Amerisur Resources (AMER) is an independent oil & gas company focused on South America, with assets in Colombia and Paraguay. Their strategy is to buy, explore and develop large-acreage sites in major underexplored basins.
AMER is no ordinary speculative oil explorer, though. Its Platanillo field is in production and the company generates a healthy cash-flow that it ploughs back into further drilling activity. What’s more, the company has a good track record of getting the most out of its oil assets, as highlighted by this recent comment from chief executive Dr. John Wardle:
"We continue to be encouraged by successful results from the Platanillo field. We have now drilled 7 new wells and performed 2 sidetracks of legacy wells with a 100% success rate. This is a very strong endorsement of the geological model and bodes well for the wells to the north. With civil works on the northern road to Platform 3N commencing shortly I look forward to seeing further significant growth as we extend our reserves base beyond the strong results of Platanillo-1 side track. As we have already demonstrated, logistical issues can and will be addressed gradually to develop Platanillo to its full scale."
Earnings per share (EPS) grew sixfold in the financial year to 31 December 2012, driven by increasing oil production. And, EPS is forecast to grow sevenfold in 2013. This leaves AMER on a forward price-to-earnings (P/E) ratio of 5.3. (Its current P/E is 54, because of the anticipated increase in EPS in financial year 2013).
Of course, there are risks. The forecast increase in EPS could be impacted by drilling delays, as well as the inherent political risk that comes with doing business in South America. But these risks are already reflected in the share price, in my opinion. Goldman Sachs has a price target of 82p and Investec 71p.
AMER not only meets my “ValuableGrowth” criteria, with its share price having declined from a high of just over 58p in April 2013 to a recent low at 39p this week, a decline of around one-third. I have been in and out of AMER shares over recent years and these sharp pullbacks following overly exuberant run-ups are typically good opportunities. I have therefore taken the opportunity to add AMER to my ValuableGrowth portfolio at 39p on Monday 24th June 2013.
Kerry Balenthiran is the author of "The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987, 2000 and 2007".
Disclaimer: Kerry Balenthiran owns shares in Amerisur Resources.
