Can Amerisur Resources hold onto 40% gain?
23rd November 2018 12:25
by Rajan Dhall from interactive investor
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It's been a great day for Amerisur Resources. Financial markets analyst Rajan Dhall talks us through the key drivers and runs the numbers to see what the share price might do next.
Amerisur Resources is a popular AIM-listed oil and gas company focused on South America, with assets in Colombia and Paraguay and production from two fields in Colombia.
After a difficult four years during which the share price has slumped from over 66p to just 9.3p this week, Amerisur has something to cheer about.
Today we hear the company has entered into a farm-out agreement with US multinational Occidental Andina across exploration blocks Putumayo-9, Terecay, Tacacho and Mecaya, all in the Putumayo region, in southern Colombia. This comes just two days after Amerisur announced it had bought the outstanding working interest in Mecaya.
For a 50% stake in each block, Occidental will fund a $93.25 million exploration and appraisal program between 2019 and 2021. Occidental will fund 85% of the total planned 2D seismic cost expenditure of $65 million and all of the $38 million planned drilling program.
The market has taken the news well. Amerisur shares were up as much as 40% in early deals, topping 14p for the first time since September. They’ve drifted back since to around 12p for a 20% intraday gain, valuing the business at £147 million.
And this is clearly a positive for the business. Amerisur has prudently shipped out some original partners to streamline the business process in the Caguan-Putumayo basin and then brought on another more experienced partner who can help with the expansion of overall operations.
Importantly, the fact that Occidental Andina would operate the farm-out blocks, which extend over 1.4 million acres, and the potential prospect of 656 million barrels of oil is a massive plus.
As chief executive John Wardle says:
"…this transaction will now amply fund, widen and bring forward our exploration programmes in the Put-9, Tacacho, Terecay and Mecaya properties, which we and our new partner believe to hold very substantial resource potential."
Speeding up the work programme while dramatically reducing the company’s capex exposure, and the introduction of a partner with significant experience in the region, can only improve sentiment. All in all, great news for Amerisur.
Amerisur chart analysis
Looking at the weekly chart it is clear to see the company is in a downtrend and in need of some good fundamental news.
Today, Amerisur's share price encountered some resistance at the weekly trendline originating from the highs seen back in August 2014 to the wave high in May this year (see chart below).
If buying volume persists, there is a good chance of a break to the upside, but there are a number of potential resistance levels to be aware of. The 15p area was used strongly as support once in mid-2017 and then again in April 2018 where price saw a mild reversal up to the 19.22p resistance point.
Resistance here was key after the capitulation of the share price from August as it held twice, helping stem losses.
Moving forward, the volume indicator at the bottom of the chart is showing buying interest at these low price levels. One major issue does seem to be the current depressed oil price. A move higher from here will depend on buying volume persisting alongside a recovery in Brent and WTI crude prices.
Source: TradingView (*) Past performance is not a guide to future performance
*Horizontal lines on charts represent levels of previous technical support and resistance.
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