fat prophets stock of the week

After a volatile past 12 months, the oil price has once again strengthened following increased Geopolitical tensions in the Middle East. And despite Iran's release of the captured British naval personnel now a distant memory, tensions look set to simmer for some time yet.

"Assuming the Tui development progresses as expected, we anticipate significant profit growth in 2008."

Tracking the oil price, energy related stocks are also beginning to stir after months of share price consolidation.

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One such company is Australian Worldwide Exploration (AWE). Last year, the company emerged as a significant energy producer and with another project due to come online in July this year, growth prospects for the company are strong.

When looking at an oil company, the easiest way to understand its structure and prospects is to break the operations down into production, development and exploration.

Over the past few years AWE has been developing numerous oil and gas projects. In the 2008 financial year, all these assets will be producing in tandem, leading to increased earnings and cash flows. Importantly, we believe the market has yet to recognise this potential.

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Firstly, let's look at AWE's various production assets.

The Casino Gas Project, of which AWE has a 25 percent stake, is located off the Victorian Coast in the Otway Basin. Following a 16-month development phase, AWE successfully commissioned and brought the project into commercial production in February 2006. The project will deliver up to 420 Petajoules (PJ) of gas under the initial 12-year contract to TRUenergy, with initial production of around 35 PJ annually.

AWE has a 27.5 percent stake in the Cliff Head Oil Project, located offshore in the Perth Basin. Production from Cliff Head began in May 2006, soon after the Casino Project. Following a solid production performance in the initial stages, an electrical fault at the facility saw second quarter production levels fall. Despite this, the performance of the field reservoir has been good.

The third project to contribute to production is the BassGas Project, located in the Bass Basin, offshore Victoria. The project has suffered from significant delays, cost overruns and litigation issues with the engineering contractor, Clough. Project construction was finally completed in August 2006 and AWE began booking revenue from the sale of gas, LPG and condensate from September.

AWE has a 30 percent stake in the project, which comprises the Yolla, Trefoil and White Ibis fields, along with other exploration targets. The Yolla field is the target for initial development, but the company plans to tie-in production from the Trefoil and White Ibis fields in the future.