Is this growth stock about to take off?

Shares in mid-cap oil producer Amerisur Resources(LSE: AMER) are rising today after the company reported a positive result from its Mariposa-1 exploration well, drilled in the north west of the CPO-5 block in Colombia.

The well was tested in natural flow over a variety of choke sizes, together with appropriate closed-in pressure build-up periods to ascertain reservoir parameters and recorded a flow rate of 4,601 barrels of oil per day. This is a significant find for the company, which is targeting year-end 2017 production of 7,000 bopd.

Light at the end of the tunnel?

Like the rest of the oil sector, shares in Amerisur have struggled to gain traction over the past two years as low oil prices have scared investors away from the company. Still, despite the recent headwinds, over the long-term, shares in Amerisur have produced a positive return, gaining around 25% since the beginning of 2012. And while shares in the company have languished over the past few years, due to factors outside of management's control, it now looks as if it is well placed to rekindle share price growth.

Management has been working hard over the past few years to improve Amerisur's growth outlook by acquiring additional acreage at knockdown prices. At the same time, the long-awaited OBA Pipeline finally became operational at the end of last year, reducing cash operating costs for the firm from approximately $26 to under $15 a barrel.

Lower operating expenses and higher operational cash flow, coupled with Amerisur's select acquisitions, has given management the confidence to set a near-term production target for the group of 20,000 bopd, more than double current output.

To achieve this goal, the company is planning to spend $65m over the next two years developing oil prospects and upgrading existing facilities. All of this spending will be funded with existing cash on hand and cash generated from operations. The company is producing a positive cash flow at $45/bbl oil according to management, something many of its peers are failing to do, putting Amerisur in a privileged position. It has accelerated its drilling schedule such that a minimum of 16 wells are planned between now and the end of 2018.

Earnings growth ahead

After several years of losses and consolidation, City analysts expect Amerisur's earnings to take off over two years. The company hasn't reported a pre-tax profit since 2014 but this year analysts have pencilled-in a pre-tax profit of £20.1m and earnings per share of 1.3p - based on current oil prices. For 2018, EPS are expected to expand by 85% to 2.4p as pre-tax profit more than doubles to £41.2m and revenue rises to £131m. Based on these estimates, the shares are currently trading at a 2018 P/E of 11.2.

So, after several years of lacklustre performance, it looks as if the shares could suddenly wake up over the next 12 months.

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Rupert Hargreaves does not own any 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.

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