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Tommy Humphreys

Tommy Humphreys

Tommy Humphreys is the editor of CEO.CA, a blog focused on identifying talent and opportunities in natural resources investing. Humphreys' analysis and commentary can be…

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Petroamerica Oil Corp: Bankable Growth, Outstanding People, Staying Strong

Our readers have been hearing about Petroamerica Oil Corp. ($PTA) since August, 2012. Since then, we’ve been covering the Colombian-focused oil and gas junior closely — and we’ve done well owning the shares.

Sunday evening, PTA management convened in Vancouver for a round of investor meetings today. We were able to join PTA’s Executive Chairman Jeff Boyce, CEO Nelson Navarrete, and EVP Exploration and Business Development Ralph Gillcrist for an update on the company before they headed off to Toronto this afternoon.

The management’s visit was well-timed. On Friday, PTA experienced a stock market setback, crashing from 40 to 27.5 cents at the open, before climbing back up to 36 cents on a strong 8 million shares traded to close out the day.

The flash crash was triggered by a missed exploration well at the company’s CPO-1 block. While analysts covering the company valued the missed well at just 1 to 2 cents per share, the shares crashed 12.5 cents immediately at open — likely the result of one or numerous stop loss market orders. “The market will shake the tree hard,” Boyce told us, remaining optimistic. “Smart money was backing up the truck on Friday… Nothing has changed,” he said, “we’re still growing, acting prudently, and undervalued in this market.”

We’re inclined to agree. The company’s Las Maracas oil field has outperformed, and with their additional discovery at La Casona, and a bit of production coming from the Balay field, Petroamerica is still a very promising company. The analyst community has begun to show support also, with Haywood’s Al Knowles reiterating his Sector Outperform rating and $.55 price target after the news came out on Friday.

Today, Petroamerica’s key value driver is the Las Maracas oil field, a 50/50 joint venture with Parex Resources. Producing 400 barrels of oil per day (BOPD) in 2011, Las Maracas helped grow PTA’s production nearly tenfold in 2012 to 4,000 BOPD by December, with impressive netbacks of around 70$+. Simple math has PTA trading at approximately 2X cash flow.

When PTA and Parex’s joint permanent production facility is completed in Q2 2013 at Las Maracas, the field will be capable of producing 7,500 BOPD net to PTA, although the company forecasts a more conservative 4,500 BOPD throughout 2013 base case. This added capacity is a significant part of our upside. “There’s plenty of room in our current asset base for further growth. We think we can get to 7 to 10k BOPD over the next 18 months with what we have now,” Navarrete told us. Gilchrist added, “We haven’t seen declines yet, we haven’t seen water, and we’re picking up other reservoir intervals. Las Maracas keeps getting better.”

Over the medium term, PTA’s looking to acquire longer life assets. They also reiterated that becoming an operator is another priority.

On the exploration front, PTA will drill an additional four prospects in 2013, telling us to expect steady news flow throughout the year. The Curiara well at the El Porton block will be spudded in February. And drilling at the company’s La Guira prospect on the Los Occoros block may start in Q2, rather than Q3.

Management is also working to enhance netbacks per barrel by leveraging transportation and marketing opportunities. Such efforts could potentially add $5-6 per barrel to what are already some of the highest netbacks in the entire oil and gas industry.

When we asked PTA management if they had any plans to sell in 2013, Boyce told us, “You can’t plan for that. You create an attractive business for somebody who wants 100 shares, 100,000 shares, or all of them. You never design it to sell, you design it to be attractive to the right people. We have an obligation to shareholders to consider any offer, but we don’t have our shingle out, because buyers don’t take you seriously. When you build a company to sell, nobody wants it, but if you build an attractive business that will sustain itself, the odds are better that people will want it.”

Despite Friday’s flash crash, nothing at PTA has fundamentally changed. CPO-1 was a simple exploration well, and the company’s growth prospects remain intact. PTA’s management has our trust and confidence. They’re a great team and it was very encouraging as a shareholder to hear them defend their story yesterday.

By. Tommy Humphreys




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