It may be unfair to ask if AWE Limited (ASX: AWE) is the 'next' Senex Energy Ltd (ASX: AWE), since the former has a larger market cap than the latter.
However, I couldn't help but notice in AWE's Macquarie Conference Presentation released this morning that AWE has a lot of the same attributes that initially attracted me to Senex last year:
- Huge 2P reserves of 80 million barrels of oil equivalent (mboe), and 2C reserves of over 100mboe
- Ability to double 2P figures in coming years with the conversion of Sugarloaf, Lengo, and Senecio/Waitsia into reserves
- Rapid production growth; targeting 10mboe by 2018, which is double 2015's forecast
- Reasonable financials with $62 million cash and $109 million drawn debt (from a A$300m facility) as at 31 March 2015
- Profit-making operations even at current oil prices
- Reasonable proximity to infrastructure at some of its major assets
- Continued exploration success as witnessed by Irwin 1 results
This morning's Irwin results were particularly exciting, indicating AWE has found another 149 billion cubic feet (bcf) of gas in its Western Australian onshore tenements.
This is in addition to the 320bcf find at Waitsia/Senecio that was touted as the largest conventional onshore gas discovery in WA since the 1960's back in September last year. The partnership with Origin Energy Ltd (ASX: ORG) in these fields confers valuable additional expertise and takes some of the burden of funding off AWE's back.
With commodity markets the way they are however, AWE has battened down the hatches, reducing its capital expenditure and exploration in order to conserve funds at a time of significant market uncertainty.
If oil/gas markets return to normal then shares could be set for a dramatic recovery, especially considering the vast majority of AWE's product is un-contracted and can be sold at the prevailing market rate.
This however increases the downside risk if markets remain stagnant or go lower.
Another risk to AWE is the potential for major capital expenditure in order to boost its production and convert its 2C reserves into 2P (ready for commercialisation); with a modest cash balance this could see a large increase in debt at a time of market uncertainty which does increase the risk. Asset sales in non-core fields may make up some of the shortfall.
On balance however AWE's long reserve life, cash-flow positive operations and continued exploration success make it a moderate-risk, high-reward share for investors looking to play a recovery in oil markets – I'm considering picking up shares myself.
