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South American promise for Amerisur

SHARE TIP: Amerisur Resources (AMER)
August 11, 2011

BULL POINTS

■ Established revenue stream

■ Rise in prospective resources

■ Improved operating environment

■ Shares cheap compared to estimates of undeveloped assets

BEAR POINTS

■ Delays to drilling at the Platanillo field

■ Oil pries are falling

IC TIP: Buy at 18p

Colombia and Paraguay may not obviously spring to mind when identifying the world's new petroleum hot-spots. But these countries do boast plenty of potential and investors looking to tap into early-stage growth within the oil & gas sector there should look closely at Aim-traded Amerisur Resources - one of a handful of exploration and production companies to have established an early presence.

IC TIP RATING
Risk ratingHigh
TimescaleLong term
What do these mean? Find out in our

Certainly, the oil industry within Paraguay remains in its infancy - but the country's Chaco Basin is one of the world's last minimally explored onshore hydrocarbon areas. Colombia, meanwhile, has reinvigorated its oil sector over recent years and is now the region's fourth largest producer, with daily output expected to reach 1.3m barrels by the end of 2012 - a near doubling of output on last year's rate. The governments of both the countries are now committed to developing their energy sectors as a means of securing export earnings, so the operating environment for oil companies is looking increasingly benign.

Amerisur, formerly Chaco Resources, holds 100 per cent interests in two blocks in Colombia - Platanillo and Fénix - together with fully-owned interests in Paraguay - at San Pedro and Curupayty. True, all of the four licences are in early-to-mid stage development, with Platanillo currently being the only productive asset, with a modest daily flow rate of 452 barrels - translating into annual revenues of around $12m (£7.3m) at current prices. Daily production has risen markedly since 2009, though, and provides a basis for confidence given that Amerisur currently operates in limited zones within the Platanillo block.

However, the real upside potential for Amerisur comes from an independent reserves report on Platanillo, carried out earlier this year by Petrotech Engineering - it raised the prospective resource within the block to between 45m and 95m barrels of oil. Essentially, the interpretation of 3D seismic survey data has provided a promising insight into the characteristics of the eastern Putumayo basin, which contains the Platanillo field. This could eventually lead to a dramatic expansion of Amerisur's proven and probable reserves (2P) beyond the current 3.6m barrels of oil.

AMERISUR RESOURCES (AMER)

ORD PRICE:18pMARKET VALUE:£164.7m
TOUCH:17-18p12-MONTH HIGH/LOW:30p10p
DIVIDEND YIELD:nilPE RATIO:17
NET ASSET VALUE:NET CASH:$20.7m

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20080.10-0.92-0.12nil
20090.350.05nilnil
20101.73-1.230.06nil
end-Dec($m)($m)(¢)(¢)
2010†9.012.260.13nil
2011*36.423.61.73nil
% change----

*Shore Capital estimates (figures adjusted - not comparable)

†Nine-month figures

£1=$1.64

Normal market size: 9,000

Matched bargain trading

Beta: 2.08

Indeed, based on the survey results, Amerisur had originally been targeting a rise in its daily output to 5,000 barrels by the year-end, together with a 35m barrel increase in 2P reserves. But its six-well drilling programme planned for the block had to be delayed to the fourth quarter of this year because of delays at the Colombian Ministry of Environment in approving modifications to the original Platanillo mining licence.

Certainly, investing in Amerisur is not without risk. After all, current market volatility arising from US recession fears and the eurozone sovereign debt crisis is hardly an ideal backdrop. And falls in the price of crude oil won't help sentiment towards the sector, generally.