Well run oil and gas junior partners with Talisman on high impact Indonesian well

POSTED ON November 11, 2014 BY James Fraser
CATEGORY Oil Stocks, Pan Orient Energy,

East Jabung map, Indonesia (Image: Pan Orient Energy)

In the early phases of building an oil and gas company, you want to get a carried interest into as many high impact wells as possible that are ideally being drilled on somebody else's dime. This reduces risk.

Pan Orient Energy (POE.V) continues to reduce risk and keep a portion of the upside potential by farming out projects to partners. This morning they farmed out 51% of the East Jabung production sharing contract (PSC) to Talisman Energy (TLM.T). The transaction will be subject to Indonesian government approval and is expected to close in March 2015.

In exchange for the 51% interest Pan Orient will receieve:

A cash payment of $8 million US
A commitment from Talisman to finance the first $10 million toward the first exploration well
A contingent commitment to fund the first $5 million of an appraisal well if justified
Pan Orient will have the option to acquire 20% of a Talisman project in South Sumata

The East Jabung asset should benefit from the technical expertise of Talisman becoming operators of the project. The project is believed to have the potential for half a billion barrels of oil. Once drilling begins this is expected to be one of the most watched wells in the junior oil space.

No dates have been set yet for drilling the first on shore East Jabung well which was acquired during the financial crisis.

Pan Orient last week sold a 50% interest of a subsidiary company for $42.5 million to Sea Oil Public Co. of Bangkok, Thailand. The subsidiary company is expected to drill 2 appraisal wells and one exploration well in the first quarter of 2015.

The company also has the Sawn Lake project in Alberta, Canada which has recently come on stream as a SAGD heavy oil producer. Sawn Lake started producing bitumen in September and an update is expected any day now.

Assuming the deals close, Pan's balance sheet will add approx $50 million to $27 million already on the books as of June 2014.

Pan Orient president and chief executive officer Jeff Chisholm said: "Pan Orient has demonstrated significant progress towards the corporate initiative of strengthening the company's balance sheet and derisking its portfolio of assets, through partial sale or seeking partners. The final goal is to retain meaningful working interests with significant upside exposure and a strong balance sheet, facilitating growth and flexibility going forward. Today's announcement is a significant milestone towards this goal and is an important addition to the sale agreement of a 50-per-cent interest in the Thailand L53/48 asset entered into and announced last week."

Pan Orient has a very creative, albeit risky strategy for creating shareholder value. The company has rewarded investors in the past paying a $0.75 cent dividend in 2012 after selling an asset.

The share price has remained between $1.80 and $2.20 for much of the year as investors awaited the farm out deals. Now that the deals are getting done high risk high impact wells will be drilled. If any of these hit with a low float (56.76 M) you could see quite the share price appreciation.

A strong balance sheet will provide flexibility and shareholders with significant upside potential as partners begin exploration drilling.

Symbol: POE.V
Share price: $1.95
Shares outstanding: 56.76 M
Market cap: $106 M

Read: Pan Orient Energy Corp.: East Jabung Production Sharing Contract Farmout Agreement Onshore Indonesia

I have no position in any of the stocks mentioned. This is not investment advice. As always please do your own due diligence.

James Fraser

Mr. Fraser joined CEO.ca in October 2014. He is passionate about the mining industry. His passion led to co-authoring the e-book "Mining Stocks Investor Guide: A Guide to Investing in Mining Companies." He has a finance background and has completed his Canadian Securities Course (CSC) and Conduct and Practices Handbook (CPH). When Fraser is not "digging" up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world. More →

Twitter: @miningstocks

james@miningstocksguide.com

James Fraser

Twitter: @miningstocks

james@miningstocksguide.com

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