awe rating by macquarie, page-2

"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