Oil and gas producer and explorer AWE Limited (ASX: AWE) was forecasting production of between 4.6 and 5.1 million barrels of oil equivalent (mmboe) for the 2015 financial year. For the full year, AWE produced 5.1 mmboe – right on target, with sales for the full year totalling $284 million.
Sales revenue of between $290 million and $320 million were expected, so coming in just below that – despite the huge falls in the oil price – is a major accomplishment.
The company prepared guidance back in February using a Brent oil price of US$100 per barrel and an AUD/USD exchange rate of US 90 cents. But Brent oil hasn't been above US$70 a barrel this year and fell below US$50 a barrel overnight.
In the three months to the end of March 2015, AWE realised average prices of US$57.33 per barrel, and sales revenues came it at $41 million, 46% below the previous quarter.
But a big concern for shareholders must be the announcement last week that the company had secured a 4-year $400 million multi-currency bank loan to replace the previous $300 million facility.
At the end of June 2015, AWE had net debt of $123 million, comprising cash of $47 million and $170 million of drawn debt.
Offsetting that bad news was the report that 2P Reserves have increased to around 100 million barrels of oil equivalent. Given AWE's current market cap of $679 million, the market is effectively valuing those barrels at $6.79 per barrel or around US$5 per barrel (one-tenth of the current benchmark price).
Yes, 2P reserves aren't all proven and 100 million barrels could be overly optimistic. AWE expects to write down the carrying value of its BassGas reserves and take a non-cash impairment of between $100 and $110 million.
With several producing oil and gas assets, and potential to uncork even more, the biggest issue for investors is when they will see a return on their investment. The company's share price is 20% below where it was 5 years ago, and AWE has paid just 15 cents in dividends over the past decade – not exactly wonderful returns. The write down on BassGas likely means no dividends this year either.
Foolish takeaway
Like many small-to-medium oil and gas producers and explorers, AWE also spends millions on exploration expenditure each year – $64 million on exploration and $240 million on development expenditure in the 12 months to June 2015. Unless it can turn that expenditure into producing assets, shareholders could be waiting for some time to see a return. And that's the primary reason why I'm not risking my cash on AWE.
