Amerisur Resources is an independent full-cycle oil and gas company focused on South America, with assets in Colombia and Paraguay. I have a holding in my growth portfolio (epic code: AMER).
Amerisur issued a reserves and resources update that showed that certified 1P (Proven) gross field reserves were 16.2 million barrels of oil ("MMBO") (2013: 19.8 MMBO) after production of 2.278 MMBO during 2014 and 2P (Proven and Probable) gross field reserves were 24.55 MMBO (2013: 32.8 MMBO).
As production during 2014 was 2.278 MMBO; then current 1P reserves represent an effective 6.7% reduction from year end 2013.
These reductions are due to the model used building in factors that include the relatively poor initial production result from wells Platanillo-15 and Platanillo-16, which served to reset the future average expected initial production rates. Also adversely affecting the model was the the shut-ins of producing wells, due to social and export issues during the year, which resulted in lower average production rates, that also caused an increase in the future projected decline rate, therefore resulting in lower overall volumes being recovered in the model through time. Reserves have also been affected by the Board's decision to reduce drilling activity in order to ensure capex at Amerisur is matched by cash flows in the current lower oil price environment.
These would appear to be temporary reductions in the calculation of reserves and resources, due to how the model calculates production rates and rates of decline. This did not stop the share price falling almost 27% to 22p. So is today's good value? Based on my 2016 estimates here then Amerisur is valued at 11.6x earnings, this assumes an average WTI oil price of $65/bbl for 2016, commissioning of the Ecuador pipeline and increased average production of ~9,000BOPD. Problem is that a number of people in the industry are expecting today's low price of $45-50 to be around for 18-24 months.
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