What’s better than proven heavy oil resources in Argentina and three spots on natural gas plays in Colombia?
That’s easy: A management team led by a man who owns the largest conglomerate in Colombia and backed by billionaire mining legend Frank Giustra.
Introducing PentaNova Energy Corp. (TSX:PNO.V; OTC:PENYF) the next explosive bet on Latin American resource riches by the dream team of Giustra and Serafino Iacono, the owner of Pacific Group and the mastermind of Pacific Rubiales, the famous mid-tier Colombian oil company that went from $7 a share in 2009 to $36 in 2011.
Now they’re leveraging their high-value-creation track record in Latin America, in some of the richest oil and gas fields with proven reserves.
The two have already made a fortune in Colombia, and there is no one better at identifying grossly undervalued resource plays in proven grounds and then creating maximum shareholder value.
They always think big. And they always pay out.
#1 No Strangers to Success in Colombia
When you bring together a Canadian billionaire who’s already created four multi-billion-dollar companies and an icon of resource discovery and development in Colombia, you expect something like…
Well, you expect something like Pacific Rubiales, because you’ve already seen it happen once.
Serafino Iacono truly has Colombia covered, and it’s not just about oil and gas. He was one of the first to take advantage of Colombia’s resource sector and he has connections at the highest level of officialdom. He owns the Pacific Group, one of the biggest conglomerates in Colombia, and they have their hands in everything from coal, gold, and oil and gas to sweeping infrastructure assets.
Iacono and Giustra also jointly own Blue Pacific, which is building ports in Cartagena and Barranquilla, and owns a wide range of infrastructure assets, power plants, farms and mines across Colombia.
Now, with a fortune already behind them in Colombia and new natural gas assets lined up for development, the two are targeting huge heavy oil assets in Argentina.
With Iacono’s proven track record in the region and Giustra’s backing, PentaNova seems destined for greatness, and investors will be looking for a repeat of those fabulous first years of returns for Pacific Rubiales.
This is about vision, guts and all the right people; something PentaNova has on a massive scale.
• Jeff Scott was one of the founders of Grand Tierra, and understands the Argentine and Colombian oil and gas industries inside out.
• Greg Vernon, President, is a professional engineer with vast experience in the petroleum industry in reservoir characterization and international operations/negotiations in Colombia, Argentina, Canada and China.
• CEO Luciano Bondi has served in senior positions at top oil and gas companies in South America. He is a former CEO of PetroMagdalena, supervised operations of over 1 million bbls/day while heading up Venezuelan state oil company Maraven and also served as Vice President of Operations for Venezuela-based CPVEN, an oil well cementing and services company.
• CFO Chris Reid is a Canadian public market expert who is not only strong with finance but was instrumental in salvaging Petro Dorado where he became CEO, restructuring the company and selling off the assets and saving about $40 million dollars for investors.
• Warren Levy, president of Argentine operations, founded a services company in the country and grew it to have 2000 employees in 7 countries across Latin America.
#2 Colombia’s New Gas
PentaNova (TSX:PNO.V; OTC:PENYF) is now shifting its attention to the oil- and gas-rich fields of Colombia, just next to the prolific Chuchupa Block, which accounts for 40 percent of the country’s entire gas output.
(Click to enlarge)
They have several prized gems in their crosshairs…to acquire, develop, exploit and unlock their full potential.
The company has already secured three acquisition opportunities in Colombia:
• Maria Conchita: A gas field right next to the Chuchupa Block, which has been in production for 35 uninterrupted years and is currently owned by supermajors Chevron (NYSE:CVX) and Ecopetrol SA (NYSE:EC). The dry and sparsely populated terrain makes for simple and inexpensive logistics. Some of its key features include:
• 2P Net Reserves of 15.0MMBoe (99 percent Gas).
• 2P After-Tax IRR (Internal Rate of Return) of 54 percent.
• 2 gas fields already in development.
Maria Conchita will require an estimated $70 million in capex to develop the field at a high working interest rate of 80 percent, meaning potentially high ongoing returns on investment.
• Tiburón: This wildly promising field has an Estimated Total Exploratory Resources of 267 MMBoe (100 percent Gas). It’s in the same basin as the Chuchupa, and is close to the Chuchupa gas pipeline hub for quick access to Colombian gas markets.
Tiburón requires US$430 million capex to develop but has a potentially high IRR of 109 percent.
• Sinu-9: A block with an estimated 2P Gross Recoverable asset of 29.4 MMBoe (100 percent Gas) and an estimated Exploratory Gross Resources 40.7 MMBoe (91 percent Gas).
The block is very close to the Caribbean export terminal. That means it’s served by excellent infrastructure and open access to Canacol’s oil and gas pipelines. Bottom line: This is likely to lead to high well-head netback prices.
# 3 Next Stop, Argentina’s Heavy Oil
Argentina’s heavy oil is even more spectacular. That’s because all the super majors have shifted their attention to the Vaca Muerta shale and left prime heavy oil, light oil and natural gas assets ripe for the picking. It’s a free-for-all… if you have the right people with the right relationships. And PentaNova has the regional experience and connections that put it way ahead of this game.
The company has targeted 4 blocks for acquisition in the region.
• Llancanelo: a heavy oil field with resources which giant partner YPF pegs at over 3 billion bbls OOIP. This field is currently producing under cold flow and is ready for immediate, and large scale development.
• KM-8: with an Estimated Total Gross Resources of 5 Million bbls (3 to 5 percent Gas). Located in the San Jorge basin, this block has 8 active wells, with another 50 workover candidates and 14 PUD locations with a range of 1,500 ft to 3,000 ft. Among the attractive economics, we’re also looking at low-cost re-development.
• Santa Cruz Land of Giants: When it comes to heavy oil, this is a monster, with Estimated Total Gross Resources Potential of 500 MM BOE+.
• Southern Argentina play: PentaNova is also eyeing a light oil and gas play in southern Argentina with an Estimated Total Gross Resources of 15 MMBoe (75 percent Gas).
PentaNova has picked the right time to invest in the massive resources since oil and gas sales in the country are quickly moving to world pricing.
#4 Cash-Flow Positive by 2020
PentaNova’s three Colombian oil and gas fields hold a total of 303.8 MMBoe, worth at least $5.18 billion at current prices.
The three assets have a Net Present Value of $1.6 billion and a healthy combined IRR of 32 percent.
The near-term financial outlook looks great, with operations in the three fields expected to be free cash flow positive as early as 2020.
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Meanwhile, the three Argentinian assets hold about 515 MMBoe in Estimated Exploratory Gross Resources worth about $8.78 billion at current prices and another 5 million bbls worth another $229 million.
#5 Asset Potential Worth More than $10 Billion
PentaNova Energy Corp is a $192-million market cap company that's sitting on assets potentially worth more than $10 billion.
The company has only issued shares worth $155 million in the secondary market.
It's a very attractive model, with minimal cash going into SG&A and capex to maintain infrastructure. The company expects production to hit 50Mboe/d by 2019-2021, nearly 10 times current production.
With such a dramatic production ramp, it isn’t a longshot to expect the company's shares to make strong gains in the coming months and years.
Encana Corporation (NYSE:ECA): Encana saw its share price fall in recent months, but the rebound has started in July. Although oil market remain volatile, Encana posted surprised analysts by posting strong earnings in the second quarter of the year. Next to this, Encana managed to reduce operating costs by a whopping 40%. We see Encana’s share price rise further towards the end of the year.
Parsley Energy Inc (NYSE:PE): Parsley Energy Inc (NYSE:PE) is a major player in the Permian shale play. The company’s assets are primarily located in the Midland and Delaware basins. Specializing in acquisition, development and exploration of unconventional oil and natural gas reserves, Parsley Energy trades around a modest $30/share and has an impressive $9.35B market cap. The company’s management is second to none which will give investors confidence in moving forward.
Seadrill Ltd (NYSE:SDRL): Seadrill is a company that offers services relating to everything offshore. As an offshore drilling contractor, Seadrill is a go-to for companies rushing to complete their deepwater projects. As offshore regains its popularity and new finds are ready to be developed, Seadrill has a wealth of resources to complete, maintain, and nurture these projects. With operations in the Middle East, Southeast Asia, Northern Europe, the United States, and South America, this oilfield services company is one to watch.
Diamond Offshore Drilling Inc (NYSE:DO): Diamond Offshore Drilling Inc is a Houston-based oilfields services company with contracts in Gulf of Mexico, South America, Australia, Southeast Asia, Africa, the Middle East, and Europe, the company is well represented across the world. Its fleet includes 24 offshore drilling rigs, 19 semisubmersible rigs, and one jack-up rig. With a large footprint in the industry and a number of assets, Diamond Offshore is a reputable and secure pick for investors, especially as offshore projects regain popularity.
Pioneer Natural Resources (NYSE:PXD): Pioneer Natural Resources is another oil and gas exploration and production company whose main operations are primarily located in the Permian Basin, Eagle Ford, West Panhandle, and the Raton field. The company also owns interest in eight gas processing plants and nine treatment facilities. With a huge amount of prime real estate in South and West Texas, Pioneer has consistently shown that it is investing wisely which will surely pay off for shareholders.
By Joao Peixe for Oilprice.com
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