ASX energy stocks could benefit from the Otway exploration drilling campaign currently underway. But there is one energy stock in particular that Macquarie Group Ltd (ASX: MQG) analysts think has a "low risk upside worth chasing".
Image source: Getty Images
What is the Otway basin drilling campaign?
The Otway Basin drilling campaign is an exploration plan to find natural gas in the Otway Basin offshore of Victoria. The project is owned and run by ConocoPhillips Australia which holds 51% of the joint-venture project.
The other joint-venture partners are Korea National Oil Corporation (KNOC), which owns 29%, and 3D Energi, which owns 20%.
In a recent note to investors, Macquarie analysts note that for the ConocoPhillips discovery (Essington-1, first of 2 wells), Beach Energy Ltd (ASX: BPT) or Amplitude Energy Ltd (ASX: AEL) could process this gas.
Amplitude Energy is expected to then drill at the Elanora/Isabella-ST exploration sites early next year. It is then expected to pass the rig to Beach Energy for Thylacine well intervention and to stabilise production. The plan is to backfill the Athena Gas Plant and supply gas to southeast Australia.
Which ASX energy stock has the best upside potential?
Macquarie brokers have an outperform rating on Amplitude Energy shares and a $3.90 target price. At the time of writing Amplitude Energy shares are trading at $2.74 a piece. This target price therefore represents a potential 42.3% upside for investors over the next 12 months.
Macquarie analysts said it thinks there is a "high probability exploration to drive brownfield growth (Otway), operational excellence (Orbost), renegade mindset".
The broker added: "With Orbost now performing consistently, and Otway partner established (OG Energy 50%), AEL is our top pick for investors seeking exposure to the tight East Coast gas market."
Macquarie explained that the drilling campaign is costly, but very likely to unlock sufficient gas for the Athena gas plant. The plant currently runs at around 10% of capacity.
Our FY26e/FY27e EPS are +3%/+3% on stronger Orbost production & lower finance costs, +11%/+14% in FY28e/29e on stronger Athena production response as new wells brought on. TP +2% to $3.90/share, slightly higher ECSP+ production rates.
What's the broker's outlook for Beach Energy?
By comparison, the broker has an underperform rating on Beach Energy shares and a 80 cent target price. That's a potential 32.8% downside from the ASX energy company's current $1.19 per share trading price.
Macquarie analysts said the company's portfolio is overvalued and lacks control of key assets.
More Waitsia delay pushes production to low end of FY26e guide (MRE 20.3MMboe vs 19.7-22.0). Our FY26e EPS -29% on higher tariffs & tolls, further Waitsia start-up delays, higher provision for gas balancing (w/Mitsui) and higher exploration write-off (Hercules). Our EPS are -26%/-23% in FY27e/FY28e on higher costs (tariffs & tolls), and higher finance costs (no more capitalising of interest).
