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)
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)
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)
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.