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Are these 2 small-cap value stocks worth buying this April?

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Looking at today’s figures reported by small-cap oil producer Amerisur Resources (LSE: AMER) for the year to 31 December, it seems to me as if this is one of the market’s most undervalued small-cap oil stocks.

Indeed, for 2017 the company reported revenue growth of 96% to $89.5m, up nearly 100% year-on-year thanks to higher oil prices and increased production. Adjusted earnings before interest tax depreciation and amortisation increased around 4,850% from $0.4m to $19.8m and net cash generated from operations increased tenfold to $30m.

At the end of the period, the firm reported $41.3m in cash and no debt, giving management plenty of financial headroom to pursue Amerisur’s planned development programme in 2018. The company is targeting 14 fully-funded exploration and development wells during 2018, as it looks to boost its oil reserves. Three wells targeted for development in the near term could yield as much as 25m barrels of oil, although, at this point, 25m is just a rough estimate.

Black gold 

Amerisur badly needs this additional resource. At the beginning of April, shares in the company slumped after it revealed reserves at its flagship Platanillo field had declined to just 12.8m barrels, down from 15.1m barrels in 2016, after production of 1.8m barrels of oil during the period. These numbers imply that the remaining life of the prospect is just seven years.

Still, the company is well funded to develop other wells, and that’s exactly what it plans to do in 2018. Not only should the shares benefit from additional exploration activity, but Amerisur will also undoubtedly benefit from higher oil prices and lower operating costs. 

The commissioning of the Oleoducto Binacional Amerisur pipeline, which allows the group to transport its oil through a pipe, rather than individually trucking each load, helped push down operating costs to $18.6/bbl in 2017, from $24.9/bbl in 2016. With oil at $60 and operating costs below $20/bbl, the firm is now booking a cash netback over $40/bbl, and as long as oil prices remain where they are today, this should continue throughout 2018. 

City analysts seem to agree. Consensus suggests earnings per share of 1.5p for 2018, giving a forward P/E of just 10 today.

Debt reduction 

As well as Amerisur, I’m also positive on the outlook for small-cap Trinity Exploration (LSE: TRIN). Trinity is another cash-rich producer which has value on its balance sheet, as well as in the ground. 

At the end of March 2018, Trinity’s cash balance had increased to $12.2m, up from $11.8m at year-end. Meanwhile, the group continued to reduce its outstanding liabilities under its agreement with the Board of Inland Revenue and Ministry of Energy and Energy Industries by $1.7m during the period to $4.2m.

These figures indicate to me that Trinity is on track to becoming a substantial cash cow. With liabilities falling, and the cash balance rising, the company is set to be debt-free by the end of the year. This cash flow should allow the group to scale up exploration drilling; something management is already working on. 

Commenting on today’s results, CEO Bruce Dingwall announced “the company has scaled up operations with the recommencement of drilling” providing “further scope for the company to build on the upward production trajectory.

Overall, as the year progresses with further drilling activity and cash generation, I believe shares in Trinity could have much further to go.

Capital Gains

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.