and 145,000 bopd for 2007 and 2008 respectively.

Street Consensus Estimates: 2006A $2.04, 2007E $3.36 which puts them at less than 10x forward earnings on a stock with 40% expected production growth.

• Note 1: AXC is afforded some protection from oil price declines due to the high quality of a majority of their crude which trades at a premium to Brent.

• Note 2: As cost recovery is fulfilled earnings growth will decelerate but this is also mitigated by their movement into new plays.

Show me another E&P with this kind of growth expected in 2007 in this market cap range and I”ll take a hard look at buying it. I haven’t seen it but I’d love to.

Catalysts:

Sao Tome Exploration - First well with operator APC should spud in 1H07. This is a very high potential region (see Sao Tome section below).

Iraq Exploitation/Exploration - second Taq Taq well (TT-05) tested at 26,550 bopd from two zones totalling roughly 400 feet of pay. Flow rates were restricted by the capacity of the testing conditions (trucked oil).

• TTo6 now drilling quite a bit further away as the try to delineate the size of the field.

Gabon development- additional production comes on line 1Q07.

Reserves:

2006: 2P reserves (proved + probable) increased 80% to 353.7 mm boe.

• Only booked 40 mm barrels from Iraq. Oil in place (STOOIP) is thought to be roughly 2 BILLION barrels, so the recoverable reserves here are significant to AXC’s bases.

That’s nearly 2.5 barrels per share not counting most of Iraq!Reserve engineers: Netherland Sewell -top notch, conservative firm.

A Little More Detail:Nigeria:

• 13 oil fields produce the bulk of AXC’s current production, and the majority of this is offshore. They have multiple exploration concessions.

• Nigerian government wants to go “no flare” by 2008-2010. Very large natural gas production potential.

• New Exploration Concession: OML 67 Okwok Field - 67 mmbls reserves acquired June 2006. 40% participating interest. Shallow water field, they announced “medium to light quality crude, in a high quality reservoir. Nice producers, nothing earth shattering.

• Next round of Nigerian oil licences: mid March, 2007.

Sao Tome - Three Deepwater Exploration Blocks (JDZ Blocks 2,3,4) - adjacent to several discoveries. Evaluation of seismic ongoing.

One of the keys to finding oil is drilling in the right neighborhood. Sounds simple but it’s very true and AXC’s three JDZ are in a very good neighborhood for oil. They’re ontrend with three fields with aggregate reserves of 2 billion barrels. Drilling will commence in 2008.

• #2 - AXC 14.33% participating interest (PI), Sinopec operates. Petroleum Geo Services seismic survey led reservoir engineers to estimated reserves of 1 billion barrels on the block. Block 2 is adjacent to the 700 mm bbl Akpo field among others.
• #3 - AXC 15% PI, APC operates.
• #4 - AXC 38.3% PI and operates.

• Note: Chevron drilled a well on Block#1 in May 2006 and, as of January, it was classified an oil discovery with further exploration to quickly follow.

Cameroon - Ngosso property offshore Cameroon. 60% wi. Will drill 2 wells later this year.

Gabon - Maghena property onshore. Capacity had been restricted to 5,000 bopd; exited 2006 at 18,000 bopd.

New export system capacity is 20,000 bopd going to 30,000 bopd by mid 2007.

Iraq (Kurdistan Region) - Taq Taq prospect.

First well (TT-04) results announced November 2006. Partners with Genel, a private, Turkish oil company.

• 29,790 bopd light crude flow test from 3 intervals.
• Over1,500 feet of pay!
• Tests were constrained by surface equipment.

Kurdistan minister of natural resources called it “great achievement” and looked forward to initial production in 2007. This guy is planning to increase Kurdistan’s oil production by 1 mm bopd over the next few years!

TT-05 same as above but likely downdip as it’s less pay. Excellent test rate announced today.

TT-06 step out is drilling now.

Participating interest here 45%

Separate prospect, Kewa Chirmila, will be drilled this summer.

In short: I like these guys as a long term hold. Production growth for their size is best in show and they appear extremely undervalued to their reserves and potential.