Petro One Energy Corp CUDBF

Excellent synopsis of POP

[cavedude]

From Agoracom member ProfitWeasel:


As an exploration company it is almost impossible to value POP in its current state. What you are actually investing in is its potential.

J1 has one working well at 40 BPD.

J5 has 7 wells (or is it 6, the NRs are confusing) with 1 working at over 70 BPD and the rest coming online week by week, producing BPD volumes in the same neighborhood.

If POP is netting $85 per barrel then that means by Q1 2012 we'll see cash flow of anywhere from $30,000 to $40,000 A DAY depending on the cost of producing it. It is light sweet oil that sells at market prices with NO discount, unlike oil sands heavy oil or North Sea Brent Crude, so they get top dollar for it.

Also, remember that I haven't even factored in all that Natural Gas that is produced WITH the oil in each and every well. When they start tying that in to the existing gas lines that criss cross all over their land packages, POP will be generating even more cash.

What will this cash be used for? For drilling vertical and horizontal wells on over 100 locations that they've already identified and will be drilling over the next 2 years.

So the few wells they currently have will provide $11 million to $15 million over the next 12 months, plus the gas. If the next 12 months see them add another 20 to 40 successful wells with similar flow rates we could be looking at an additional $65 million a year in cash.

THIS is the potential that current investors see in POP. The company itself wants to be producing 10,000 BOED by 2015. 10,000 * $85 = more than $300 million a year. Even with some more dilution to raise cash for drilling, POP should be valued well north of $10/share. Unlike mining explorers that constantly need to raise cash for each drilling phase before a mine is built or sold to a major, POP can generate its cash from the oil and gas it produces with each successful well. There may be some dilution, but it will be nothing compared to other explorers.

That's why valuing at their current P1, P2 & P3 reserve totals is pointless. They are not a major producer, but an explorer/producer that's adding to their reserves and cash flow constantly. The potential I write about is NOT pie in the sky like so many junior companies, but a firm whose successful first drilling season can be seen as a portent of great things to come.

That's how you should value it.