AWE Ltd. investors who drove the shares down more than 40 percent this year in Sydney trading have overreacted to the oil and gas explorer’s disappointing drilling campaign off New Zealand, Citigroup Inc. said.
The Australian company’s shares are forecast to rise to A$2.52 from the closing price of A$1.62 yesterday, according to Citigroup’s Sydney-based analyst Mark Greenwood, who started coverage of the stock with a “buy” rating. AWE advanced 6.5 percent to A$1.72 at 12:02 p.m. Sydney time, compared with a loss of 0.2 percent for the benchmark S&P/ASX 200 Index.
For many competitors, “there has been a tendency to take cash from existing operations and destroy value,” Greenwood wrote. “AWE appears now to have been tarnished with the same brush. In our view, this is a little harsh.”
AWE, which has started a A$175 million ($160 million) drilling program, its largest, said July 30 that the last three months had been disappointing. “The New Zealand drilling program to date has not produced any major success,” it said. Results in Yemen and Australia have been better, AWE said.
The company has a “fair” exploration track record, with a 20 percent commercial success rate in the past 12 years and has been disciplined in making acquisitions, Greenwood said. Exploration in Yemen and Western Australia is promising, and while a well in New Zealand’s Taranaki Basin is “high-risk,” it could contribute to an increase in AWE’s shares, he said.