"In light of the unsuccessful drilling results, we have increased our forecast Profit and Loss exploration expense to $85m. This drives a $13m cut to Financial Year 2010 adjusted net profit after tax and we are now forecasting a $3m loss this year.
We are lowering our AWE price target by 28% to A$2.60/share. This cut reflects the net asset value impact of the spate of disappointing drilling results and also a more conservative assessment of the future programme"
It's the expected reported loss figures that is probably driving the share price lower. How low? I don't know.
Last week macquarie revised its oil price forecast out to 2013. They are now forecasting the following oil prices:
........US$/bbl
2010...81.0 2011...87.5 2012...98.0 2013...109.0
On the 7/7/10 they forecast AWE's profit would be: .........A$M 2010... 10 (today revised to a A$3M loss) 2011... 77 2012...107
With 521 shares on issue and a share price of A$1.52, AWE MC is A$791M. Take off about A$169M projected cash on hand gives an enterprise value of A$622M.
Those projected profits figures compared to EV are not bad. However, will they be downgraded in future years based on further large unsuccessful exploration programs in those years? I don't know.
I think AWE needs to get a more balanced spread between investing the cssh flow from existing assets and spending it on risky exploration versus more certain developmental/farmin/TO opportunities.
Regards
SP
AWE Price at posting:
$1.53 Sentiment: Hold Disclosure: Held