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Emerging Companies: AWE Ltd (ASX: AWE)

Published 09-JUL-2013 00:00 A.M.


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Overview: AWE Ltd ("AWE", "the Company") is an Australian oil and gas producer with a diversified portfolio of production interests in Australia, New Zealand, and the US. Over recent years its performance has been characterised by weakening production and underwhelming exploration results. However, after undertaking a strategic review, and implementing new management, we consider AWE’s turnaround prospects?


Catalysts: For the first time in four years AWE is on track to deliver a rise in annual output, and its new management aims to more than double operating cash flow by FY16. Strategic changes should become increasingly salient as last year’s acquisition of the AAL project in Indonesia nears Final Investment Decision (‘FID’). ALL could elevate 2P reserves by 70 percent post FID, although a farm-out process is underway to reduce AWE’s capex requirements.

Hurdles: If a farm-out agreement for the AAL project does not proceed, AWE would bear sole liability for the $600m capex requirement. Earnings are significantly influenced by the performance of its BassGas project, which accounts for 50 percent of reserves, and uncontrollable oil and gas prices. Whilst AWE has approximately 10 years of reserves at current production rates, it is reliant on exploration to maintain its reserve base.

Investment View: AWE is a profitable, diversified oil and gas producer emerging from a turnaround phase. After stabilising its production profile, the focus should shift towards management’s $200m pa free cash flow target. Expecting the AAL farm out to provide near-term validation of their strategy, we initiate coverage with a ‘buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.