The Canning basin in Western Australia has been identified by the US Energy Information Administration (US EIA) as holding prospective resources of 235 trillion cubic feet (TCF) of gas and 9.8 billion barrels of oil (Bbbl). One oil and gas company that has a significant stake in this area is Buru Energy (ASX: BRU).
Buru may potentially see a revaluation of its worth via an increased share price in the coming year through the proving up of its reserves and increased production.
Here are five things I like about Buru Energy.
1. Alliances with experienced partners and operators: Buru has aligned itself with a number of experienced industry players such as Mitsubishi Corporation, Apache Energy (NYSE: APA), and Alcoa Inc. (NYSE: AA), all of which have vested interests in Buru’s success in its exploration, development and production efforts. It is their involvement, along with the depth of Buru’s management experience, that gives me greater comfort around mitigating the operational and execution risks of their forward exploration and development plans.
2. 2014 program is fully funded: Buru has a fully funded program in 2014 with over $188 million allocated to the development of its Ungani Oilfield, the appraisal of its Laurel Wet Gas formation, the exploration of the Ungani Oil trend, and the recently announced exploration program targeting permits in the Goldwyer Shale.
3. Strong investor interest and support: Recent capital raising programs have been oversubscribed in multiples, indicating that there is strong support from both institutional and retail shareholders. Despite this seemingly strong support, it is important to note that Buru’s share price has been extremely volatile, with a 52-week low of $1.18 and high of $2.73. This is illustrative of a higher level of risk inherent in the company and readers will note that despite its significant market capitalisation (current $1.95 share price equates to a market capitalisation of $582 million), this is not a stable performer (yet) and does not seem to factor in a great deal of Buru’s enormous potential reserves or expected production in 2014.
4. Buru acreage has been secured and has huge potential: Buru and Mitsubishi have entered into an agreement with the Western Australian government governing the exploration and development of its main permits for 25 years and also exempts Buru from relinquishing any of its exploration permits until 31 January 2024. Buru’s permits cover over 64,000 square kilometres (or roughly 15 million acres) which represents around 0.83% of Australia’s landmass. Given Buru’s significant acreage and aggressive exploration program in 2014, there is every possibility that their reserves will be proven up and their production targets in the Ungani Oilfield hit, which could potentially give its share price a significant lift.
5. Shift from exploration to production: Buru aims to kick-start its production phase with an initial production rate of 3,000 barrels of oil per day (bopd), increasing to 5,000 bopd. Buru recently completed its first shipment of crude oil from the Ungani Oilfield to a South-East Asian oil refinery, under the marketing agreement with Mitsubishi Corporation. The bottom line here is that Buru is now entering a new phase of its life, and is now launching into production, which could bode very well for this comparatively large exploration company.
Foolish takeaway
Buru represents a higher level of risk compared to other more established oil and gas companies such as Oil Search (ASX: OSH), given it is only in its infantile stages of production. Nevertheless, Buru Energy represents the future of oil and gas production in Australia given its huge resource potential and strong partnerships with key stakeholders such as the Western Australian government and large international oil and gas companies.
Although readers should be mindful that Buru represents a higher level of risk, there is also the potential for huge return — 2014 should be renamed the Year of the Buru, in my humble opinion.
BRU Price at posting:
$1.95 Sentiment: Buy Disclosure: Held
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