MENU

Is AWE Limited a total bargain after its recent price falls?

Investors have seemingly forgotten about AWE Limited’s (ASX:AWE) giant Waitsia oil field that was discovered back in September and sent the company up to 52-week highs of $1.99.

Shares have since relapsed to $1.38 as weaker oil prices drag ASX producers down, which means today’s prices could be a pretty good entry point for investors focused on the medium to long term.

The primary attractions of the Waitsia field are its proximity to existing infrastructure and its huge size; it contains a ‘best estimate’ of 360 billion cubic feet (bcf) of gas, which AWE shares 50-50 with partner Origin Energy Ltd (ASX: ORG).

Despite low oil prices expected to stick around for the foreseeable future thanks to OPEC’s recent decision not to cut production, natural gas prices have risen 10% so far this year and analyst Morningstar thinks AWE could be quite close to commercialising the Waitsia field.

Morningstar’s $3.00 fair value target on AWE however does rely on the assumption of long-term oil prices of around AU$100 per barrel, which may not be attained in the near term if oil supply continues to outstrip demand.

However when you factor in that AWE is planning massive increases in its production to 10 million barrels of oil equivalent and over $500 million in EBITDAX (‘x’ for exploration) by 2018, then prices of $1.38 look quite good indeed.

Nothing is certain in the sharemarket, but correctly identifying undervalued companies before the rest of the market is a viable strategy to deliver great capital gains.

The Motley Fool has recently released a free report into three potentially undervalued resource stocks, and I think at least one of them – hint: the aquatic one – combines attractive growth prospects with a very appealing price.

Think natural gas stocks are your best bet? Think again! Discover 3 under-the-radar resources plays in The Motley Fool's brand new report, "Drilling for Dollars: 3 High-Potential Resource Plays You DON'T Want to Miss." Simply click here for your free copy now.

Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.