Want to cash in on the shale boom pervading North America? Look down under.
Australian companies that are prospecting for oil and natural gas in U.S. and Canadian shale are currently valued at roughly 11 times their actual reserves, or a 23 percent discount to their counterparts as listed on North American stock exchanges, claims Bloomberg. This is principally an effect of Australian investors being around the world from their companies’ operations in Texas, and the situation is ripe for acquirers to swoop in.
Antares Energy (ASX: AZZ), for example, has the Southern Star field in Texas’ Permian Basin. The company is worth more than twice its market capitalization on the Australian exchange ($130 million). Sundance Energy Australia Ltd. (ASX: SEA), meanwhile, could attract bidders even after selling a North Dakota asset last month for more than the company’s total market value at that time, since its remaining acreage is still worth more than five times what the share price indicates.
“I expect many more transactions involving Australian players and the huge number of U.S. and international players currently looking to open up and exploit shale gas and shale oil,” Ben Griffiths, who helps oversees $1 billion in assets for Sydney-based Eley Griffiths Group Pty., said in a telephone interview. “The area is a hive of activity and that’s not going to lessen.”
Antares has already been approached by parties interested in the Permian Basin projects and is currently considering its options. It’s also musing over the possibility of listing shares in the U.S.
Antares was previously called Amity Oil Ltd., and it trained its focus on the U.S. back in 2004, finally investing in the Permian in 2011 when fracking really got going. The company’s market value as of last Thursday was $130 million.
Sundance stated last month that it would receive $172 million for its Williston Basin sale to Denver’s QEP Resources Inc. (NYSE: QEP). Sundance had a market value of $162 million when it made the announcement, and the news caused shares to rise 38 percent in a single day.
There is a big valuation gap going on here, and the Australian companies are just not yet receiving their dues. A big reason is, perhaps, that Australian investors are leery about seriously investing in assets positioned across the globe.
Moreover, some Australian companies are attracting lower valuations since they have higher levels of debt than Australian investors typically face. Antares, for example, has a net debt equivalent to 53 percent of all its assets. Recently, Macquarie Group Ltd. (ASX: MQG) lent $200 million under a debt facility program to Antares.
On Friday, Antares rose by 3.1 percent before ending the day unchanged. Red Fork (ASX: RFE), based in Perth, rose 4.3 percent, and Sundance remained up 1.3 percent after an initial jump of 3.3 percent. Melbourne company Molopo Energy Ltd. (ASX: MPO) dropped 3.2 percent.