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Amerisur's hidden value

After all the promises, the Colombia-focused oil driller is starting to reap the benefits of its pipeline and resource potential
June 8, 2017

For a long time, Amerisur Resources (AMER) has had an interesting story to tell. Since forming in 2005, the oil company's principal focus has been the relatively unexplored Putumayo region in the south of Colombia. The area - which includes Amerisur's Platanillo field - also boasts geology analogous to the Oriente Basin, both the source of the majority of Ecuador's half a million barrels of daily oil production (bpd) and a brief boat ride across the river separating the two nations.

IC TIP: Buy at 26p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Growing production
  • Cash on the balance sheet
  • Low costs
  • Exciting drilling programme
Bear points
  • Mixed track record
  • Country risk

After years of delays the border was, indeed, traversed in 2016 when Amerisur finished building a pipeline connecting its Colombian production with Ecuador's oil infrastructure and international markets. The promise: switch from trucks to pipelines and costs will halve to around $15 (£12) a barrel. Unfortunately, costs aren't the only thing to have halved since we last tipped the company at 47p a share in 2014, although $50-a-barrel oil isn't the sole explanation for the shares' underwhelming market performance in the past three years. Indeed, reserves and production have not increased as expected, giving the market cause to question the shares' valuation.

However, we think Amerisur's true value is somewhat masked. With the OBA pipeline now transporting oil across the Colombia/Ecuador border, the company is generating enough cash to progress its 16-well drilling schedule by the end of 2018 without the need for additional funding. In fact, the company has said it will need no extra money to fund its 2018 $65m work programme as long as oil stays above $45 a barrel. Some of the exploration will focus on a portfolio of more than 26 identified prospects targeting 1.1bn barrels of oil on an unrisked basis.

So far, drilling has been a success. Most recently, a short-term test at the CPO-5 block revealed a daily flow rate of 4,601 bpd before it was shut in. This followed successful drills at the Platanillo-21 well, which indicated the presence of two net oil columns, and the nearby Platanillo-22 well, which flowed at 613 bpd, "materially ahead of pre-drill expectations". These latter two successes have pushed Amerisur to revise its recoverable reserves estimate from the block from 1.4m barrels (mmbo) to 7.82mmbo. Against this backdrop, Amerisur's chances of hitting its target of 20,000 bpd by 2019 look increasingly realistic.

AMERISUR RESOURCES (AMER)

ORD PRICE:24pMARKET VALUE:£291m
TOUCH:23.5-24p12-MONTH HIGH:33pLOW: 20p
FORWARD DIVIDEND YIELD:nilFORWARD PE RATIO:17
NET ASSET VALUE:17.2¢NET CASH:$42.3m

Year to 31 DecTurnover ($m)Pre-tax profit ($m)*Earnings per share (¢)*Dividend per share (¢)
201420047.52.5nil
201561.2-25.1-2.2nil
201647.2-29.3-2.3nil
2017*10612.31.0nil
2018*15536.61.4nil
% change+46+198+40-

Normal market size: 20,000

Matched bargain trading

Beta: 1.22

*Peel Hunt forecasts, adjusted pre-tax profit and EPS numbers.