A further look at the report does highlight some of issues for smallish explorers that have already found its resource and is in production. It now has to either discover more resources at its existing sites, or it has to continue with its exploration activities at other sites, while continuing to ensure production meets expectations at the existing sites.
During 2007-2008 AWE had to “plug and abandon” eight out of the nine projects it was exploring. The other one did result in a gas discovery. For 2008-2009, one has been plugged and abandoned, two have shown gas discovery and the remaining four are yet to be confirmed.
In other words, without further discoveries it is naturally harder for the company to show how it can grow revenues apart from being able to benefit from higher energy prices.
That’s one reason why in the Australian Small Cap Investigator we tend to focus on small cap companies that have not yet reached their full potential. They may have a higher degree of downside risk, but they therefore have a potentially higher degree of upside returns.
Babcock & Blown
We thought we would give the guys at Babcock & Brown a break from scrutiny. Until tomorrow at least, when we’ll take one final look at them in Money Weekend.
In Awe of AWE
“Shock: Oil Company Makes Money!” is the kind of headline you don’t see too often at the moment. It’s pretty much expected that any oil related company is going to make money, providing they have a viable resource and are producing oil.
This is what Australian Worldwide Exploration have managed to do and their profit results released today prove it.
The highlights of the report include:
- Net profit of $264 million, an increase of 647%
- Sales revenue of $821 million, an increase of 476%
- Oil production of 6.9 million barrels, an increase of 697%
- Total production of 9.9 million barrels of oil equivalent, an increase of 152%
According to the company the outlook for 2009 is strong, with growth expected with the development of the Henry gas field which they are expecting to produce gas in the first half of 2009.
The market clearly liked the news this morning with shares of AWE rising by over 13% in early trade to $3.50. Although it is still somewhat short of the $4.71 reached in May of this year.
Dixon Flies
A quick comment on Qantas before we go. It released its results yesterday returning an increase in sales, pretax profit, and net profit. The shares closed up yesterday and as per usual Geoff Dixon was feted as a hero.
Qantas has achieved what few other global airlines have been able to achieve in what is an immensely competitive industry. But before anyone gets too carried away, we should remember that he was in charge of a national carrier that benefits from very favourable anti-competitive government legislation, and is based in a country that is at least a 4 hour flight from anywhere else.
We wonder quite how successful Dixon would have been running a US or European airline.
Cheers.
Kris Sayce.
