QuickView: AWE

AWE (AWE) presents a 2P reserves base of 60mmboe spread across six producing assets in three of the lowest geopolitical risk countries on the map. It also holds interests in increasingly promising unconventional plays in Indonesia and the Australian Perth Basin. AWE is gaining momentum after what has been a couple of disappointing operational years. With an already-attractive producing asset suite and a strong project pipeline, in our view there is much to like about AWE.

Compelling asset suite and spread
AWE holds a portfolio of stakes in six producing assets including three offshore fields in Australia (the BassGas gas/condensate project in the Bass Strait, the Casino gas field in the Otway Basin and the Cliff Head oil field in the Perth Basin) and one in New Zealand (the Tui oil field in the Taranaki Basin). AWE also holds a 10% gross interest in 24,000 acres in the oil-rich Sugarloaf area of the Texan Eagle Ford shale and holds more than 600,000 net onshore acres in the Perth Basin in West Australia, known to house gas- and oil-bearing tight sands and shale.

Much improved FY13, strong catalyst pipeline
Time and cost overruns on a major mid-life enhancement project of its cornerstone BassGas project weighed heavily on AWE during FY12 and Q113. However, since Q213, on BassGas’s return to service and a sharply stronger contribution from its Sugarloaf project, which now comprises 81 producing wells, performance has rebounded. FY13 production guidance sits at 4.9-5.3mmboe. Looking forward, AWE presents an impressive project pipeline ranging from early-stage, high-probability near-field appraisal/development drilling through to pre-FID deal making (and, therefore, value crystallisation) to support development decisions.

Valuation: Ande Ande Lumut near-term focus
AWE is trading at a 30% discount to the consensus target price. On our own EV/2P screen, AWE’s 60.1mmboe 2P base pitches at US$11.6/boe, placing it at the midpoint of our 63-strong sample set of independents. We expect the valuation gap to narrow as AWE converts development projects. In our view, AWE’s most promising pending catalyst is its 100%-held Ande Ande Lumut (AAL) offshore project in Indonesia. With a 2C recoverable resource of 76mmbbl gross (43mmbbl net of government production share), we estimate that an unrisked AAL could be worth upwards of A$0.60/share. AWE has signalled its intention to sell-down its outright AAL stake in H213, which would establish a firm value point for the asset.

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