PTA: Risk Reward Profile Substantially Tilted in t
I understand that everyone that is long Petroamerica (PTA) is underwater on their investment, significantly in most cases; and people are looking to point fingers at management. Instead, take a look in the mirror and recognize that you bought into an exploration company with no proven producing assets and very optimistic expectations baked into the share price…you should have expected a wild ride.
That being said, you shouldn’t listen to the jaded half-wit shareholders on this board that are completely uneducated in terms of international E&Pstories. Instead think about these points when considering an investment in/or sale of PTA.
1. PTA has 2 very encouraging discoveries thatwill be the building blocks for success
a.) PTA holds a 15% working interest (WI) in the Balay block, which is producing 6,561 bbl/d (984 bbl/d net to PTA) as at July 27,2011 PR from 2 wells and the 3rd appraisal well has spud
b.) In the Los Ocarros block, PTA brought in a Parex as a partner and they successfully side tracked Las Maracas-2, flowing 860 bbl/d (430 bbl/d net to PTA’s 50% WI in the discovery)
c.) Appraisal and development drilling will ultimately define how large the 2 discoveries ultimately are, they are however currently capable of producing approximately 1,400 bbls/d net to PTA. PTA’s Colombian peers producing from the Llanos basin (Parex & Petrominerales) are trading at roughly $80,000 per 2012E average barrel of production. PTA’s 1,400 bbls/d * $80,000 implies a market cap of $112 million or 19.4 cents per basic share. Of course these wells have steep declines but regardless of whether Balay 3 is successful, PTA will be moving forward with a development plan for Balay and Las Maracas which should more than backfill the declines on the year – I expect production to ramp up throughout 2012.
2. Numerous catalysts have not been priced into the share price
a.) Balay-3 appraisal well to spud in Q4 2011, positive results could materially increase the size of the Balay field (PTA 15%WI)
b.) In Arauca, operator Pacific Rubiales temporarily suspended Torodoi 1-X during testing due to cementation problems after an oil discovery; currently drilling Vaco 1-X exploration well (PTA 5% WI)
c.) Las Maracas side track likely to be followed up by appraisal drilling to understand the size of the discovery in Q1 2012 (PTA50% WI)
d.) 5 exploration wells are to be drilled in the first half of 2012 on the following blocks: CPO-1 block (PTA 50% WI), LLA-10 block (PTA 50% WI), El Eden block (PTA 25% WI) and El Porton block (PTA25% WI)
3. Management team is executing on its plans to divest non-core assets to reduce capital commitments and improve the company’s working capital position helping to fund developing the two discoveries
a.) Firstly, the management team is not to blame for the poor share price performance, lets not forget PTA’s assets are non-operated, therefore how can they be held accountable for any of the drilling related problems they have experienced. Hindsight being 20/20, they probably should have raised more capital in November when they did their 40 cent unit financing, but then again that was when the old team was in place.
b.) PTA is executing on its divestment program: PTA sold its 50% WI in VMM-3 and all associated contractual obligations to Shell Colombia for US$7.0 million
c.) PTA is looking to farmout or divest another 1 –3 blocks in its portfolio, which would be potentially another catalyst and help fund next years development program.
4. Five well exploration program in first half of 2012 is fully funded
a.) If PTA can farmout one more asset they can self-fundall their exploration activities until the end of 2012, which means no more share issuances because they expect to fund their development drilling via some debt instrument, which I expect will be on reasonable terms given the yield starved environment we are currently in
Obviously I’m long, but I know the junior Colombian space well, I’m familiar with PTA and its assets and after reading all these posts I could only remain silent for so long. PTA has been beat up, but undervalued assets don’t remain undervalued forever, especially with a plan of development on the horizon and 5 exploration wells in highly prospective Llanos blocks in the first half of 2012 that are currently fully funded.
For all you other shareholders that are long I’m confident our patience will be rewarded. Anyone considering an investment in PTA, I would suggest doing your diligence on the risk reward profile, I think you will find that it is very very appealing at these levels.
As a side note, can these idiots on this board stop talking about 1million shares outstanding…PTA has 578 million basic shares outstanding.There are 323 million warrants outstanding, all of which are way out of the money (first tranche of warrants, 78 million, kicks in @ 35 cents per share then there are 36 million with a strike @ 60 cents, 180 million @ 75 cents and 29 million @ $1.25). If all these warrants were to be exercised PTA would bring in an additional $220 million in proceeds, so talking about the fully diluted share count without considering the impact the proceeds would have on the company is blatant stupidity.