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What’s wrong with Buru Energy?

Buru Energy (ASX:BRU) shares have slumped 25% in the last month, now trading at around $1.40, close to a 52-week low.

The former market darling controls large portion of North Western Australia’s huge Canning basin.
Buru Canning Basin

Source: Buru Energy Presentation

The shares appear to have been marked down as traders have bailed out of many stocks regardless of fundamentals, desperate to lock in any profit for fear of it evaporating.

Up 200%, but down 50% in the last year

Buru shares have trebled since early 2011, but are down a whopping 50% over the past 12 months, making the company the second worst oil and gas sector company in the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) over the past year.

For those investors willing to look a little further ahead, and through the volatility, at these levels Buru could be make for a interesting investment opportunity.

The company’s Ungani oil field discovery is due to begin production in the first half of 2014, at a rate of 5,000 barrels of oil per day (bopd). Buru estimate this will be strongly cash flow positive when in production, generating $60m per year net cash flow to the company.

That just about justifies the market capitalisation of $380m, which includes net cash of around $45m, with the exploration upside thrown in for a song.

According to Buru, The US Energy Information Agency (“EIA”) identifies the Canning Superbasin as the largest “shale” or unconventional gas potential in Australia.

It’s one thing having potential, it’s another thing turning that potential into profit. That’s the challenge for this well known and respected management group, and the bet for game investors. Do you feel lucky?

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Bruce Jackson does not own shares in any companies mentioned above.

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