Profits at Asia-focused Salamander Energy headed south after a disposal of non-core assets hit first-half production. Hardly great news on the face of it, but Salamander has essentially jettisoned low-margin barrels as part of a strategic transition process that will result in an accelerated ramp-up through 2013. We remain positive on Salamander's prospects because, aside from this new higher-value production, the potential for resource upgrades is provided through a drilling programme at the group's billion-barrel North Kutei acreage in Indonesia that kicks off in the fourth quarter.
In the latest six-month trading period, average daily production fell 45 per cent to 10,700 barrels of oil equivalent (boe), but forthcoming development drilling at its Bualuang and East Terrace sites "will boost production substantially", according to chief executive James Menzies. The contraction in revenues from the disposals was relatively modest, partially due to a one-third rise in realised gas prices, but operating profits declined by 72 per cent to $22.1m (£14m) due to a substantial rise in exploration costs/writedowns, together with charges linked to inventory movements. However, the positive effect of the disposals on margins can be gauged by a 24 per cent rise in cash flow per boe.
Oriel Securities gives Salamander a risked net asset value (NAV) of 241p a share, with another 270p linked to the fourth-quarter exploration targets.
| SALAMANDER ENERGY (SMDR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 195p | MARKET VALUE: | £500m | |
| TOUCH: | 194-195p | 12-MONTH HIGH: | 214p | LOW: 143p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE*: | 216¢ | NET DEBT: | 15% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 188 | 62.4 | 2.0 | nil |
| 2012 | 179 | 15.9 | -15.0 | nil |
| % change | -4 | -74 | - | - |
*Includes intangible assets of $268m, or 104¢ a share £1:$1.58 | ||||
