A high-potential oil prospecting stock – MoneyWeek

InJanuary,Afrenannouncedanotherhugefind,inwhichitownsahalf-share,offthecoastofsoutheastNigeria。

Dataindicateapossibleresourceof157mmboe。

Thisyearthecompanyplanstodrilluptoanother14explorationwellsacrossKurdistan,eastAfrica,NigeriaandCongo,targetingnewresourcesof630mmboe。

InMarchtheCEOsaidthefirmhad3。

5billionbarrelsofprospectiveresources。

Afren(LSE:AFR),ratedaBUYbyDeutscheBank

For2012,managementexpectsactualoutputofbetween42,000to46,000boeperday。

By2017,followingtheconstructionofapipelinelinkingTurkeywithKurdistan,thisissettoalmosttrebleto125,000–whichsuggestsplentyofupsidefromtoday’svaluation。

Evenafterfactoringinitsrelativelyhighgearing,theshareslookfartoocheap。

Inthefirstquarteralone,Afrengenerated$300mofoperatingcashflowfromlifting41,308boepd。

Atthisrate,itshouldhavelittletroublerepayingitsnetdebtof$639。

4m,$138minfinanceleasesand$217mindeferredconsideration。

Corporategovernanceisoneissuetowatch–thefirmrecentlygotapublictongue-lashingfromafewmajorshareholders,afterShahenshah’spaymorethandoubledto$3。

4monaone-offbonus。

Otherrisksincludecostinflation,oilpricevolatility,geopoliticalrisk,environmentalpollution,naturaldisastersandforeign-currencyfluctuations。

ButassumingaBrentcrudepriceof$90abarrel,Ivaluethestockat140pashare。

DeutscheBankhasatargetof270p。

Interimsareouton21August。

Rating:BUYat101p



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