2 brokers have tipped this ASX energy stock to jump by more than 60%

This week, ASX energy stock Amplitude Energy Ltd (ASX: AEL) announced a major acquisition of a project from Beach Energy Ltd (ASX: BPT) causing brokers to review their expectations for the company’s shares.

The analyst teams at both Macquarie and Bell Potter have upgraded their price targets for the company on the back of the deal, which we’ll look at shortly.

First, let’s have a closer look at the deal.

Major gas resource purchased

Amplitude announced that it would acquire 50% of the Artisan gas resource in the Offshore Otway Basin, with the project to feed into Amplitude’s East Coast Supply Project (ECSP).

The company will pay Beach Energy $58.3 million plus a royalty of $3.75 per gigajoule of gas produced, capped at 62 petajoules.

Amplitude Managing Director Jane Norman said the deal would accelerate the production of Artisan’s resource and improve the economics of the ECSP.

She added:

Producing Artisan through Amplitude Energy’s existing infrastructure allows faster and lower-cost development of this gas for the east coast domestic market. Artisan development costs will significantly benefit from leveraging the existing ECSP program and our readily-available infrastructure. This is a win-win for Amplitude, O.G. Energy and Beach with respect to optimising our respective Otway Basin positions.   

O.G. Energy will acquire another 10% of Artisan as part of the deal to become a 50% holder in the resource.

Ms Norman said Amplitude expected to move rapidly to a final investment decision on the development phase of the ECSP over the next few months while the drilling of the Annie and Juliet wells is conducted.

She added:

Annie and Artisan together provide the base resource for the ECSP, with project economics potentially further improved by Juliet and/or Nestor discoveries. This transaction provides significant value and optionality for the ECSP and provides customers with certainty in an uncertain market

Shares looking cheap

Bell Potter said in a research note to clients this week that the deal derisks the ECSP through adding scale and reducing the reliance on exploration success at Juliet and Nestor.

They said:

Artisan more than doubles ECSP gas reserves, enabling 60TJ/day gross production over an initial 5-year period. With the ECSP expected to produce from 2H 2028, there are no changes to our earnings estimates. Our valuation is upgraded on lower risking assumptions.

Bell Potter has upgraded its price target for Amplitude shares from $2.70 to $2.90. This materially above Wednesday’s close price of $1.76.

Macquarie also ran the ruler over the deal, and said they now had greater confidence in Amplitude being able to produce 90 terajoules per day through its Athena gas plant in 2028.

They added:

We continue to believe AEL is oversold following disappointing drilling outcomes; adding Artisan to the ECSP increases project certainty (irrespective of drilling outcomes at Juliet & Nestor), strengthening the pathway to CY28 growth.

Macquarie increased its price target to $3 per share.

The post 2 brokers have tipped this ASX energy stock to jump by more than 60% appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.