We think a very active period for Amerisur Resources (AMER:AIM) could be the catalyst for the market to take another look at the stock.

A recently secured $93m farm-out agreement with US firm Occidental Petroleum (23 Nov) and news of a potentially significant new oil discovery (10 Dec) has breathed some life into the share price. A forward price-to-earnings ratio of 10 times suggests the shares remain inexpensive and so we still believe the share price has much further to rise.

We expect momentum to be maintained in the coming months as the Occidental deal helps accelerate activity across the company’s acreage in Colombia.

The political instability is one of the risks which must be weighed when assessing the stock, and this, plus some delays in fully tapping the potential of its Colombian assets, has been a factor in holding back the share price in the past.

However there are plenty of reasons to be positive. The company is underpinned by a strong and growing production base from its Platanillo field of around 5,500 barrels of oil equivalent per day. It has a low-cost export route through a pipeline into Ecuador. Amerisur can fund activity from robust internal cash flow and it is sitting on plenty of cash.

Stockbroker Arden forecasts it will have $49.3m cash at the end of 2018. This buffer also provides some insulation from short-term volatility in the oil price.

The recent successful result from the Indico-1 well, where Amerisur is partnered with Indian state oil firm ONGC, marks the start of a busy period of drilling activity with 12 more wells set to be drilled through to the end of 2019.

This has been augmented by the agreement with Occidental which will see Amerisur carried on a big seismic survey and five-well programme through to 2021.

The company’s chief executive John Wardle has plenty of in-country experience. He has been working in Colombia for the best part of two decades – initially for BP (BP.) and then Emerald Energy where he was responsible for the discovery of the Campo Rico and Vigia oil fields.

Emerald, which also had assets in Syria, was taken over by Chinese state firm Sinochem for £532m in October 2009.

And Wardle has backed his faith in Amerisur’s forthcoming drilling effort with cold hard cash, investing nearly £1m of his own money in company shares in the wake of the Occidental deal. 

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