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AWE Video


 

Stock Of the Day  - AWE Limited (BUY)

Last week only, AWE Limited (AWE) released its first half FY14-15 results that entailed statutory net loss after tax of $61.7 million including $50.1 million non-cash impairments and underlying net loss after tax of $13.9 million indicative of poor oil prices. The $50.1 million after tax non-cash impairment was identified for the Tui and Cliff Head assets.

Half Year Financial Performance (Source – Company Reports)

The half year production was reported to be 2.6 mmboe in consensus with the full year guidance (4.6 to 5.1 mmboe). There was a 38% surge in Sugarloaf volumes over the previous corresponding period. The total number of wells drilled at Sugarloaf went up to 223 by 31 December 2014 and out of these 187 were found to be producing. There was a 14% increase in 2P reserves and 2C resources to 191.6 mmboe. The Company reported for a sales revenue of $161.3 million while the production costs and royalties amounted to $73.2 million. The field earnings before interest, tax, depreciation and exploration expenses of $88.1 million were reported. AWE also conveyed an exploration expense of $27.8 million. $15 million was reported to be the net cash which resulted from cash of $75 million and drawn debt of $60 million.

A key highlight included Waitsia gas discovery onshore Western Australia adding 24 mmboe to 2C Resources. The Company has confirmed that the Waitsia and Senecio gas fields in the onshore Perth Basin are assessed to have a combined gross 360 Billion Cubic Feet (Bcf) in 2C Contingent Resources along with upside potential of 1.3 Trillion cubic feet in 3C Contingent Resources. Conventional flow testing and appraisal drilling of the Waitsia gas field is to be undertaken by AWE. The Company has already started flow testing of the Senecio-3 discovery well and preparations for the Waitsia-1 and 2 appraisal wells are on track.


Depth Map on Senecio and Waitsia Fields (Source – Company Reports)

Further, the Indonesian government approved the Lengo Plan of Development. Formal negotiations for gas sales agreements are about to start. The Lengo field is projected to have gross 2C Contingent Resources of 200 Bcf of gas. There is continuation of development activity on the Ande Lumut (AAL) oil project in Indonesia. Particularly, AAL wellhead platform and Floating Production, Storage and Offloading vessel (FPSO) tender plans have been approved. Further, 2015 will signify the time period for prequalification and contracting activity. The Operator has advised to move FID for the project to 2H of calendar year 2016 with first oil in 2018. Heavy Lift phase of BassGas Mid-Life Enhancement (MLE) project has been completed successfully and under budget. Further, the sale of an 11.25% interest in BassGas for $85 million is complete. With regards to tie-in of Pateke-4H well to Tui oil field, the work is set to commence in 1Q CY2015 with production from Pateke-4H anticipated in 2Q CY2015.


Guidance (Source – Company Reports)

AWE stated no change in guidance for FY2014-15. The sales revenue may touch around the bottom end of range owing to lower oil price whereas the exploration expenditure may be at the upper end of the range based on Waitsia appraisal activity.


Growth in Reserves & Resources (Source – Company Reports)

The Company is poised to manage oil price impacts through production assets while Cliff Head and Tui asset values have been wedged; fast track gas developments in high value gas markets; cost reduction; and portfolio management through potential to farm out or sell assets to optimize portfolio returns. For instance, the Company reported for acquisition of additional 5% of T/18P (Trefoil field) from Drillsearch for a nominal sum completed in January 2015 which increased AWE’s interest to 40%. The Company is focused on achieving 10 mmboe production goal by the end of 2018.


AWE Daily Chart (Source - Thomson Reuters)

We do note that impact of low oil prices is affecting the outlook for AWE. The delay in AAL project in Indonesia and other hiccups are also playing a role. However, AWE’s aforementioned efforts such as fast tracking of gas developments in the Perth Basin and portfolio optimization do indicate good potential. Going forward and beyond 2015, prices may slowly rebound with a stability in market forces.

Accordingly, we put BUY recommendation for the stock at the current price of $1.225.