Peru | PetroMinerales (TSX PMG) - Now Thats A Payback

16th Feb '10 by djpreston

3 comments 1652 reads

As you know, Im a bit partial to Canadian companies and have mentioned the TSX as holding a number of very interesting companies that sadly dont get discussed too often here or over in the old place.

Anyhoo, I was planning to do a write up on PMG following their successes but forgot and another success has just been announced so I had better do a short intro comment on PMG before I can find some time to do a more thorough effort.

Some may, of course, have come across PMG before. It bought Aim listed Pan Andean Resources last year.

PMG isnt a small outfit, valued at $2.6bn at present (up 15% on the day - see below).

Assets are based in Colombia (100% owned 1.8m acres) and Peru (55% WI 2.6m acres)

The website is, as for most Canadian outfits, excellent:

http://www.petrominerales.com/

Id particularly recommend this presentation from February, as a good overview of the company.

The title of the thread is reference to the Candelilla - 1 well that was placed on stream in early January. This hit and hit big, flowing naturally at almost 12.4k bopd (API 44). On that basis the well paid back in just 12 days.

We have now seen Candelilla 2 come on stream, flowing at 15.8k bopd (API 43). Guess the payback on that well !!

Candelilla 3 will be spudding soon.

Just updating re well logs - Candelilla 2 logs show net 88ft of potential pay in the Lower 3 sand and a further 51ft in the Guadalupe formation. The Guadalupe will be tested later.

Production from both C Wells is restricted at the moment to 27k bopd though they will be boosting this to 30k bopd this week with another flow line. Needless to say, they are expanding their facilities to cope with 45k bopd. They key is what the decline rate will be as there has been no long term production yet and Corcel wells showed a rapid decline (see the graph on page 13 of the Feb presentation). Having said that, the C-1 well is producing nearly 900 bopd more than the initial test rate.

This is obviously a pretty significant discovery for PMG and we need to know the size of the reserves, I have seen that estimates have been raised by a couple of brokers to 25/26 mm bbls from the…

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muckshifter

17th Feb '10

The thing that always put me off buying PMG, was the politics. They were, until recently, a single country explorer in just Colombia, which has had an ongoing guerilla conflict for years. The current president is serving his final permitted term which expires in a year or so, IIRC. They also have a nice friendly neighbour - Mr Chavez, who hates them for their friendship with the US, and talks agressively about Colombia.

However, during my extended look at Petrobank and all its subsidiaries five years or more ago, I read many comments and listened to a few presentations by John Wright (CEO) in which he made the point very regularly that Colombia has never welched on a contract, has the longest standing democracy in SA (IIRC), and has some of the best terms for oil exploration and production anywhere in the world. So you pays your money and takes your choice!

As a long term fan of Petrobank (PBG.TO), I was very happy to have part of my investment effectively in PMG, even after it was floated as a seperate company, with PBG still owning 67% (I think).

So, an alternative for those of a nervous disposition when it comes to SA politics remains PBG. Buying PBG gives you a serious stake in PMG, a serious stake in Petrobakken, which was formed out of a merger and seperate flotation of the old PBG Canadian conventional assets with another Bakken operator and appears highly succesfull, together with ownership of the core division of PBG, its heavy oil recovery division, based on the THAI method of recovery, which was the main thing that I bought for years ago.

In terms of the THAI / Capri oil sands / heavy oil recovery method, the company claims it is now a success, and there have been a couple of JV partners handing over 50% of substantial oilfields as part of a deal to use THAI. The reason is that THAI claims a recovery of approx 80% of the oil in place whereas the widely used insitu methods, SAGD & Huff & Puff are currently recovering perhaps 30%.

The reason I bought back in a few months ago (I sold everything on or about 20/10/07) is that I suspect PBG will be able to declare their reserves on the basis of THAI rates of recovery, and reservoir applicability, sometime in the next year, when it is accepted as a successful controlable method. This would increase reserves where SAGD has been used as the standard for reserves judgement by a factor of 2+, and should also allow areas not suitable for SAGD to be considered as reserves, and the fact that THAI /Capri upgrades the oil, ie. takes some of the processing cost out of the equation may also increase reserves. This should again up the ante in terms of JV partners.

So on that basis, PMG ownership becomes a nice bonus, and PBG have said (IIRC) that they will ultimately distribute PBK & PMG shares to PBG shareholders. This is another indication IMHO of impending / anticipated success on the THAI front, as at the moment PBG relies quite heavily on cashflow from dividends it receives from Petrominerales and Petrobakken.
Regards

djpreston

In reply to muckshifter (post #1)

Thanks for the post Muckshifter. I did wonder if you would be happening by as I remember your long standing (and amazingly profitable) ride with PBG.

Ive actually just done a bit more work on the header so youve been able to expand on some of what Ive added.

Im not so concerned over Columbia - its been very successful in transforming itself over the past few years and I can certainly think of other areas where I would be more concerned about the politcs before Columbia. I do take your point though. There is always that nice Mr Chavez waiting to stir things up...

Cheers

Mattybuoy

18th Feb '10

Yes PMG is lovely. As are PBG and PBN of course. Buying PBG is the cheap way in IMO ...

What I find very strange about Petrominerales is how little mention they get in the media. When you see stuff about Colombian oil it's always Gran Tierra and Pacific Rubiales who get named. There's nothing wrong with those companies but I just find it a bit odd.

Perhaps Mr Wright and the team just like to keep things low key.

PetroMinerales (TSX PMG) - Now thats a payback

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Djpreston

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