Can Amerisur Resources pull it back after slow start to 2018?
Oil and gas firm Amerisur Resources (LSE:AMER) have fallen by around 34pc since January, currently sitting at 14.5p with a market cap of approximately £176m. With the business planning an extensive drilling programme this year to expand its presence in Colombia, we take a look at whether it is worth re-visiting.
What is it?
Amerisur is an exploration and production oil and gas company focused on Colombia. It currently holds gross interests in 11 blocks covering 984,000 hectares across the country. These hold more than 26 prospects containing total un-risked resources of 1,376MMbo.
In 2017, Amerisur managed to increase average production across all of its assets to 4,857bopd from 3,081bopd in 2016, and in its most recent presentation, it claimed to currently be producing 6,500bopd. However, it hopes to increase this production further, arguing that there is significant, focused exploration opportunity across low-risk assets in Colombia that can deliver substantial medium-term cash flows.
Amerisur’s direct route to exploiting this potential will be the development of its strategic cluster of assets around its wholly-owned OBA oil transfer line into Ecuador, which it uses for export. These assets include a 100pc working interest in the Platanillo block, which includes the Platanillo producing field in the Putumayo basin. It also holds a 30pc non-operated working interest in the CPO-5 block containing the Mariposa-1 producing field in the Llanos basin.
Work here is due very soon, with Amerisur on the verge of launching into a 2018 drilling programming targeting 131.53MMbo of un-risked resources from up to 14 new exploration and development wells.
Why has it fallen?
Since the beginning of the year, Amerisur has seen its share tanks from c.22p to 14.6p, putting its current market cap at £176m. A raft of negative sentiment hit the firm in the first quarter off the back of several relatively un-inspiring updates detailing work at Platanillo and CPO-5.
In April, shares fell 11pc when it revealed that 1P reserves at its Platanillo field had dropped to 12.84MMbo in 2017 from 15.1MMbo in 2016, outstripping production of 1.76MMBO over the period. Amerisur put this down to the relatively poor performance of two wells drilled during the period. It also reported that production at the field had somewhat decreased in March thanks to ongoing workover and cleaning treatments.
After a period of strength thanks to a strong AGM statement and some director share purchases, Amerisur fell another 14.7pc in one session in June. It said Platanillo field production had been hit again, with well Plantanillo-6 facing a water cut that had also affected several other wells.
Newsflow aside, bulletin boards are awash with speculation as to why shares have underperformed. Also, it is likely that some are disappointed that Amerisur has yet to spud any wells, with its drilling programme being held back by several minor delays.
Why would it be interesting?
The bottom line is that withstanding minor delays, Amerisur’s drilling programme could be a game changer. Importantly, it is also fully funded at $45 oil, way below current prices. The firm boasted no debt and a strong cash position of $41.3m as of May, supplemented by existing production. It also agreed a $45m working capital facility in April to enable expansion.
At 14p a share as at the time of writing, Amerisur looks cheap relative to its historical averages, especially given the recent strength of oil. According to itss latest update, progress on the program is imminent. It expects to spud the Pintadillo-1 well at Platanillo this month. Then, in Q3, it plans to spud two further wells – Indico-1 in the CPO-5 block and Miraparriba-1 in the PUT-8 block.
If you take Amerisur at its word regarding these timings, then some serious newsflow could be on the way. After all, the business is targeting 11.4MMbo at Platanillo, 5.1MMbo at CPO-5, and 5.6MMbo at PUT-8, the sites of the three imminent wells. According to the company’s latest presentation, spudding will continue into late Q3 and Q4.
The value of this potential was demonstrated in April when several Amerisur directors bought shares at around 15p. This led the business to rise by around 30pc over two days. The spree saw chief executive John Wardle increase his stake to 1.8pc by buying £50,000 worth of shares. Meanwhile, non-executive directors Dana Coffield and Chris Jenkins bought around £70,000 and c£30,000 worth of shares respectively.
The bottom line
Amerisur is currently sitting well below its historic average thanks to some negative sentiment and newsflow. However, it is still targeting a significant resource with imminent drilling programme in an under-explored region at a time when oil is performing well. Some will want to see evidence of management delivering on their word, but the fact that they are increasing their skin in the game is encouraging. It will be interesting to see if newsflow this year prompts a re-rate.