Last Monday, Haywood Securities energy analyst Al Knowles gave Petroamerica Oil Corp. his highest rating, Sector Outperform, and a C$.55 price target. At press time, shares in PTA had reached C$.34, an 18 month high.
Haywood’s Mr. Knowles is optimistic about PTA’s Las Maracas oil field in Colombia, as we have been since August, when we began covering the company on our blog. In September, we acquired shares in PTA for $.20 a piece.
While we have paper gains of almost 70% in the three months since, we continue to believe the company will outperform in the year ahead: Here’s why.
PTA’s last reported production was 3500 barrels per day, valuing the company at about 2 times current cash flow (PTA Market Cap: ~185 million / (3500 bopd x $73 netbacks x 365 days)) equals approx. 1.98).
We understand that 3-6 development wells will be drilled next year at Las Maracas, Petroamerica’s core oil field. This development drilling in addition to a permanent production facility being built on site at Las Maracas demonstrates where growth for the company will come from in 2013.
In addition to Las Maracas, this past November, PTA made a second substantial discovery at the La Casona oil field, which will be on stream by the fourth quarter of 2013, or sooner.
With zones believed to carry hydrocarbons yet to be tested and development drilling on the horizon, La Casona offers another growth prospect for the company.
We are also optimistic for PTA’s other exploration prospects. The CPO-1 block, in which PTA holds a 50% working interest, has similarities to the Caracara oil field (sold to CEPSA for over $900million). The El Porton block (25% to PTA), also exposes the company to potentially material reserve increases. Both of these blocks will be drilled in early 2013.
On the macro front, several energy analysts we spoke to agreed that Colombian oil producers in general are undervalued because of venture market malaise. Should the market for these companies improve in 2013, valuations should increase across the board, growth prospects for PTA aside.
Petroamerica’s sponsor team gives us additional confidence. CEO Nelson Navarette was formerly second in command at Eccopetrol, the state oil company in Colombia. Executive Chairman Jeff Boyce was co-founder and CEO of the 4.5B+ Vermillion Resources. Frank Giustra, one of PTA’s largest shareholders, was also an early architect of Pacific Rubiales (PRE), one of Colombia’s largest energy producers.
It is worth noting that PRE has recently announced plans to acquire a junior oil producer in Colombia (C&C Energia). General feeling is that PRE will continue to acquire.
Barring catastrophe, we believe that PTA will grow reserves and production materially in 2013, and will become a compelling takeover candidate for a larger producer. For these reasons, PTA remains our top pick.
Disclaimer: We own Petroamerica Oil Corp. shares and reserve the right to sell them at any time without notice. This is not investment advice. Please do your own due diligence and talk to a licensed investment advisor before buying or selling any security (We are not investment advisors). Also, Petroamerica’s 2013 production guidance is forward looking and unrisked. Please see Petroamerica’s disclaimer. All facts to be verified by the reader. These are opinions, not advice. We seek safe harbour.