AWE has been on our buy list for years and, for years, we've maintained a base case valuation of about $1.80 per share. It's been a rocky road but AWE has finally hit that target.
We can't explain why the share price has risen so swiftly or suddenly. One catalyst may be the takeover of fellow producer Aurora Oil and Gas. Aurora and AWE share stakes in the same shale field, Sugarloaf in the Eagle Ford Shale, and Aurora's valuation suggests a higher price for AWE's stake. We had estimated that asset to be worth about 20 cents per share, but the takeover suggests a value of over 50cps, a change now reflected in the share price. We've also previously argued that gas prices on the east coast would rise (see Slowly begins the gas boom). That view is now the consensus and gas assets are attracting higher valuations. Finally, the part sale of the Ande Ande Lamut oil field to Santos has given credibility, and a valuation anchor, to the new development. All three factors have contributed to the market's rediscovery of AWE.