I’m very excited for a new investment today in a Canadian oil & gas company with assets in southeast Asia. Here is a quick breakdown:
1) Concession L53 (onshore) :
Sandstone resevoir producing 906 BOPD with an estimated 0.8 million barrels
2) Concession L45/50 : 60% interest with a farm-in agreement subject to approval
1) Batu Gajah PSC: 77% interest with two wells in this location to be drilled in 2013 including Kemala-1 and Buana-1
2) Citarum PSC: 97% interest with one well cataka-1a to be drilled in 2013
3) South CPP PSC: 77% interest in this well with 2D seismic program beginning in 2013
4) East Jabung PSC: 100% working interest in this well with 3 year exploration commitment
1) Andora Energy: 71.8% interest in this oil sand project named “Sawn Lake.” $23.5 million steam drainage asset. Quoted $76 million asset value for this project with $54 million attributable to Pan Orient
Here is were it gets interesting:
2013 Drilling Program
1) Batu Gajah PSC: two wells will be drilled for this asset called buana-1 and kemala-1.
2) Citarum PSC: two wells will be drilled for this asset called cataka-1a and jatayu-1
3) East Jabung: 1 contigent well will be drilled for this asset
1) L53-D East: three development/appraised wells will be drilled under this asset
2) L53-H: 1 exploration well will be drilled
3) L53-F: 1 exploration well will be drilled
1) Swan Lake: steam injection will be performed in 2nd Quarter of 2013 with expected production in the 4th quarter of 2013.
A capital program of $95 million will be spent on the 2013 drilling program. Essentially, Pan Orient is drilling 10 wells in 2013. This 2013 program offers 10 catalysts for potential value realization. Now lets get to the valuation of this company which makes the risk/reward of this investment so compelling.
Pan Orient has $2.29 in cash with no debt. The 2013 drilling program is fully funded by the company. Pan Orient does about $0.40 to $0.60 a share in free cash flow per year. With the stock currently trading at $2.90 you can begin to see the value here. The market is essentially only valuing Pan Orient on its current cash and 1 production well giving no value to the potential 10 wells mentioned above. The Swan Lake asset is also given a zero value by the market. Here we have a company almost selling at cash levels, no debt, generates positive free cash flow. You get the exploration portfolio for free as well as the Canadian Swan Lake asset. Buying Pan Orient at these levels is buying a company almost selling at cash. Generates positive free cash flow. You also get 10 free options on the potential for value realization via the 10 wells being drilled this year.
We are very excited about Pan Orient and believe its a great buy at these levels. We have estimated that each potential successful well adds between $1 to $3 per share in value. With 10 wells being drilled, this company can materially increase in value with limited downside risk due to no debt, strong cash levels, and positive free cash.
(Do your own Due Diligence)