Small cap oil explorers Amerisur Resources (AMER:AIM) and Pantheon Resources (PANR:AIM) are down 12.7% to 25.8p and 6.2% to 121p respectively as both go back to the market for cash.
Although these dilutive moves result in some short-term pain for investors we think there are very positive takeaways for both companies.
Texas-focused Pantheon successfully completes an oversubscribed placing at 115p. The company raising $30 million for additional drilling and the acquisition of new acreage after an extremely successful 2015.
Amerisur raises $35 million at 25p, the proceeds being used to accelerate work on its Colombian licences to take advantage of low costs. The company is on the cusp of tapping into an Ecuadorian pipeline which will address capacity constraints on its flagship Platanillo block.
First it is impressive either company has been able to raise such material sums given the market backdrop. According to BDO AIM-quoted oil and gas companies raised £318 million in secondary fundraisings in 2015 against £416 million in 2014 and the average amount raised fell from £12.6 million to £9.9 million.
Second the funds raised can be put to good work in a low cost environment and this will improve the economics of their respective projects down the line.
Cantor Fitzgerald reiterates a ‘buy’ recommendation on Amerisur with a 39p price target. Analyst Sam Wahab comments: ‘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.’
Panmure sticks with its ‘buy’ take on Pantheon, reiterates a 170p price target and comments: ‘Given that the anticipated equity raise has now been done and also demonstrated very strong demand for the stock, the focus can return on the outcome of the further drilling activity Pantheon has planned; we expect that to prove highly positive for the share price.’
