This Wise Owl :
Cue Energy Resources Limited (CUE)
Sector Energy
Index none
Market Capitalisation $148m
Strategy
Recommended Date 28/4/2008
Share Price * $0.25
12 Month Price Target $0.42
Suggested Stop Loss $0.15
* Price at close of trade on 28/04/2008
Wise-Owl Checklist
* Management are veterans of the oil and gas sector and have overseen the development of the company’s assets through exploration to production stages.
* Should oil prices remain firm, the company could generate in excess of $100m in revenues within the next two years.
* Revenues from Oyong, first production from Maari, and a third drill hole at the Wortel gas field are expected to be key share price drivers in the short term.
* Major shareholders include Todd Energy NZ (25%) and Singapore Petroleum (14.06%).
* The stock appears to be breaking out of a 5 month consolidation pattern, and from a multiyear perspective is moving within a symmetrical triangle pattern.
Summary
Cue Energy Resources aims to drive share holder value by developing its established and geographically diversified hydrocarbon inventory towards production. After years of exploration and appraisal, its total proven and probable (2P) oil reserves now stand at 3.49million barrels, while 2P gas reserves stand at 365billion cubic feet (bcf). Cue already receives revenues from its minority share in the SE Gobe oil field in PNG. However the company’s growth prospects hinge on the development of its other oil and gas assets, particularly the Oyong in Indonesia and the Maari Oil Field in New Zealand. Oil production at Oyong has already commenced, while first oil is expected at Maari in Q308. On going development of projects and the onset of additional revenues are expected to be key share price drivers during the year ahead.
Background
Cue Energy Resources (CUE) is an emerging oil and gas producer with a focus on Australia, New Zealand, and South East Asia. Cue intends to grow its value in excess of $500m by developing a range of exploration and near term production assets. Given the company’s relatively large market cap, production setbacks or lower than expected flow rates are key risks facing the stock, along with oil and gas prices. However the company’s very large undeveloped gas reserves should provide valuation support over the longer term.
Investment Summary
The commencement of first oil production from the Oyong field in Indonesia in September last year timed well with the oil price surging to record highs. The next phase of development at Oyong will involve extraction of its gas reserves which stand at 80-103bcf. First production at a rate of 60m cubic feet per day is targeted for Q309. Boosting the potential for gas production at Oyong, was a nearby discovery known as Wortel. Wortel’s close proximity to Oyong allows the possibility of developing Wortel gas through Oyong facilities, with Wortel gas potentially coming on stream at the same time as Oyong gas. Cue’s other key development is its 5% interest in the Maari oil field in NZ, which is due to commence production in Q308 with full production by early 2009. In addition to Maari, the Wortel and Oyong gas fields will attract much of the market’s focus over the year ahead. However from a longer term perspective, we are encouraged by the fact that Cue’s estimated gas reserves at Wortel and Oyong form only 6.6% of the company’s overall estimated gas portfolio.