AWE

Despite production for the half year falling 7% to 2.9m barrels of oil equivalent (mmboe), higher oil prices fuelled a 17% jump in AWE’s revenue to $158m. Earnings before interest, tax, depreciation, amortisation and exploration leapt 61% to $103m. Net profit after tax was $30m, a big turnaround from last year’s $50m loss.

Stripping away the gains on asset sales—AWE sold shares it held in Buru Energy—resulted in an underlying profit of $19.5m. Net operating cashflow, which rose 85% to $75m contributed to a strong closing net cash balance of $167m. After a series of poor results triggered by exploration write offs and asset impairments, a clean, profitable performance was pleasing. AWE even paid a special, fully franked dividend of 5 cents per share in January after selling 11.25% of BassGas for $80m.

The company can now focus on a busy development schedule ahead. Work is being carried out at BassGas and the newly acquired Ande Ande Lumut oilfield in Indonesia that should lift output in the future. In the Perth Basin, AWE has finally been granted approval to frack deep buried shales for gas. This is a pivotal project for the company that may unleash massive quantities of gas into the lucrative Western Australia market. Core samples taken last year indicate underground rocks should respond well to fracking, but testing is still vital to determine if gas production is commercial.

AWE’s share price is starting to reflect the better performance.  After climbing 16% since AWE: Shopping for barrels on 31 Jan 12 (Speculative Buy - $1.54), the company is on the brink of a downgrade. For now, it remains a SPECULATIVE BUY.

The model Growth portfolio owns shares in AWE.