Cue Energy reported pleasing full year results this week. Revenue climbed 98% from last year to $64.5m while net profit after tax rose 222% to $27.5m. This translated to earnings per share of 4c, compared to a loss of 3.6c per share last year. Operating profit before exploration and depreciation more than doubled to $43.6m, highlighting the high margins, particularly from the Maari oil field in New Zealand, that Cue is generating.
With strong production and a few asset sales, the company currently has a cash balance of just under $30m and debt of $12m, though we expect production to decline without further exploration success.
These results confirm that although Cue holds profitable oil and gas assets, they are more likely to provide steady cash rather than explosive growth.
For that sort of upside, Cue has been busy putting its cash towards identifying attractive offshore drilling targets. In "Cue: ready to roll", we highlighted two potential exploration wells, Artemis and Caterina, that could result in substantial resource growth. But as we noted then, they are risky.
Cue and its joint venture partners have attracted well credentialed large firms who have agreed to cover the cost of drilling those targets. We expect Artemis to drill at the end of 2010, although Caterina drilling may push out to late 2011.
These drilling schedules mean that investors in Cue need to be both brave and patient. The share price is up 17% since 28 Jun 10 (Speculative Buy - $0.26) and while it has crept slightly above our initial recommendation guide, well maintain our SPECULATIVE BUY call.
Recommendation guide Speculative Buy Up to $0.30 Hold Up to $1 Sell Above $1
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