With this in mind, I have noticed that the managing director of Global Energy Development (Aim: GED), the Latin America focused petroleum exploitation, development and production company with operations in Colombia, has been on a share buying spree on an unprecedented scale. In fact, since 19 November he has made no fewer than eight separate transactions and, in the process, spent £202,000 increasing his holding from 125,568 shares to over 323,000 shares, the equivalent of 0.9 per cent of the company's share capital. He started buying at 90.7p a share and spent over £100,000 in three trades late last month topping up at 105p and 106p a share. He is not alone either as in the past few weeks chairman Mikel Faulkner spent over £52,500 buying shares at 105p each to take his holding to 350,000 shares, or almost 1 per cent of the issued share capital and non-executive David Quint spent £13,750 buying 12,500 shares at 110p.
It's easy to understand why the insiders have turned uber bullish on the shares in their company because on 7 November the board appointed Jefferies International to act as Global Energy's exclusive financial adviser in connection with a "possible farm-out or disposal of a material portion of the company's interest in its Bolivar shale oil properties within the Middle Magdalena Valley in Colombia, South America." It looks a smart move because interest has increased in shale oil throughout the oil industry and specifically in the northern Middle Magdalena Valley Basin. The adjacent or nearby activity by major oil companies, including ExxonMobil (NYSE: XOM) and Royal Dutch Shell (LSE: RDSA), indicate the Bolivar properties are within the premier area of the Middle Magdalena Shale Oil play.
So, in order to capitalise on this, Global Energy plans to ramp up production and exploit Bolivar's large reserve base. But first it has to significantly increase drilling activity, which will require additional and substantial technical expertise and manpower to undertake the management of this massive shale oil development project. Hence, the appointment of Jefferies last month to find partners selected to develop its "exciting Middle Magdalena shale oil properties". That claim is not without foundation as Global Energy's reserves within the Bolivar Contract area are included in the Rosa Blanca, Salada and La Luna formations which can be developed by drilling vertical and horizontal wells along with multi-stage hydraulic fracturing technology that is currently in use for developing shales containing oil in North America.
It doesn't take a genius either to work out that when the managing director spends over £200,000 of cash, almost trebling his stake in the company in which he has an inside track, that there could be some rather positive newsflow emerging in the coming months - and, specifically, regarding the deal Jefferies is working on.
It's worth noting, too, that mainly because Global Energy is below the radar of most fund managers there is obvious value in this under-researched company even before any deal is struck on its Bolivar shale oil properties. In fact, the company's market value of £37.6m is almost 30 per cent lower than net asset value of £52.5m. It is financially secure, too, as net borrowings of $8.16m (£5m), equate to less than 10 per cent of shareholders' funds.
Global Energy also generates significant profits from its other operations. The majority of oil production currently comes from its contract areas located within the Llanos Basin of Colombia, South America. The focus here is to maximise production volumes, reduce operating costs and utilise cash flow to develop projects within the Middle Magdalena Valley contract areas (Bocachico and Bolivar Association Contracts).
True, profits in the first half of 2012 fell due to the previously flagged 120 days' downtime of the Tilodiran-2 well and higher water disposal costs at the Tilodiran field in the Llanos Basin. However, cash generation has remained robust and analysts at Northland Capital expect Global Energy's cash profits this year to hold steady at $16.9m (£10.5m), before ramping up to $23.5m in 2013. This looks realistic, too, as following the completion of the workover of the Tilodiran-2 well, the company commenced and completed the conversion of the inactive Rio Verde 2 to a water disposal well. As Global Energy transports and disposes of more than 120,000 barrels of water each month from its Tilodiran field, this disposal well will save an average of $4 per barrel of water on transportation costs per month, translating into significant cost savings for the company.
In other words, Global Energy is set to see profits increase rapidly next year after a difficult 2012 and its shares are only priced on eight times earnings estimates for 2013. In addition, the shares can be purchased for 30 per cent below book value even though the company is actively seeking to monetise the value of its potentially lucrative Bolivar shale gas acreage in the Middle Magdalena Valley in Colombia. Add to that share buying by the directors, and the shares, which have been capped out at the 130p level since April 2007, could be on the verge of a substantial re-rating back to their net asset value of 140p a share - and potentially significantly higher on positive newsflow of a farm-out or disposal on the Bolivar shale gas acreage.
And if that isn't attractive enough, we can still buy into this situation at the same average buy-in price as Mr Voss and below the prices paid by his fellow directors. Trading on a bid-offer spread of 100p to 103p, I rate the shares an immediate trading buy and have a three-month conservative target price of 140p.
