african oil explorers undervalued

FAR gets a mention in this article:

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African oil explorers ‘underestimated and undervalued’

Rob St George, 26 October 2012

Wildcat firms searching for oil in Sub-Saharan African offer investors with a high risk threshold potentially high returns, according to a sector specialist.

‘With equity markets unusually risk averse, we believe it is a good time to build a portfolio of undervalued, high-risk – and thus cheap – frontier exploration stocks with a view to generating strong portfolio returns over the next few years,’ asserts Stuart Amor, head of oil and gas research at broker RFC Ambrian.

In particular, he tips Sub-Saharan oil explorers that he considers ‘underestimated and undervalued’.

Amor gives four reasons for this confidence. First, the U.S. Geological Survey has upgraded its estimates of undiscovered conventional petroleum resources in the region by 146 billion barrels of oil since 2000, an increase of 120 per cent.

In addition, new technology has made these reservoirs easier to recover than ever before, while the area is becoming more stable politically.

Finally, Amor reckons companies operating in Sub-Saharan Africa are currently undervalued because present production levels are low. Because of this, he observes that the oil majors are not particularly interested in the prospects.

‘We believe that junior explorers operating in Sub-Saharan Africa often have better access to licences than in other regions,’ Amor explains.

When assessing such firms, Amor advises investors to look for those that acquired their licences early when Africa was out of favour, that operate in plays where there has been proven drilling success, that have partnered with the majors, and that have low share prices relative to their net asset value.

He highlights African Petroleum Corp (NSX:AOQ), Chariot Oil & Gas (LON:CHAR) and FAR (ASX:FAR) as all trading at roughly half his estimate of their fair value.
In contrast, he says African Oil Corp (TSX:AOI) ‘appears overvalued given the risk that the rift basins of Kenya and Ethiopia will not prove as prolific as Uganda’s Lake Albert Rift Basin’.

Broadly, though, Amor’s assumptions of these companies’ values depend on them hitting oil; if they fail to do so, shareholders stand to suffer heavy losses. He further concedes that they ‘suffer from a relatively heavy concentration of regional, geologic and/or political risk’.

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Link to article:
http://alturl.com/h7dxx