A mixed update from oil exploration and production (E&P) company Amerisur Resources (AMER) garners an equally mixed response from the market.

An initial fall on news of exploration disappointment in Paraguay is followed by a rebound to leave the shares up 1.9% to 26.75p.

The market appears to be shifting its attention to positive developments with the group’s assets in Colombia.

Despite being affected by unseasonable rain levels, the company is on track to tap into an Ecuadorian pipeline from the end of June which will address a bottleneck at its flagship Platanillo block and drastically reduce transportation costs for its crude.

It guides for a year end production rate of 7,200 barrels of oil per day (bopd) against an average rate in 2015 of 4,437 bopd.

Elsewhere in Colombia, Amerisur has signed a modification of its farm out agreement with Canacol on the Coati block, increasing the farm in participation of Canacol from 20% to 40%.

In return, Canacol will carry $10.75 million of exploration costs, of which $6.95 million is outstanding in favour of Amerisur.

The Jaguarete-1 well in Paraguay did find oil but it is unlikely to be commercially extractable – the company says it will carry out further analysis of the geology it encountered over the next 18 months and in the interim focus its resources on its Colombian assets.

Broker Cantor Fitzgerald, which has a ‘buy’ recommendation and 39p price target on the stock, says: ‘With a near term step change in cash flow generation through the de-bottlenecking of its production base, underpinned by a fully funded appraisal and high impact exploration programme in Colombia, we believe Amerisur's shares offers investors a low risk entry point in an already undervalued sector.’

Issue Date: 17 Jun 2016