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Stockwatch: Australian Worldwide Exploration (AWE)

August 21st, 2009 · Greg Atkinson · 14 Comments

Australian Worldwide Exploration Limited (AWE)  is an Australian based oil and gas explorer/producer that over the past few years that has ramped up production and profits. Over the last year however the fall in energy prices has caused a drop in earnings and it’s share price, but if you believe that oil and gas prices will move higher over the next few years then AWE may be a good stock to watch.

AWE (website) has oil and gas interests in Australia, New Zealand, Indonesia, Yemen, Vietnam and Argentina and need to find new good quality oil and gas fields, so the success of future exploration projects is just as important as their ability to get the most out of their current production fields. A good overview of AWE’s current oil and gas fields can be found on their website.

According to the company’s quarterly report (June 2009) to investors:

  • Oil and gas production reached 8.75 million BOE.(Barrels of Oil Equivalent)
  • Revenue for the quarter was $87 million with full year sales revenue of $590 million.
  • Net cash reserves stood at $340 million.

In addition it is worthwhile to note that the company has no debt,  a P/E ratio of around 8 and a very healthy ROE (return on equity) of over 30. Of course all these could change very quickly depending on the prices of oil & gas and how operations go in the field.

Being debt free in the current economic environment gives company the potential to perhaps snap up assets from some other smaller oil and gas explorers that might be struggling. It also means the company has enough cash for a while to fund future exploration projects without having to raise funds from the market.

If we look at the AWE stock price chart over the last two years we can see how it has clearly fallen after oil prices peaked last year.

Australian Worldwide Exploration Stock Price Chart (August 2009)

awe-2-years-chart-aug-09

At the time of writing AWE was trading around $2.35 but unlike many other ASX listed stocks this year it has failed to rally strongly since March. This is mainly because oil prices have been unable to push much past $70 USD barrel for any length of time since the recovery in oil demand appears to be sluggish at best so far.

We can see the relationship between oil & gas prices and the AWE share prices reflected in the chart below.

AWE vs Amex Oil & Gas over 6 Months (August 09)

awe-vs-amex-oil-gas-6-months-chart-aug-09

As you can see the fortunes of AWE are closely linked to oil & gas prices which makes perfect sense. There are times when the AWE stock price moves independently of the AMEX oil & gas index, but this is usually due to company specific news such as production problems or exploration updates etc.

The final chart worth having a look at is the relationship between AWE and the ASX All Ordinaries Index.

AWE vs ASX All Ordinaries over 6 Months (August 2009)

awe-vs-all-ords-6-months-chart-aug-09

This chart is interesting because it highlights how AWE has underperformed the wider ASX All Ordinaries range of stocks since March this year. In other words AWE is an oil and gas play and the stock price moves largely independent of Australian domestic economic factors.

Therefore having some AWE shares in a portfolio could be a way for investors to tap into global growth even if they feel the Australian economy may move side ways (or even down) for a while.

I am by no means an oil and gas industry expert and would simply say that AWE might be a stock worth looking at as a long term hold. (say 3 years plus). But as always, I urge all investors to do their own research and remember I am not suggesting anyone buy, hold or sell anything.

The author of this article has an indirect interest some AWE shares.


14 responses so far ↓

  • 1 Pete // Aug 28, 2009 at 3:03 pm

    I agree with this, but I am biased because I own AWE shares and topped up on them recently when there was a hefty ‘blip’ in their price.

    I don’t mind AWE as a company and I think they have some potential. I like that they are actively exploring whilst other companies may be in consolidation mode.

    It may be that a global downturn in exploration (thanks to low oil price) may cause some rather interesting supply problems later on.

  • 2 Greg Atkinson // Sep 16, 2009 at 12:44 pm

    Pete I am also expecting some supply issues in the years to come. I figure the world is not quite finished with oil yet and that we might see oil prices well above current prices in a few years.

  • 3 Anon // Sep 21, 2009 at 8:08 pm

    Thanks for this – I will research it. I have a minor stake in BPT atm. Do you have any thoughts on BPT?

    I think for oil plays Naomi Cotton (NAM) is my favourite. Its priced low relative to NTA, director loading up and is a low cost producer. Additionally, seasonality points to higher cotton prices in NOV.
    Jim Rogers metioned cotton as an alternative oil play:
    “If you want to buy crude, you should probably buy cotton. Because all farmers in the US are planting corn to turn into energy. That means they are not going to plant any cotton. The best way to play crude oil is to buy cotton.”

  • 4 Pete // Sep 21, 2009 at 9:34 pm

    Anon:
    I used to like BPT. Had shares in them up to this year.

    The problem with them, from my understanding is that they need oil price to be pretty high, because they tend to drill offshore (or try to). And it is more expensive than land drilling.

    They have some potential though. BPT have been around a long time. I was digging through some old documents of my grandmothers and found some old BPT shares (and pamphlets).

    Surprise surprise the shares are worth slightly less today than they were then (1960’s or 70’s, can’t remember exactly).

    I have a slight sentimental attachment to BPT, but that’s all. All my investments in BPT in the past have been pretty fruitless.

    Jim Rogers…how old was that comment of his? Because biofuels are yesterdays bubble. They could definitely rise again, but you need the price of oil to escalate first.

    He makes some sense with his cotton claim, but it does sound like a long shot. In recessionary times surely cotton demand will slow a bit? People put off clothes purchases for a while? Clothes retailers get pretty mashed up in recessions.

    Incidentally I still like AWE.
    At the moment it is the closest thing I would have to a long-term hold. I like them because they have their fingers in every pie, both oil and gas. Plus, they are dead keen on exploration, which is a plus if you believe there will be a supply glut. They just seem to be switched on I think (hope I’m not sorely mistaken there).

  • 5 Anon // Sep 21, 2009 at 10:04 pm

    “Surprise surprise the shares are worth slightly less today than they were then (1960’s or 70’s, can’t remember exactly).”

    They are addicted to dilution.
    Tbh, i’m not happy with BPT and am looking at getting out of this possibly in a couple of months. This investment for me has been fruitless and useless. I got my 2c special dividend, they should have used that to buy back the 3 katrillion shares they issued.

    “Jim Rogers…how old was that comment of his? Because biofuels are yesterdays bubble. They could definitely rise again, but you need the price of oil to escalate first.”

    I think it was in June 2009. Here it is in full:
    “Natural gas is cheaper than oil right now, but I own them all. If you want to buy crude, you should probably buy cotton. Because all farmers in the US are planting corn to turn into energy. That means they are not going to plant any cotton. The best way to play crude oil is to buy cotton.

    Right now, there are huge subsidies around the world for farmers to plant corn, maize, for instance, so that they can be converted into energy. If energy prices go higher, there will be even more of that.

    If everybody plants his fields with soya, corn or palm oil to turn it into oil or energy then no one is going to plant cotton.”

    The subsidy issue may well mean the stock may still rise even if oil doesn’t.

    Regarding AWE I will definitely research this tonight or tommorrow. I need to slowly increase my commodities exposure over the next 12-18 months as I am very underweight in this area (5% of my portfolio).

  • 6 Pete // Sep 21, 2009 at 10:21 pm

    Anon:

    The subsidy issue may well mean the stock may still rise even if oil doesn’t.

    Good point. Freakin gubbermints and dere meddlin’!!

    Disclaimer: Don’t take my fondness of AWE to mean anything 🙂

  • 7 Greg Atkinson // Sep 22, 2009 at 7:03 am

    Anon I have not looked at BPT for a while but I might do that in the next few day. I once looked at NAM but realised I had no idea about the cotton industry and was a little worried about cotton in general as I believe it is a water hungry crop.

    I am also a fan of AWE because I reckon we will eventually fall back in love with oil and prices will head up again. But please don’t take anything I say as a stock tip, I merely toss up ideas for people to think about. (and remember, I bought BNB shares!)

  • 8 Anon // May 26, 2010 at 10:03 am

    “Richard Sears: Planning for the end of oil”

    http://www.youtube.com/watch?v=GGScU5ESei4&feature=player_embedded

    None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.

  • 9 Greg Atkinson // May 26, 2010 at 11:02 am

    I am a Peak Demand guy so I agree with what Richard Sears is saying. We won’t run out of oil, we will stop using it. But in the next decade we will still use a lot of the stuff so I am sticking with AWE 😉

  • 10 Joe // Sep 12, 2011 at 5:03 am

    I’ve AWE shares for a while and it appears this stock will never recover despite all the recommendation from analysts.

  • 11 Greg Atkinson // Sep 12, 2011 at 10:00 am

    Joe sadly I also have an indirect interest in AWE shares and didn’t think they would ever be trading down near a dollar!

    But as you say, the analysts seems to like the stock so I guess I might hang onto them and hope for better days.

  • 12 Lachlan // Sep 12, 2011 at 12:37 pm

    AWE has a little work to do throw off a 3-4 year bear run. A run to 2.00 would be a start.

    Carry is waning bit by bit as the AUD/USD looks like wanting to test 1.02 maybe 1.00 and then 94/96 support area. I guess if this actually prevails then we could see the XJO break below it’s latest lows with another plethora of currency market bad news….like a month or two back.
    Technically 3600 looks like a logical place for XJO to head if this current attempt to bottom does break down. That would be an average of values experienced during the bottoming process of the original GFC crash and many people will be worrying about a 1930’s second leg down style time to bail about this place.

    I’m holding out that if anything this bad happens a massive CB intervention will turn the market up (and the economic outlook in real inflation adjusted terms, down).

  • 13 Lachlan // Sep 12, 2011 at 1:05 pm

    Or maybe the falling AUD might actually provide some relief and prevent us getting that low..since the high AUD has limited upward movements anyhow (presumably). How about 3800 daily close.
    Forgive my crystal ball theatrics 🙂

  • 14 Lachlan // Sep 12, 2011 at 2:49 pm

    The USD index has also broken uphill from its trading range which may make room for a shake out and restart of the short dollar trade around a 78/79 area …and if it doesn’t stop there I guess things will get very interesting.

    Happy share gazing everyone.

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