South America has always been an exciting place for exploration and production (E&P) companies. Several big oil discoveries have taken place there, primarily helping Venezuela, Colombia and Brazil to rise on the list of oil-producing nations worldwide.
One of the main players in Colombia is Parex Resources Inc.(TSE:PXT), which is conducting activities on its 1.3 million gross acres in the Llanos Basin of Colombia and 219,000 gross acres onshore in Trinidad. Parex applies proven technology used in the Western Canadian Sedimentary Basin throughout basins with large oil-in-place potential, focusing on light-oil production.
Things keep improving in Colombia
The latest encouraging development
positively impacts all of the E&P players operating in Colombia. The government of Colombia and left-wing Revolutionary Armed Forces of Colombia (a.k.a. FARC
) rebels have agreed on land reform after more than six months of peace talks. This agreement marks an important step forward in the peace process, and hopefully on that points towards ending half a century of conflict and further strengthening the stability and safety in this country.
However, it is indisputable that the current government under President Santos has already made significant steps in restoring political stability. Former President Uribe secured billions of dollars in US aid in the last decade used for the military to reduce the FARC’s impact on the country. The army has increased its size in the oil-producing regions, therefore improving security.
Currently, the rebels’ sabotage has a much lower impact on Colombia’s oil output versus a few years ago. Police seized the rebels’ tanks along with crude and destroyed the refineries where guerrillas processed crude to use in cocaine production. Military strikes have weakened FARC and pushed them deeper into the jungle. E&P companies were also experiencing long delays in permitting but permitting times have been slowly improving lately as the government is adding more manpower.
Parex Resources Inc.(TSE:PXT) and the fundamentals
Parex Resources Inc.(TSE:PXT) produces
15,000 barrels of oil per day (bopd) and holds
proved and probable (2P) reserves of 16.1 million barrels (MMbbl). The company’s crude oil reserves are located in Colombia’s Llanos basin. The company hasn’t recorded yet any reserves in Trinidad where it works together with Niko Resources Ltd. (TSX:NKO)
. By the way, I pointed out
few weeks ago why Niko Resources Ltd. (TSX:NKO)
was grossly undervalued at $6.50.Niko Resources Ltd. (TSX:NKO) stands at $8.70 as of this writing thanks to some good news that hit the wires lately. Niko Resources Ltd. (TSX:NKO) announced
a significant gas and condensate discovery in the KG D6 block off the eastern coast of India where the company holds a 10% WI.
Alan Knowles, an analyst with Haywood Securities, said
the discovery may boost Niko Resources Ltd. (TSX:NKO)’s reserves by 31% to 96% compared with the end of 2012, representing $225 million to $700 million in value to the company. Niko Resources Ltd. (TSX:NKO), with its partners Reliance Industries and BP plc (LON:BP)
, will embark on the appraisal program in the next few months in order to evaluate the options for developing this discovery.
Parex Resources Inc.(TSE:PXT) had total long-term debt of $90 million (including convertibles) and a cash balance of $26.8 million as of March. With an enterprise value of $524 million, Parex Resources Inc.(TSE:PXT) trades at $35,000/bopd and $32.55/bbl of 2P reserves. Both key metrics are low given also that the company realizes Brent pricing for its light-oil production and reserves.
The Colombian deals
The undervaluation of Parex Resources Inc.(TSE:PXT) is also obvious thanks to the area deals. For instance:
1.) In 2011, Gran Tierra Energy Inc.(NYSEMKT:GTE) acquired
Petrolifera Petroleum for $195 million or ~$54,700 per barrel of oil equivalent (boepd). Petrolifera was producing 3,564 boepd (81% oil and liquids).