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Burren Energy: 2005 results
Burren Energy, a small oil company that operates in such exotic locations as Turkmenistan and the Congo reported that pre tax profit for the year to December 2005 rose by 196% to $254.6m.
Average production rose by 72% to 31,380 bopd while proven reserves rose 34% to 84.7 million bbls. However, the company announced a 7% cut (excluding production/disposals during the year) in proven and probable reserves (to 214.2m bbls). The cut was due to a downward revision to assumptions as to probable oil in place in the M'Boundi field in Congo.
The company has a reputation as an adventurous explorer, operating in places where more cautious firms avoid. Its primary production fields are in Turkmenistan and Congo (Brazzaville), although the Congo fields are not operated by Burren. It has recently acquired exploratory acreage in Yemen, Oman and Egypt (Yemen and Oman being subject to Parliamentary ratification).
Formed twelve years ago in a garage, the firm’s taste for adventurous exploration coincided happily with a boom in oil prices making it one of the best performing stocks in the sector, the share price having multiplied some eight fold in the last three years.
While luck has undoubtedly played a part in the firm’s success, 18 years of proven and probable reserves (7 years of proven reserves) at current levels of production, would seem to give some security to medium term earnings.
The downside to the stock is political risk, in both its primary producing areas, both of which have high levels of risk although mitigated in part by the company’s (relatively) long experience in operating in these countries and current attempts to broad base production.
The company expects production to increase to 36,000 – 37,000 bopd in 2006; the short term outlook looks very good. In the medium term, an expanded exploration programme should continue to deliver growth-as long as the company’s luck holds out.
The share trades at 960p, on a prospective PE (2006 earnings) of 8.9x, at the lower end of the sector range, the discount being warranted by the higher levels of risk to earnings. The yield is a negligible 0.6%.