POE Investing StrategyI bought into Pan Orient last summer, picking up shares under $1.20 for several weeks. My intention at the time was to do the same thing I did in 2017/18, which was to sell on spud of Indonesian well.
My thoughts have completely changed with the success in Thailand. I am still waiting for the test results and long term production approval before fully dialing in my strategy.
Here are my prelim thoughts:
· At ~ 4 times cashflow and ~ 800 bopd to POE from Thailand, with working capital, I would value POE at ~ $1.50 per share, with a sensitivity of ~ $0.15/share per 100 bopd.
· Due to the unknown test rates on the last two appraisal wells, there is a lot of uncertainty in the underlying share price.
· Indonesian Chance of Success (COS). COS is a measure of several different factors, the most important being:
1. Probability that reservoir is present (above threshold porosity and permeability).
2. Probability of geologic structure.
3. Probability that there is a connected source rock.
4. Probability that there is a trap or seal.
5. Probability of commerciality.
My opinions on these items are:
1. Exploration wells last year found “excellent, thick reservoirs at both the Gumai sandstone and Batu Raja limestone target levels in AYU-1X” (from Pan Orient presentation). In my opinion, this derisks the Anggun well.
2. This has never been a big concern of mine.
3. “AYU-1X, the first well drilled by the joint venture, encountered a 10m oil column in the Batu Raja limestone and highly elevated mud gas reading with oil shows in the Gumai sandstones confirming hydrocarbon charge into this region.” (from Pan Orient presentation). This was always one of my biggest concerns. You can see from the previous Thailand exploration that the reservoirs were not connected to the source rock. In my opinion, this also derisks the Anggun well.
4. This has never been a big concern of mine.
5. My big concerns are now with this item. The main ones I think about are:
§ Fluid risk – Oil vs gas. I would rather have oil, because it is quicker to produce since it can be trucked. Gas will take a long time with expensive gas plants and sales gas pipelines, which will mean a lot of appraisal drilling to confirm resource.
§ Oil Viscosity risk – viscosity is a key parameter in the D’arcy flow equation. This risk has been somewhat mitigated by the high C1 to C5 mud gas readings during drilling, which hopefully means the oil is a higher API.
When I see the Thailand results and the share price response, I will decide on my strategy for the Anggun drill. I am all about risk vs reward, so until I understand Thailand production and where the share price goes over the next couple months, I can’t formulate an exit strategy. I do know that the absolute longest I will stay in would be a couple days after the test results are announced.
These are are just my thoughts. Everyone should do their own DD.
Good Luck,
PG