As a
general rule, the most successful man in life is the man who has the best
information
The
Colombian government has:
-
Lifted restrictions on foreigners operating in the oil and gas industries
- Lowered royalties
- Improved security
These
initiatives have paid off in a big way for Colombians. Colombia's
oil-licensing agency, ANH, said last week that Colombian and foreign
companies operating in the country produced an average 704,000 barrels of
crude a day in October, that's 34% higher then in 2005.
Armando
Zamora, head of the AHN, announced Colombia's oil industry has attracted
about $3.5 billion in 2009 from foreign investors, expectations are for the
same amount to be invested in 2010 and the country's oil industry has enough
momentum behind it to reach production of 1 million barrels a day by 2015.
The
recent and expected future rise in production levels will come from new
discoveries and efforts by firms to boost production at existing fields. Two
of the largest growth stories, and investor successes, in the global oil
patch during the last two years have been in Colombia - Pacific Rubiales
(PRE-TSX $14.50) and Petrominerales (PMG-TSX; $17).
Rubiales
is a fast growing heavy oil producer whose production has grown from 21,000
barrels of oil per day (bopd) to 41,000 bopd in the last two years, and has a
clear path to doubling that production again by the end of 2010. The stock
has gone from $2 - $14.50 this year.
Petrominerales
has hit some very large wells, up to 10,000 bopd, and has grown production
from 2000 to 30,000 bopd in the last 5 years. The stock went from $3 - $22
per share in 2007 and from $5 - $17 this year.
This
kind of growth has spawned a quick land rush in the South American country,
with management from both these two companies and ex-management from the
state oil company trying to get in on the action.
The
result? Several new junior oil explorers with top quality management and big
land positions in a country with proven permissive geology. And all of them
have been able to raise large amounts of money - so the brokers and analysts
are bringing their promotional pizzazz to these plays.
All
this sounds great for retail investors, and it is, but there is one big
caveat: these companies have issued large amounts of stock at low prices to
get their initial land positions. So it may take a lot of production growth
for the value to catch up to valuations. However, if they strike one good
well into a large oil formation the large amount of shares outstanding will
no longer be an issue.
Here
are briefs on three Canadian listed junior Colombian oil plays. Each of these
companies has one key person with big company experience in Colombia, and a
former high-ranking official from some national oil company (NOC) in South
America.
Canacol
Energy CNE-TSX.v
Share
Price $0.34
Current Production: 2000 bopd
Shares Outstanding: 326 million
Net Cash: $12 million
President
and CEO Charle Gamba was VP Exploration for Occidental Petroleum in Colombia
from 2004 to 2006. The COO, Mark Holliday, comes from Petrominerales.
Director Alvaro Barrera-former President of Ecopetrol, the state oil company
of Colombia.
Canacol
has interests in 22 fields, including a couple in Brazil and Guyana. The
Corporation has increased net 2P reserves by 347%, from 1.247 million barrels
of oil (mmbo) in 2008 to 4.334 mmbo in 2009, with a corresponding increase in
NPV10 of 72% from US$55.817 million in 2008 to US$96.171 million in 2009. The
Corporation has also established a significant conventional oil exploration
position with interests in 15 exploration contracts covering over 2.4 million
net acres. The Corporation operates two producing oil fields, Rancho Hermoso
(100% working interest) and Entrerrios (60% working interest), located in the
Llanos Basin of Colombia. In Brazil the corporation has a non-operated 47.5%
working interest in 4 producing oil fields located on the Reconcavo Basin.
But
their big story is that they have a 10% interest in a billion barrel
discovery called Capella (The Capella heavy oil discovery accounts for the
majority of additional reserves added during the course of 2009) - and they
own 100% of two nearby blocks, with what looks like similar geology.
Canacol's
plan is to slowly build up production over the coming 6 months with low risk
and inexpensive drilling, before going after these much larger targets.
Alange
Energy Corp. ALE-TSX.v
Share
Price $0.495
Production 1534 bopd
Shares Outstanding: 745.4 million
Market Cap: $447.24 million
Net Cash: $40 million
CEO
and Chairman Luis Giusti was formerly Chairman and CEO, Petróleos de
Venezuela, S.A. (PDVSA) and is an External Director of the Royal Dutch Shell
Group. Director Mauricio Salgar was COO of Ecopetrol (Colombia's state
national company) until 2007.
Alange
has interests in 11 properties in Colombia. The key producing asset is the
Cubiro Block in central-eastern Colombia, with the Santa Cruz in the north,
the La Punta in the middle, and Topoyaco property in the south of the
country, providing exploration potential.
Alange
will drill more than 50 development wells and roughly seven exploration wells
by the end of 2010. Alange Energy has implemented exploration and development
programs to increase the current total production of approximately 3,000
barrels of oil per day ("bopd") to approximately 5,500 bopd by the
end of 2009 and to over 10,000 by the end of 2010. As a result of the
acquisition of an additional 19.27% working interest in Cubiro production
Alange Energy's share of production will increase by 600 bopd or almost 50%
to reach 1,800 bopd at present and then increasing to about 3,300 bopd by the
end of 2009 and to more than 6,000 bopd by the end of 2010.
Management
is also confident that it will be reporting an increased level of total oil
reserves and prospective resources for the Cubiro property when it prepares
an updated National Instrument 51-101 technical report on its properties at
the end of the year.
Alange's
portfolio has a lot of natural gas as well as oil.
Petroamerica
Oil Corp. PTA -TSX.v
Share
Price $0.53
Production 0
Shares Outstanding: 321,654,094
Net Cash: $34 million
Petroamerica
is the newest of the bunch. The big coup for Petroamerica is that they have
recruited most of the senior operational management from Petrominerales
(PMG-TSX) - Paul Kroshko, Anh Vardalos and Wade Spark. This team was
instrumental in developing Petrominerales' key asset, the Corcel Field. Wells
there have an IP (initial production) rate of 10,000 bopd - BIG wells.
One
director from Pacific Rubiales, Augusto Lopez, sits on the board of
Petroamerica and Ron Pantin, CEO of Petro Rubiales, is on the Advisory Board.
So
between the management track record at Petrominerales, and the fact that a
couple Pacific Rubiales people are involved early, Petroamerica could quickly
build into a fast growing oil producer. If Pacific Rubiales gets bought out
(Pacific Rubiales has reached a production level of 117,784 barrels of oil
equivalent per day (boepd) of gross operated production, equivalent to
48,667.7 boepd net after royalties in all its assets in Colombia) than
Petroamerica is the junior that should benefit the most, as it appears key
members of that team could be moving here.
Petroamerica
has interests in 5 properties in three major oil producing basins in
Colombia, for a total of more of more than 550,000 acres. Petroamerica
recently announced it has been awarded a farm-in by Pacfic Rubiales Energy
Corp. on the CPO-1 Block which is located in the Llanos Basin of Colombia.
The CPO-1 Block lies on trend and to the northeast of the Caracara field.
Conclusion
As
these well-funded plays start drilling, institutional and retail investors
alike will be watching to see which horse comes out ahead. Shouldn't
Colombian oil be on every investor's radar screen?
Richard Mills
Aheadoftheherd.com
Also
by Richard Mills
Richard
is host of www.aheadoftheherd.com and invests in the
junior resource sector. His articles have been published on over 60 websites
including - Wall Street Journal, 24hGold, Kitco, USAToday, Safehaven,
SeekingAlpha, The Gold/Energy Reports, Gold-Eagle and Financial Sense.
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Richard
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