Since we first wrote about Petroamerica Oil Corp. ($PTA.v) on August 16, shares of the Calgary/Bogata-based oil and gas junior have risen over 50% to 52-week highs (chart). Obviously something is up so we decided to take a closer look to see why shares in PTA have more buyers than sellers.
What first attracted us to Petroamerica was the management team, which we detailed in our August article. Jeff Boyce, former CEO and co-founder of the $4.5B+ Vermillion Energy Inc., is a ‘hands-on’ Executive Chairman with a strong track record. CEO Nelson Navarette was formerly second in command at Ecopetrol, the state oil company in Colombia, and he has the connections and expertise to navigate the oil business in that country. Influential resource mogul and billionaire Frank Giustra is also one of the largest shareholders of the company.
We were also impressed by the turnaround strategy being executed by management. When we first spoke with Boyce by phone in August, he told us, “We’ve come out of two years of hell, changing management, cleaning up the company’s asset base. But I like this kind of stuff, I think I have half an idea of what I’m doing, so I stepped up, as did Nelson Navarette and Ralph Gillcrist [EVP Exploration and Business Development], and now we’ve made a major discovery.”
Another press release was issued by PTA last week which the market responded favourably to, announcing current net production of 2714 barrels per day. See: “Petroamerica Announces the Drilling Start-up of the Las Maracas-5 Well…”
Following this release we wanted to know what to expect from PTA over the coming months, so we ventured to Calgary last week to catch up with Mr. Boyce and learn more.
Our conversations with industry experts before heading to Calgary indicated that the market is positively inclined to Petroamerica, yet still wants to see more evidence that PTA can continue to deliver success.
Mr. Boyce put it succinctly in our meeting last Thursday when he said, “For our company, we’ve got a real nice oil field now at Las Maracas, and we’ve got a little bit of production at Balay. If we can get that other leg of the stool fastened with more exploration success, then the concentration risk is gone, and all of a sudden, this becomes a real company—not just a ‘one asset play.’”
In asking Mr. Boyce how investors might value the company, he suggested focusing on the growth of production, reserves and cash flow on a per share basis. “At 2714 barrels per day, our stock price is trading at less than two times 2013 cash flow per share. What’s a reasonable multiple? That’s for you to decide, but I think we’re trading at approximately half of our base value, not including any exploration upside.”
A top priority now for Petroamerica is to prove up its core asset, the Las Maracas oil field, which has been its first major success. One step out well, Las Maracas 5, is currently drilling, with Las Maracas 6 expected to be drilled right after Las Maracas 5.
According to Boyce, Petroamerica also has a number of exploration properties in the Llanos basin, all of which have undergone 3D Seismic surveys. Drill results from the La Casona well on the El Eden block will be out by the end of October. Petroamerica holds at 40% working interest in this block, and the company has handicapped the success of this well at 45%—with the potential of 5-10 million barrels recoverable. Boyce commented that, “El Eden has the potential to double our current production and reserves.”
The next block for exploration will be CPO-1, which is a 50% working interest in a joint venture with the $7B+ Colombian energy producer, Pacific Rubiales. The CPO-1 prospect has a potential size of 7-12 million barrels of recoverable reserves, handicapped at a 40% chance of success after the 3D Seismic survey. CPO-1 is expected to be drilled later this year or early next. In regards to CPO-1 Boyce said, “This is a very prolific area with lots of production around it. Like El Eden, CPO-1 has the potential to be as big or bigger than what we have now at Las Maracas.”
Additional drilling prospects include the Curiara-1 well at El-Porton, which is a block beside El-Eden and will be drilled early next year, with results expected by March 2013. When asked if El-Porton was as large of a prospect as the others, Boyce said, “In terms of potential, we think El-Porton is bigger, but keep in mind, this prospect has a much higher risk profile.”
Balay 4 will also be drilled shortly, as part of a delineation of a reservoir on the property with two wells already in production. Petroamerica has only a 15% working interest in Balay (with Petrobras as operator), so it’s less material to the company, but the field has potential, Boyce says.
We also learned Petroamerica has further growth prospects outside of the blocks already mentioned, and more areas to run 3D Seismic surveys.
Another potential catalyst for the company will be the release of an upcoming reserve report, prepared by GLJ Engineering, which should be ready by March 2013. Petroamerica hopes this report will assist the company in obtaining a lower cost reserve-based credit facility in the future.
Additionally, the company is about to ramp up the marketing of its story to investors, beginning with presentations at a Colombian energy conference and the Canaccord Global Resource Conference this October.
Petroamerica also announced the engagement of Sonny Mottahed (Black Spruce Merchant Capital), formerly of Canaccord and Raymond James, as Special Advisor to the company’s board of directors. “Sonny is helping us to communicate the story properly, to find new shareholders, and in sourcing and evaluating new business opportunities. He gives us depth and he owns a lot of stock. He’s a partner, and we’re fortunate to have him involved,” Boyce commented.
When asked about challenges the company has faced, Boyce indicated that, “One challenge we’ve had is retooling the whole shareholder base. Two years ago production was at zero and our share price was 70 cents. Today the production is at 2714 barrels per day, and the stock price is down here in the mid 20s. People got too excited too early. Now we’re starting to deliver success and we’re getting the right investor base who want to own Petroamerica, who understand the story, and who are a little more patient with their capital, like I am… I will be the last guy out,” Boyce further commented.
It is also difficult to ignore the high share count when evaluating the company, with 578,331,594 outstanding plus warrants and options at time of writing. “I don’t like that there’s so many shares out, but I own them, and I’m not selling,” Mr. Boyce told us. “Keep in mind when looking at the share structure that it’s the market capitalization that counts, and that we could take in a lot of capital at higher prices from our warrants and options.”
We asked Boyce whether a share consolidation was in the cards, and he replied that, “We would only consider a share consolidation on strength, with respect to a business combination or other positive transaction. In the meantime, we’re trying to make this company as successful as possible.”
What we like most about Boyce is that he wants results, and not promotion alone, to drive the share price. He commented that, “It’s fine to get people excited–they will believe you. But when I tell you I’m going to deliver, it’s going to be more than I tell you to expect, not less. That’s my philosophy of building success and loyalty in the marketplace… I want you to add 10% or 20% to my story because we’ve under-promised and over-delivered.”
As our time with Mr. Boyce came to an end he told us that, “With Petroamerica, we’ve had one major success. Now, for things to really take off, we need to show the market we’re not just a one-trick pony. I think the odds are, that out of five or six [exploration blocks], one or two are going to work, and when they do, we’ll get a real shot in the arm.”
Our experience shows us that speculating on an oil and gas explorer is never a sure thing — but fortune favours the bold, and it helps to have an experienced captain like Jeff Boyce at the helm. The fate of this company is now up to the drill bit, and at least operationally, now we know what to expect.
Whether you want to add 10% or 20% to the story is up to you.
Disclosure: Please see Petroamerica’s Disclaimer on page 1 of their corporate presentation as this article may contain forward looking statements. Also, Tommy Humphreys owns shares in Petroamerica Oil Corp. and this article is not investment advice. Always do your own due diligence and consult a licensed investment advisor before buying or selling any security.