Emerging Companies: AWE Ltd (ASX: AWE)
Published 09-JUL-2013 00:00 A.M.
1 minute read
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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.
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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.
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