After surviving the worst of last February's oil price rout, President Energy (PPC) sailed through the rest of 2016 in fine fettle with its share price rebounding from a low of 5p to 13p. But then a drilling failure precipitated a funding crisis and November's unexpected $20m (£16m) equity fundraising at 6p and loan restructuring. Executive chairman Peter Levine, who funded the debt-for-equity part of the transaction, believes that his company has been unduly set back by third-party service providers, and is now proceeding with legal action. We feel President - which boasts low-cost production in the US, high-growth assets in Argentina, experienced management and now a reinforced balance sheet which is expected to show $8m net cash at the year-end date - should be trading much higher than 7p a share.
- Low-cost US production
- Experienced management
- Improved balance sheet
- High-growth drilling programme
- Litigation distraction
- Operational execution risks
Getting back on track involves risks befitting an Aim-traded oil producer, but the signs are positive. The core focus remains the current work-over programme at President's Puesto Guardian asset, a mature field in North West Argentina that has suffered from years of under-investment. Unlike 2016, when a cost overrun led to a major delay, things are going much better this year, and if all goes to plan the company should be producing 1,200 barrels of oil equivalent a day (boepd) by the end of September. Beyond that, President is targeting 4,000boepd within five years.
Last month, the company successfully completed the first two work-overs in its current programme, at the once-producing DP12 and DP1001 wells. With the latter now producing ahead of original expectations, Puesto Guardian is already running at a steady state of 800 barrels per day - a figure that represents a good rate of return given the $1m-a-well restart costs and gross profits per barrel of $35-$40, according to analysts at BMO. And while operations have been slightly hampered by poor weather, this should be more than offset by last month's 10 per cent upgrade to President's proven and probable Argentinian reserves, which now stand at 19.9m barrels of oil equivalent.
Importantly - for cash flows and as a hedge against drilling risks - President can rely on stable, low-cost oil and gas production from Louisiana, which at the end of 2016 was generating around $150,000 post-tax profit per month. Government-mandated pricing for domestically-sourced crude oil also provides a cushion in Argentina.
The shareholder base also offers encouragement. Following the rights issue in November, Mr Levine - who successfully sold Imperial Energy for £1.4bn in 2008 after floating it four years previously for £2.25m - owns 32 per cent of the stock. Funds including Schroders, IFC and JPMorgan also hold stakes.
PRESIDENT ENERGY (PPC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 7p | MARKET VALUE: | £66.8m | |
| TOUCH: | 6.76-7.15p | 12-MONTH HIGH: | 14p | LOW: 5.5p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | na | |
| NET ASSET VALUE: | 11¢** | NET DEBT: | 10% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2013 | 13.4 | -4.5 | -0.6 | nil |
| 2014 | 12.6 | 14.3 | 3.7 | nil |
| 2015 | 10.1 | -18.7 | -3.9 | nil |
| 2016* | 11.0 | -6.0 | -1.0 | nil |
| 2017* | 23.0 | 3.0 | 0.0 | nil |
| % change | +109 | - | - | - |
Normal market size: 50,000 Matched bargain trading Beta: 0.8 *BMO Capital Markets forecasts **Includes intangible assets of $103m, or 8¢ a share £1=$1.24 | ||||
