Following the demerger from the electricity business, Andes Energia is the now the holding company for the group’s exciting oil and gas portfolio. Andes has interests in 18 licences and a solid 2P reserves base. It also possesses huge unconventional prospective resource upside in the Vaca Muerta formation in particular, which is prevalent throughout Andes’ licences in the Neuquén Basin.
As a newly established pure E&P play, we estimate that Andes’ could be worth up to US$521m based on the group’s core assets. This is equivalent to 144p per share on a fully diluted basis. As its standard across all OPL valuations, we have ascribed a commercial/political risk discount factor to our estimate. Consequently, we believe that a preliminary target price of 108p for the shares is appropriate at this early stage and we initiate coverage of the newly demerged company with a BUY recommendation.