RE: RE: RE: RE: RE: bottom out? The risk is that of the 41 million barrels left, only 13 million are in the "corcel fairway" (where most of the production comes from) and the majority is at Orito and Neiva which only produce 5,000 barrels per day (these two assets are "production sharing contracts" with the state owned oil company). Given that there is on paper only 1 year of oil production left in the main corcel fairway, I think PMG is headed for 15,000 barrels per day of production by summer (you got to figure that the last few million barrels in the ground will come out very slowly). Not sure how much cash flow they would have at this production level (i.e. fixed costs become more significant).
Furthermore, I believe there is a risk that the reserves at Orito and Neiva are overbooked given the very low production in the last few years (they claim environmental permitting delays as the reason why they have not pumped a lot more oil from this area given the huge reserves). In my opinion, they were able to avoid a write down this year given the limited activity at those assets in 2012. If the 2013 development drilling is weak, then watch the reserve engineer take a knife to the oil reserves at Orito and Neiva next year.
Another potential bomb is the $200 M tax dispute with the ANH. PMG's market cap is now about $575 M so the tax dispute could result in another 33% loss of market cap IF they lose it. Given PMG management's track record, I am not sure if I believe their statements about the low likelihood of this case being lost.
A positive is that they have $300 M of pipeline assets which in my opinion are not being valued by the market. I hope they don't lose most of the "value" of the pipeline assets to the tax dispute.