President Energy: Opening up Paraguay
Edison | May 07, 2013 08:11AM ET
President Energy (PPC.AIM) is an E&P with core assets in Paraguay, Argentina and the US. Unusually for a company of its size, President has a very strong board and sound institutional investor base. The jewel in the crown is its acreage in Paraguay, where drilling in 2014 could discover fields worth many times the current share price. Recent work in Argentina should lead to material production increases in 2013, while exploration in Argentina in 2014 would also add substantial value. Our RENAV is 59p.
Paraguay offers company making potential
President farmed in to two blocks on the Paraguay/Argentina border in 2012. The basin has existing production on the Argentine side and, with ongoing seismic work, offers relatively low-risk exploration. We expect the company to drill a number of wells on large prospects in 2014. An oil discovery would be extremely valuable, given the fiscal terms, and thus any field could prove a company maker. We assume an illustrative 50mmboe in our valuation, but prospects listed in the CPR include three over 100mmboe. After completion of ongoing seismic capture, we expect the company to seek a path to funding a full three-well programme in 2014.
Argentina offers low-risk production upside
While we are mindful of the risks surrounding Argentina given its IMF censure, high inflation and capital controls, President holds some good assets in the country. Production should grow in 2013, with workovers of a number of previously shut-in wells to take it past cashflow breakeven, while a pilot fracking project of three wells will test a tight carbonate reservoir above the current producing interval, which could add materially to the company’s existing 2P base of 6.6mmboe. In Q214, it will also be exploring a potential extension of the large, Palaeozoic gas condensate trend extending from Bolivia through to northern Argentina. A CPR indicates gross potential recoverable gas of 570bcf and 14.5mmboe of condensate.
Market capitalisation belies the company’s assets
We value President’s production in the USA and Argentina (including projected volume growth through workovers and heavily risked fracking potential) at a NAV of 17.6p/share. At the current share price, this leaves investors paying relatively little for potentially game-changing exploration in Paraguay and Argentina. We value the Argentine Palaeozoic prospect at a risked 10p, while a single 50mmboe discovery in Paraguay is worth a risked 37p, giving the company a RENAV of 59p. Successful exploration at either of these would see a value well north of this figure in time, particularly in Paraguay, where the current prospect inventory is 589mmboe.
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