Parex Resources - Cashflow and Explo

Wednesday, Apr 27 2011 by
13

As many here will know, Im constantly banging on about the lack of decent UK E&P plays and how Im finding more and more overseas, especially in Canada. Well, heres another one, which impressed me at the First nergy Global Energy conference last year.

Parex Resources - company website here

The group is focussed on two areas, Colombia  and Trinidad & Tobago, where it is partnered with another favourite of mine, Niko in the Central Range Block, with a 25% interest in the Shallow licence and 15% in the Deep licence. It also has 50% of the Cory Morguga block.

There is a recent (7 April 2011) presentation on the website that will give a good oversight of the company's assets and plans.

However, what this doesnt cover is the deal announced last week that is of major significance. This saw the company acquire its partner in Colombia which holds the other 50% that it doesnt already hold in the Four Llanos Basin blocks. The deal cost $255m which is funded by a bought deal (at $7) raising C$165m and a convertible for another C$85m. Note, we took part in the bought deal which was heavily oversubscribed.  

What the deal means is that the company has now increased its exit production rate for 2011 from 7,000 bopd to 14,000 bopd. The deal adds 5.2mmbbls of 2p and 3P of 9.6mmbbls. Note that this is only on the LLA-16 licence which is in production and does not include any reserves for the remaining three licences.

As an example, the other three licences (LLA 20,29 and 30)  are each estimated to have 20mmbbls unrisked resources (Wellington West figs).

The company's now prodigious cashflows will fund all capex operations in the core areas. Estimated cashflow for 2011 $129m rising to $378m in 2012, which would put the company on a very low PCF rating - 2011 est of $2 and 2012 est of $3,30 per share). Yes, that woudl be a cf/s of just 2.25x on 2012 figs.

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The increased cashflow has allowed the company to increase Capex in Colombia by $30-$35M for a total of $120-$140m. Before the deal Parex was looking to drill 16-20 wells in Colombia, 6 being development and 10-14 being explo/appraisals.

The real interest is the high impact potential for Trinidad, especially the Central Range Block. The Shallow and Deep reserves estimates are 400 mmboe and 500mmboe respectively with 60mmboe for the Cory Moruga block. CoS – 25%, 20% and 40% respectively. The first of two wells on the CRB Shallow licence should be drilled in Q2 2011.

The deal followed on from the company’s operational update, which was a mix of good and bad news, slightly more negative than good Id say but here it is.

Essentially they have had some problems with the cement jobs on wells at Kona which has led to water intrusion and shut in of potential production. This meant that the Q1 production came in less than many expected. One of the key issues here is the completion of the Kona oil treatment plant which is expected next month. This is a 25,000 bofd plant. The Kona-1 well will be shut in to allow an ESP to be installed after which production will be stepped up to 2,000 bopd (form the 1,160 ave over Q1. The plant will allow processed oil to be piped 7km to the local oil loading facility. The commissioning of the plant will allow those other wells shut in to be produced with a water disposal well, thus bringing production up to 4,000-6,000 bopd (post deal) from the Kona 1,2,3 and 4 and Supremo-1 wells. Note that Kona-2 has produced 2,634 bopd with a 14% water cut (better than expectations).

In Trinidad, the Firecrown-1 well on the Moruga block has had slight problems. It was re-entered to drill to the contract earning depth of 10,500ft but was halted at 10.330ft due to mechanical problems. Parex is now awaiting written confirmation from the ministry as to earning status (have they done enough in other words) before continuing with completion and testing.

So that’s a brief introduction to what I think is an interesting company that has been transformed by a sensible deal. Lots of newsflow, prodigious cashflows, solid balance sheet and high impact explo. 

Comments?


Disclaimer:  

The opinions expressed by the author are those made by him personally as an individual and not in any professional capacity. 


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32 Posts on this Thread show/hide all

djpreston 12th Aug '11 13 of 32
8

Parex yesterday issued their Q2 results

The shares have takena bit of a knock recently due to the market but look excellent value now Id say as a well financed, producer with good explo upside.

Bit of a mixed bag but good if you look under the headlines.

Revenues were light due to 90k bbls held up in inventory

Netbacks were v hihg at $71/bbl based on v high realisations at $104/bbl so cash posiition is stil v strong.

Kona production is now over 7000 bopd during August with Kona 5 producing 800 bopd from the Mirador before they move up to complete the C7. K3 sidetrack should be producing in Sept K8 ater this month with a further four wells to be completed this year making the 14k bopd exit rate achievable.

Other events:

Drilled the Las Maracas-2 side-track well to total depth and preparing
    to case;
--  Spud Block LLA-16 Sulawesi-1 exploration well on July 16, 2011 and cased
    the well to the Mirador Formation;
--  Spud Central Range Shallow Block Cribo-1 exploration well in Trinidad on
    July 22, 2011

Conference Call details:

Parex will host a conference call to discuss these results on Friday August 12, 2011 beginning at 10:30 am MST (12:30 pm EST). Media, analysts and investors wishing to participate in the call can access it by calling 1-866-696-5910, pass code: 3726765.

The live audio http://bellwebcasting.ca/audience/index.asp?eventid=70835512

Fund Management: European Wealth
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djpreston 1st Sep '11 14 of 32
3

Good results through from the sidetrack on Las Maracas-2.

Despite signinificant skin damage, the well was shut in at 843 bbls/d of 37 API with a 2% water cut.

Management have said this indicated it could be Kona like with wells capable of producing at much higher rates than tested.

As with all the Colombian stocks Ive mentioned on here, PXT, CZE and GTE, now that we are coming out of the wet season, the rigs will be going like the clappers soon so lots of newsflow to come over the rest of the year and with all of them having rock solid finances, cashflows etc with attractive explo portfolios then they look good value to me. GTE and PXT have recovered quite well though still down on peaks, CZE on the other hand is still well down and well off the peak.

Fund Management: European Wealth
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djpreston 13th Sep '11 15 of 32
3

A very good Update from the company highlighting two new light oil discoveries and net working interest production has now exceeded 9300 bopd

Guidance on production has been reiterated. They are still aiming for 14000 bopd exit rate for this year.

As I have been saying, its all go for PXT at the moment with lots of wels being drilled, completed and brought into production.

Explo Wells

Sulawesi-1

37 API natural flow up to 1500 bopd with 0.1% water cut from the Mirador. Lower C& then tested and flowed 30 API at up to 2600 bopd with 0.3% W/C.  The Upper C7 will be tested with a later well.

Put into production on 5 September at 1300 bopd from the Lower C7 using temporary restricted production facilities. New production facilities are being sourced to allow a 4,000 bopd permananet production facility.

Rig has skidded to drill the Sulawesi-3 well as an appraisal North of S-1. Spudded 29/8/11.

A third well will be drilled in Q4 to the South of S-1.

Las Maracas

This was a commitment well under the June farm in agreement with PetroAmerica. The Las Maracas-2 sidetrack was tested and produced a natural flow of 938 bopd with W/c of 1.8% from the Mirador. PXT now has earned its 50%working interest int he discovery.

 

Future drilling

3 rigs will work the 100% owned blocks for the rest of the year, appraising and delineating the Kona Supermo and Sulawesi discoveries. Explo targets are Kona Norte, Merida and  Java on LLA-16 and Cumbre on LLA-20.

 

Appraisals

Kona

Kona-4 started producing on 4/9/11 at 1500 bopd from the C7.  Now that K4 has been complted, the Kona-8 was completed and also started producing at 1200 bopd on 8/9/11 from the GAcheta.

Kona-10 spud on 22/8/11 targetting the Gacheta. It has bewen cased and is awaiting completion.

 

Trinidad

Cribo-1 on the Central Range Block should TD mid month. After that drill the Mapepire-1 in Q4 to complete the 50% interest earn in.

Company is inadvanced discussions to mobilize two more modern rigs and hopes to spud the first Deep CRB well in Q4. The Mapepire -1 well will be followed by a well in the Morgua.

 

 

 

Fund Management: European Wealth
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djpreston 13th Sep '11 16 of 32
1

Very good reaction to the update today with the shares up 13%. Still looks good value imo.

CZE should also be v active on the newsflow front soon and that also looks cheap given it hasn't bounced at all.

Both companies are presenting next week at the First Energy Global Energy Conference so should have presentations and probably webcasts if you're interested.

Fund Management: European Wealth
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djpreston 27th Sep '11 17 of 32
2

Parex has been given approval to transfer listing to the TSX from the Venture exchange.

Trading should begin on 3 October.

IMO the move to the TSX should improve the visibility and inestablity of the company - akin to a shift form AIM to main market over here.

Fund Management: European Wealth
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Fangorn 14th Oct '11 18 of 32
5

Hi DJP,

Finally got round to reviewing two of the three companies Colombian Oil side. Apologies for the tardiness in reply since my emailed comment.

On Parex, it certainly piqued my interest in that it has all the qualities I usually look for in an Oily when assessing how promising an investment it is outside of the more "blue sky" orientated minnow punts I sometimes take a punt on - I like companies which offer a certain margin of safety in that they're producing, or very close to production.

Parex certainly offers this in spades - a combination of solid base production, set to be ramped up, in Colombia at Llanos basin, with some high impact explo thrown in for good measure Trinidad side. The fact that they're cash flow positive, estimates for 2012 coming in around $301m according to First Energy May2011 (set to increase substantially as production rises is very welcome - assuming oil prices hold up! )

Financially strong, with a balanced portfolio of producing/explo assets,and seemingly top tier management, despite the odd hiccup tick all the boxes for me.

Interesting to see that Target prices are set substantially higher than the current market price. There's plenty of optimism around. I see it's currently around the C$7.30 level - Is the NAV still significantly higher than where it is currently trading?

There's certainly a busy drilling schedule heading into 2012. I see Q4 has around five development wells(Kona's and Sulawesi-2, as well as, from what I have read, four explo wells at Kona Norte, Merida,Java, Cumbre.And that's before we even look at the high impact opportunities in Trinidad...all extremely exciting.





As for C&C Energia - similar situation, from my point of view, as to why it looks interesting as an investment. Again it has decent production underpinning it at the Llanos basin, centering mainly on Cravoveijo, and it seems there's plenty of development and explo potential there alone. Add to that another 7 high impact blocks(presumably at Putumayo and Middle Magdalena basin) The former is according to my readings, highly prospective with a potential 3bn bbls OIP. Perhaps I misread that.

Coupled to underlying production, it seems management is fairly lucky(as well as experienced), remember reading somewhere that they've an 85% drill success rate. Which is pretty impressive considering some of the shockers other companies consistently have....This year alone has seen explo successes at Cravoviejo(Zopilote-1), Cachicamo(Guacharaca-1, Hoatzin Norte 3).

Their September presentation summed it up succinctly for me - rich portfolio of opportunities, decent explo track record, strong balance sheet with free cash flow of $120m, underlying production(with both Cravoviejo and Cachicamo seeing significant increases in daily production, namely 1900bopd and 1100bopd respectively. Add to that the high impact explo potential and again it ticks similar boxes to Parex.

I take it that the Coati-1 explo well is due to spud this month, unless I've already missed the announcement. Talking of which where is the best place to set up alerts for Canadian oilies. I use investgate for UK companies,and the alerts go straight to my inbox. Appreciate your thoughts here.

Add to all of the above, it was trading close to NAV (just noticed that it's trading at C$7,82 or so, down significantly from the C$12.85 it was in May this year when NAV was estimated at C$15.89 according to Canaccord)

What on earth happened there? Can't seem to get any info from TD at the current time for some reason.


Appreciate it's not the usual in depth Oilie company discussion you're used to having with the likes of Davjo, EE, Marben et al but I'm no oil expert. :)

Thanks for the pointers to these two very interesting companies.Just have GTE to peruse. Certainly know where my Encore money is eventually going. These , and some 49 North, Zargon O&G, Freehold Royalty, Superior Plus.

:)

F2






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djpreston 26th Oct '11 19 of 32
5

Sorry but Ive beena bit tardy with updates of late.

Parex has a new presentation out from 17 October.

Also a general update released yesterday.

So production has now hit 11,000 bopd, well on the way to the 14,000 bopd forecast for 2011 exit.

Best to check the release for more detail as there is a lot relating to the different areas of operation and the wells being and planned to be drilled.

Shares have bounced nicely since the early October lows (like many) but still look very good value imo in terms of the production, finances, activity coming up and scope for reserve additions.

 

Fund Management: European Wealth
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Fangorn 27th Oct '11 20 of 32

Thanks for the heads up.Interesting presentation.

All steam ahead it seems. :)

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djpreston 10th Nov '11 21 of 32
1

Parex yesterday issued their Q3 results.

All solid but for sales volumes being lower than production. The resultant inventory build should be captured in Q4.

Kona will see K7 and K9 drilled and producing by year end and they are mobilizing a rig to complette KN-2 as a water disposal well since additional disposal facilities are required to avoid any restrictions on Kona field production. 

Highlights some potential for a slight disruption to sales over Christmas holiday season due to trucking but they are building contingency plans.

With production of 11k bopd their plans are all being funded out of cashflows and production should continue to rise as a result of the active drilling and completion programme. Nothing to scare the horses.

Fund Management: European Wealth
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Fangorn 10th Nov '11 22 of 32

Hi DJP,

A solid set of results.

Colombia side -
Here's hoping both Kona7 & Kona 9 are drilled and producing by year end according to plan.
I see Sulawesi 3 came in lower than expected, light oil with ab high water cut,and have been suspended due to lack of water handling in the well test facility.

Supremo-2 test results due by end of Dec.

On the Trinidad side i see Cribo-1 spudded and we are currently awaiting a service rig to start completion and testing ops sometime during November. Will be interesting to see what this well comes up with as several other companies, that I'm actually invested in for my sins, have ventured into Trindad (eg RRL,and LGO)

Anyway, my novice oily days are soon to some to an end - my copy of Oil 101 by Downey arrived in the post. :)

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djpreston 1st Dec '11 23 of 32
1

Hmmm, cant seem to find an announcement on the Parex website but this looks like a very sensible use of the company's cashflow:

http://www.marketwatch.com/story/touchstone-announces-disposition-of-338-interest-in-the-moruga-block-area-located-onshore-in-south-central-trinidad-2011-11-30?reflink=MW_news_stmp

Extract:

CALGARY, ALBERTA, Nov 30, 2011 (MARKETWIRE via COMTEX) -- Touchstone Exploration Inc. /quotes/zigman/4373495 CA:TAB 0.00% ("Touchstone" or "the Company") announces it has entered into an agreement with Parex Resources Inc. and Parex Resources (Trinidad) Ltd. to sell, though its indirect wholly-owned subsidiary Primera Oil & Gas Limited ("POGL"), a 33.8% non-operated interest in the Exploration and Production Licence (the "Moruga Licence") awarded to POGL by the Government of Trinidad & Tobago in August, 2007 and related rights, assets and interests pertaining to an area located onshore in South Central Trinidad and designated as the "Moruga Block" for aggregate consideration of up to (US)$10.0 million. The Moruga Licence had no existing production or reserves assigned to it by the Company.

PXT had a 50% interest prior to the deal and this is where the ongoing Firecrown and Snowcap appraisal programs are planned/on going.

Fund Management: European Wealth
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Fangorn 1st Dec '11 24 of 32

Not got any email alert myself, but an interesting move for chump change......thanks for the heads up.

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Fangorn 5th Dec '11 25 of 32
1

Parex Resources Inc. ("Parex" or the "Company") (TSX:PXT), a company focused on oil exploration and production in Colombia and Trinidad, announces its 2012 guidance. All amounts below are in United States dollars unless otherwise stated.

Parex 2012 Budget Summary

Building on our 2011 operational and exploration success, Parex currently plans a self funding 2012 capital investment program of $230-$275 million for exploration and development operations in Colombia and Trinidad resulting in a 2012 production exit rate of approximately 17,000 bopd.

Key highlights:


-- High Colombia operating netback production provides for a self-funding
capital program and exit rate production growth of 20 percent;
-- Exploration activities across seven Colombia Llanos Basin blocks;
-- Focused program to test high impact onshore Trinidad prospects; and
-- Balance sheet strength to capitalize on new business opportunities.

An updated corporate presentation has been posted at http://www.parexresources.com/sites/default/files/presentations.pdf.


Just hit my inbox so having a read.

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Fangorn 5th Dec '11 26 of 32
1

Interesting guidance.

Extensive 2012 drilling programme it seems, with some 20-25 wells across Columbia, and 5-10 wells in Trinidad.
And all Self funded from production :)

Production @ 13000bopd, expected to hit 14,000bopd 2011 exit rate.
2012 Exit rate circa 17,000bopd expected. A 21% odd rise.

Still plenty going on at the moment. Drilling operations have begun on Trinidad CRB Mapepire prospect; Supremo-2 awaiting testing. Merida explo well @ 10.500 ft.

Can't believe these are still @ C$7.10 odd.

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Fangorn 21st Feb '12 27 of 32
1

Hi DJP,

Operational Update came out a couple of days ago I see and it fell quite heavily (15% around the 15th February) which I thought was rather harsh. Obviously missed whatever the market didn't like when i ran a cursory glance of the report.

From my notes:

Parex: 2011 YE reserves and Operational update. (15th Feb)

Proved reserves increase to 4.9mm Bbls Light Oil (up 363% from 1.1mm bbls)
Proved + probable reserves growth to 10.7mm bbls (up 83% from 5.9mm bbls)

Plans to drill 12 High impact wells in Colombia & Trinidad H1 2012.
Agreement to purchase additional 25% stake in llanos basin El Eden block.

2012 Capex to be $230-275m. Exit rate production to be c 17000bopd. Capex to be cash flow funded!

Colombia drilling:
- Java (located between Kona and Sulawesi).
Late Feb spud, targetting the C7,Mirador,Gacheta and Une formation, drilling depth c 12,000feet.
- Malawi
- Cumbre
- Adalia Spud date april 2012

Trinidad drilling:
- Firecrown, Spud late Feb 2012
- Green Hermit, Spud late Feb 2012
- Tigre, Spud Q2 2012.

http://cnrp.marketwire.com/cnrp_files/20120215-215pxt.pdf


I see that Supremo-2, which in December was awaiting testing, could not be properly tested hence the company's guestimate on reservoir and production characteristics and their suspension until water handling capacity is available...

"Supremo-2 could not be properly tested but based on the Company’s interpretation of wireline logs, the well is likely to have similar reservoir and production characteristics as Supremo-1. Both wells have been suspended until water handling capacity is available in the area.


Also Merida explo well it seems has yet to be completed and tested(February , so anytime soon i guess)

And disappointment in Trinidad.....Mapepire-1 was drilled as part of the earning requirement of the block. Based on the Company’s interpretation of wireline logs and Cribo-1 test results, the well is expected to be suspended.

Surely don't justify a 15% drop though? Interested in your thoughts DJP....

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Fangorn 14th Mar '12 28 of 32
4

Parex Resources Announces 2011 Fourth Quarter and 2011 Year-End Results, Including 61% Quarter Over Quarter Production Growth


PXT:
Parex Resources Announces 2011 Q4 and FY 2011 Results, Including 61% Quarter Over Quarter Production Growth

Fourth quarter 2011 highlights:

-- Achieved quarterly oil production of 11,342 bopd, 61% increase over Q3 2011;
-- Realized sales price in Colombia averaged $102.15 per barrel
-- Operating netback of $71.24 per barrel.

Throughout the fourth quarter the Company marketed a significant portion of oil production with a
Brent reference price, realizing an approximate $8 per barrel premium to WTI on average for the Company's fourth quarter oil sales;

-- Generated funds flow from operations of $63.1m($0.58/sh), a 98% increase over Q3 2011.
Q4 funds flow from operations were in excess of the $53.7 million invested in capital expenditures;
-- Generated adjusted net income of $6.5 million ($0.06 per share basic);
-- Drilled six wells in Colombia (6.0 net);
-- Entered into agreement to purchase an additional 33.8 percent working interest in the Moruga Block in
Trinidad;

-- Independent reserve evaluation for Colombia as prepared by GLJ Petroleum Consultants Ltd. ("GLJ")
reported proved plus probable reserve growth of 83%, increasing from 5.9 million barrels ("mmbbl") of
light oilat year-end 2010 to 10.7 mmbbl of light oil (net company working interest) at December 31, 2011;

-- Strengthened our balance sheet with working capital increasing from $77.9 million at September 30,
2011 to $92.9m at December 31,2011.

http://www.parexresources.com/events

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Fangorn 16th Mar '12 29 of 32

http://www.economist.com/node/21550304

Colombia’s oil industry: "Gushers and guns. A boom, and threats to it"

more of a general interest piece.

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djpreston 8th May '12 30 of 32
1

Ive been somewhat neglectful of old Parex but good news.

First off there was the acquisition of "targetCo" announced with the operational results update on 12 April:

http://cnrp.marketwire.com/cnrp_files/20120412-412pxt.pdf

Extract:

Parex, through a wholly owned subsidiary, has entered into a purchase and sale
agreement with a Bermuda based subsidiary (the “Seller”) of Nabors Industries Ltd.,
to acquire its wholly owned subsidiary (“Targetco”) (the "Acquisition"), the
operations of which include interests in five exploration blocks located in Llanos Basin
and two blocks located in Middle Magdalena Basin in Colombia for a total of
approximately 567,000 gross acres (276,000 net acres). The Acquisition closed on
April 12, 2012 with an effective date of February 29, 2012. RBC Capital Markets
acted as financial advisor to Parex in respect of the Acquisition, and FirstEnergy
Capital Corp. acted as strategic advisor.
The consideration paid for Targetco shares was approximately US$72.6 million in
cash, including customary closing adjustments. Targetco has no bank debt and an
estimated working capital deficiency as at February 29, 2012 of $2.4 million. Parex
will also be assuming $17.7 million of letters of credit related to Targetco’s interests
post closing. The Acquisition was funded by Parex’ working capital. Parex is also in
the process of securing a $50 million revolving credit facility with a Canadian
chartered bank.
TargetCo production is approximately 100 barrels of oil per day (“bopd”) from the
Middle Magdalena Basin. In the Llanos Basin operational activities include 3
currently drilling exploratory wells and the planned completion of one standing
exploratory well.

Fund Management: European Wealth
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djpreston 8th May '12 31 of 32
1

Well, I cant get to grip with the new text editor (it doesnt seem to work for me - much preferred the old one).

Anyway, the important news is that 1 of the 3 wells being drilled by "Target Corp" has just reported.

Maniceno-1 (30% WI) had more than 50ft net pay in the Mirador. After perforation the top 14 ft tested at an average of 7,280 bopd(2184 net to PXT) of 25 API with a peak rate of 9,512 bopd. The operator plans to install a semi sub pump prior to moving off. to the Samaria Norte-1 explo well. This is the second of two committment wells on the block and should spud later in the month.

Fund Management: European Wealth
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djpreston 8th May '12 32 of 32
1

The second bit of good news is that Las Maracas-2 has been placed on long term test at a restricted 1000 bopd 500bopd net). PetroAmerica Oil (partner) plans to increase production to between 1500 bopd and 2000 bopd.

The two results are very positive for Parex whose shares have been pulled back by the delays in some explo in Colombia. With a ton of cashflow, PXT look well overdue a strong bounce IMO.

Fund Management: European Wealth
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