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Cue Energy: A Resilient Player in the Oil Game
Despite its relatively small market capitalisation of $70 million, Cue Energy (ASX: CUE) has distinguished itself as a remarkably resilient energy stock amidst the recent downturn in oil prices. Operating in oil and gas exploration and production across Australia, Indonesia, and New Zealand, Cue has exhibited notable stability compared to larger competitors.
On April 3, 2025, former President Trump’s announcement, dubbed "Liberation Day," catalysed a significant drop in oil prices, with Brent crude suffering a decrease of nearly 20% over the subsequent five days, briefly falling below the crucial US$60 per barrel threshold—its lowest level since April 2021. Major players such as Woodside and Beach Energy saw their share prices plummet by as much as 20%. In contrast, Cue’s decline was limited to just 6%, with its stock now trading slightly higher year-to-date.
Benchmarking Performance
When examining a longer timeframe, Cue’s share price has dipped only 4.7% over the last year, significantly outperforming peers such as Karoon (-16%), Brent crude (-22%), Woodside (-23.5%), and Beach Energy (-24.0%).
To grasp the factors that underpin Cue Energy’s resilience and appealing yields, I engaged in a discussion with CEO Matthew Boyall, shedding light on the company’s strategy and future outlook.
Growth in Production and Revenue
Boyall noted, “We had been successfully building our baseline production and revenue for several years leading up to FY24.” This growth trajectory has been bolstered by revenue generation from a fourth asset in Onshore Australia, alongside increased cash flows from Indonesian oil and gas operations.
Introducing a Special Dividend
Despite a strong performance in FY23 and FY24, Boyall recognised that Cue was undervalued on the ASX. In February 2024, the decision was made to return funds to shareholders through an initial special dividend of 2 cents per share, alongside the establishment of a regular dividend policy. This announcement propelled Cue’s shares up by 50% on the day (29-Feb-24) to 10 cents, yielding an approximate 20% on the special dividend. With a cash reserve of $23.2 million at the close of December 2023, a $14 million dividend payout was achievable without jeopardising the company’s capacity to expand its assets.
The dividend news also markedly enhanced the stock’s liquidity. Before the announcement, Cue’s average trading volume was around 100,000 shares; this surged to between 2–3 million shares in the following days and has since stabilised at 300,000 to 400,000 shares.
Future Dividend Prospects
Boyall explained that while Cue’s dividend policy does not set a specific payout ratio, it commits to reassessing the company’s financial health bi-annually to ascertain appropriate dividend payments. Following the initial 2-cent dividend in February 2024, Cue has subsequently issued:
- 1 cent per share ($7 million) in September 2024
- 1 cent per share ($7 million) in March 2025
This translates to a remarkable yield of approximately 40% within a span of nearly 13 months. By March 2025, Cue reported a healthy cash balance of $11.1 million with no recorded debt, and its share price has remained stable at around 10 cents.
Navigating Low Oil Prices
Cue’s strength is attributed to its diversified portfolio, which provides a buffer against commodity price fluctuations. In the first half of FY25, 32% of Cue’s revenue stemmed from gas sales through fixed-price contracts from its Australian and Indonesian fields. Recent contract renewals for its Mereenie and Palm Valley assets, effective January 2025, have also secured higher prices, thereby increasing the proportion of revenue derived from gas.
Additionally, the company is poised to make a Final Investment Decision (FID) on the Paus Biru gas development in Indonesia, anticipating that it will fund through cash flow and employ capital efficiently via a cost recovery mechanism established in its Production Sharing Contract.
Growth Strategy
According to Boyall, Cue’s growth plan centres on maximising value from its current assets while pursuing selective new opportunities. The company is actively drilling development wells in the Mahato PSC, with three planned wells yet to be completed. Notably, its recent successful drilling efforts in the Mereenie gas field have exceeded production expectations. The anticipated Paus Biru project is projected to generate additional gas output by 2027.
In addition to enhancing current assets, Cue is scouting for opportunities in familiar geographies, applying stringent investment criteria to ensure that new projects augment its portfolio.
Conclusion
In summary, Cue Energy has showcased impressive resilience and shareholder returns amidst fluctuating energy prices, maintaining a stable share price compared to its industry counterparts who have generally faced declines. Through strategic asset management and a robust dividend policy, Cue continues to emerge as a compelling option for investors looking for stability in the energy sector.
