Introduction: As the major oil discoveries around the world during 2012 are more than one, I decided to write a Part 2 after writing the Part 1 few days ago. As I have already noted, these discoveries were a game changer for the operators involved as they were big in comparison to the companies' market cap before the discovery. As a result, the share prices were boosted along with the shareholders' fortune.
The companies
1) ShaMaran Petroleum: It is a Canadian oil and gas company which trades at the Toronto Venture stock exchange (SNM.V, Financial) and the U.S. stock exchange (SHASF). ShaMaran is a Kurdistan focused oil development and exploration company with one project in the region of Kurdistan, the Atrush project (26.8% WI). ShaMaran, through its wholly owned subsidiary, ShaMaran Ventures B.V., has a 33.5% stake in GEP (General Exploration Partners) which is a party to the Atrush Block Production Sharing Contract and currently holds an 80% interest. Marathon Petroleum KDV B.V., a wholly-owned subsidiary of Marathon Oil Corporation (MRO), holds a 20% interest in the Atrush block.
ShaMaran also had a 20% working interest in the Production Sharing Contract (PSC) of Taza Block which was sold to Total (TOT) in Aug 2012. Oil Search Iraq Limited (OSIL) is the operator with a 60% working interest in the PSC. The Kurdistan Regional Government of Iraq (KRG) also holds a 20% working interest in the PSC of Taza Block.
It was announced few days ago that Abu Dhabi National Energy Co (TAQA) is in advanced talks to buy a stake in an oil block in Iraqi Kurdistan via joint-venture firm General Exploration Partners (GEP), industry sources said. GEP is a joint venture between privately-held Aspect Energy, which owns a 66.5% interest in GEP, with the remainder held by ShaMaran Petroleum Corp. Industry sources said TAQA was close to purchasing Aspect's share of GEP, but it was not immediately clear whether ShaMaran would sell its interest in GEP. Earlier this year, TAQA bought a 50% stake in Kurdish power plant Chamchamal, having previously invested $46.6 mln in WesternZagros Resources (WZR.V) to acquire 19.9% of the company, which has contracts for two blocks in the Iraqi Kurdish region. WesternZagros has been captured in Part 1 of my article.
GEP, which has an 80% stake in the Atrush block in Kurdistan, said in September 2012 it had found a combined flow rate of 42,200 bbl/d (AT-2 well). This boosted the share price that has yielded 100% thus far.
ShaMaran plans to complete the AT-1 well for production and spud the AT-3 appraisal well by the end of 2012.
According to regulatory filings, the Chairman of the Board sold approximately 800,000 shares at 49 cents in September 2012. There have been no other dispositions or purchases by the insiders since September 2012.
2) Arcan Resources: It is a Canadian oil and gas company which trades at the Toronto Venture stock exchange (ARN.V, Financial) and the U.S. stock exchange (ARNBF). It is a pure light oil producer which operates in the Beaverhill Lake formation of the Swan Hills region in Canada. This is where the grossly undervalued Second Wave Petroleum (SCS.TO) also operates as it was analyzed in Part 1. Arcan holds a large, contiguous land position in the Swan Hills oil play of 110,000 net acres (98% WI) which has excellent infrastructure (roads and pipelines) in place. It has identified more than 400 potential horizontal drilling locations as of today.
Arcan had a big drilling success in the first half of 2012 that boosted its share price. However the drop of the oil price, the natural production declines along with some operational disruptions and problems impacted the share price which dropped much in the second half of 2012. The company produced almost 4,000 boepd (99% oil and liquids) in the third quarter of 2012 and notes that the steep initial production declines from the newly drilled horizontal wells have now moderated. As of the latest report, Arcan estimates NAV per diluted share of $4.37 and 35.7 MMBOE total P+P reserves (96% oil).
Arcan has also initiated a Waterflood program in 2012 in both the DM#2 and Ethel areas. With the majority of the required infrastructure now in place, improved results are becoming apparent at wells closer to injectors. According to the company, the initial results are encouraging and Arcan anticipates that these results will translate to incremental reserve bookings by year end 2012 and in years to come. The effective waterflood techniques increase the production of the well from 50% to 120% according to the average industry data.
In addition, the vice president of engineering, Kevin Gunning, and the vice president of production, Kyle Baumgartner, were buying shares in September and October 2012 according to regulatory filings. Both are strong evidences that the waterflood program works and there are some satisfactory IP rates from those wells.
On top of that, a concerted cost focus in the latter half of 2012 and into 2013 is expected to deliver reductions in operating costs going forward and the new wells being drilled and completed at under $4.5 million per well, will generate very attractive rates of return. All that being said, I believe Arcan is a good buying opportunity currently.
3) TAG OIL: It is a Canadian oil and gas company which trades at the Toronto stock exchange (TAO.TO, Financial) and the U.S. stock exchange (TAOIF). Its operations are focused exclusively in New Zealand. It has 100% ownership over all its core assets, including oil and gas production infrastructure. TAG produces light oil and gas and it is also actively drilling high-impact exploration prospects identified across more than 2,953,810 net acres of land in New Zealand. In the East Coast Basin, TAG has entered into a farm-out agreement with Apache Corporation (APA) to explore and potentially develop the major unconventional resource potential believed to exist in the tight oil source-rock formations that are widespread over the company's acreage. According to the company, these oil-rich and naturally fractured formations have many similarities to North America's Bakken source-rock formation in the successful Williston Basin.
In the first half of 2012, this debt-free company had 100% success in its drilling activities in its Taranaki Basin and this propelled the price up to $11, yielding more than 100%. It produces almost 2,000 boepd currently (49% oil) so TAG is richly valued for $180,000 per flowing barrel and trades 25x the FFO annualized. It also trades at $40 per million boe 2P Reserves which is another high metric. However, the company notes that its production will rise up to 4,100 boepd by March 2013. This remains to be seen.
By the end of the year, it is also adding a facility to strip out the natural gas liquids which will add about another 10% to its net backs.
The stock has pulled back lately. The high current metrics above, the losses as of the latest quarterly report in conjunction with the disposition of 2 million shares from a couple of insiders during the last weeks according to the regulatory filings, may be the reasons for this drop.
4) New Zealand Energy: It is a Canadian oil and gas company which trades at the Toronto Venture stock exchange (NZ.V, Financial) and the U.S. stock exchange (NZERF). The company's property portfolio collectively covers 2.25 million acres of conventional and unconventional prospects in the Taranaki Basin and East Coast Basin of New Zealand's North Island.
In the first half of 2012, the company had 100% success in its drilling activities as it made several consecutive oil discoveries in the Taranaki Basin. This exploration success propelled the price up to $3.6, yielding more than 250%.
The company produces less than 1,000 boepd currently and it has only 0.7 million boe 2P Reserves so its valuation metrics are very high currently. It is mostly a "wait and see" case as the company guides for a 3,000 boepd production by March 2013.
5) Coastal Energy: It is a Houston based oil and gas company which trades at the Toronto stock exchange (CEN.TO, Financial) and the U.S. stock exchange (CENJF). Coastal Energy was founded in 2004, it owns two blocks in the Gulf of Thailand that span 4,926 square kilometers (1.22 million acres). The company also has stakes in onshore assets and a natural-gas field in the country, and a contract to develop petroleum from a cluster of fields offshore Malaysia owned by Petroliam Nasional Bhd., the state-run producer known as Petronas.
Coastal Energy’s Thailand assets include the Bua Ban field. Its discovery was “game changing” for the company and this fueled a 100% rise during the first half of 2012. The share price dropped in early second half of 2012, but it rose again after some acquisition rumors along with new exploration success.
Total company's production is 24,500 boepd (90% oil) currently and it is primarily the offshore development that has driven the production growth year over year thus far.
Although there is still upside potential from the ongoing exploration program, Coastal trades with high metrics currently. PBV equals 6 and the market cap is more than 20x the FFO annualized. As of March 31, 2012, Coastal’s 2P reserves were 149.1 million boe which gives a decent $15 per million boe (86% oil) valuation. So I would wait for a significant pull back to consider a long position on this stock.
It has also to be mentioned that Coastal has a highly incentivized management team as 70% of outstanding shares are owned by management and the top four shareholders.
Conclusion
Among the producers above, I prefer Arcan Resources at its current price. It is worth also noting that Arcan has the most de-risked assets in comparison to the other four producers whose assets incorporate significant exploration risk.
The companies
1) ShaMaran Petroleum: It is a Canadian oil and gas company which trades at the Toronto Venture stock exchange (SNM.V, Financial) and the U.S. stock exchange (SHASF). ShaMaran is a Kurdistan focused oil development and exploration company with one project in the region of Kurdistan, the Atrush project (26.8% WI). ShaMaran, through its wholly owned subsidiary, ShaMaran Ventures B.V., has a 33.5% stake in GEP (General Exploration Partners) which is a party to the Atrush Block Production Sharing Contract and currently holds an 80% interest. Marathon Petroleum KDV B.V., a wholly-owned subsidiary of Marathon Oil Corporation (MRO), holds a 20% interest in the Atrush block.
ShaMaran also had a 20% working interest in the Production Sharing Contract (PSC) of Taza Block which was sold to Total (TOT) in Aug 2012. Oil Search Iraq Limited (OSIL) is the operator with a 60% working interest in the PSC. The Kurdistan Regional Government of Iraq (KRG) also holds a 20% working interest in the PSC of Taza Block.
It was announced few days ago that Abu Dhabi National Energy Co (TAQA) is in advanced talks to buy a stake in an oil block in Iraqi Kurdistan via joint-venture firm General Exploration Partners (GEP), industry sources said. GEP is a joint venture between privately-held Aspect Energy, which owns a 66.5% interest in GEP, with the remainder held by ShaMaran Petroleum Corp. Industry sources said TAQA was close to purchasing Aspect's share of GEP, but it was not immediately clear whether ShaMaran would sell its interest in GEP. Earlier this year, TAQA bought a 50% stake in Kurdish power plant Chamchamal, having previously invested $46.6 mln in WesternZagros Resources (WZR.V) to acquire 19.9% of the company, which has contracts for two blocks in the Iraqi Kurdish region. WesternZagros has been captured in Part 1 of my article.
GEP, which has an 80% stake in the Atrush block in Kurdistan, said in September 2012 it had found a combined flow rate of 42,200 bbl/d (AT-2 well). This boosted the share price that has yielded 100% thus far.
ShaMaran plans to complete the AT-1 well for production and spud the AT-3 appraisal well by the end of 2012.
According to regulatory filings, the Chairman of the Board sold approximately 800,000 shares at 49 cents in September 2012. There have been no other dispositions or purchases by the insiders since September 2012.
2) Arcan Resources: It is a Canadian oil and gas company which trades at the Toronto Venture stock exchange (ARN.V, Financial) and the U.S. stock exchange (ARNBF). It is a pure light oil producer which operates in the Beaverhill Lake formation of the Swan Hills region in Canada. This is where the grossly undervalued Second Wave Petroleum (SCS.TO) also operates as it was analyzed in Part 1. Arcan holds a large, contiguous land position in the Swan Hills oil play of 110,000 net acres (98% WI) which has excellent infrastructure (roads and pipelines) in place. It has identified more than 400 potential horizontal drilling locations as of today.
Arcan had a big drilling success in the first half of 2012 that boosted its share price. However the drop of the oil price, the natural production declines along with some operational disruptions and problems impacted the share price which dropped much in the second half of 2012. The company produced almost 4,000 boepd (99% oil and liquids) in the third quarter of 2012 and notes that the steep initial production declines from the newly drilled horizontal wells have now moderated. As of the latest report, Arcan estimates NAV per diluted share of $4.37 and 35.7 MMBOE total P+P reserves (96% oil).
Arcan has also initiated a Waterflood program in 2012 in both the DM#2 and Ethel areas. With the majority of the required infrastructure now in place, improved results are becoming apparent at wells closer to injectors. According to the company, the initial results are encouraging and Arcan anticipates that these results will translate to incremental reserve bookings by year end 2012 and in years to come. The effective waterflood techniques increase the production of the well from 50% to 120% according to the average industry data.
In addition, the vice president of engineering, Kevin Gunning, and the vice president of production, Kyle Baumgartner, were buying shares in September and October 2012 according to regulatory filings. Both are strong evidences that the waterflood program works and there are some satisfactory IP rates from those wells.
On top of that, a concerted cost focus in the latter half of 2012 and into 2013 is expected to deliver reductions in operating costs going forward and the new wells being drilled and completed at under $4.5 million per well, will generate very attractive rates of return. All that being said, I believe Arcan is a good buying opportunity currently.
3) TAG OIL: It is a Canadian oil and gas company which trades at the Toronto stock exchange (TAO.TO, Financial) and the U.S. stock exchange (TAOIF). Its operations are focused exclusively in New Zealand. It has 100% ownership over all its core assets, including oil and gas production infrastructure. TAG produces light oil and gas and it is also actively drilling high-impact exploration prospects identified across more than 2,953,810 net acres of land in New Zealand. In the East Coast Basin, TAG has entered into a farm-out agreement with Apache Corporation (APA) to explore and potentially develop the major unconventional resource potential believed to exist in the tight oil source-rock formations that are widespread over the company's acreage. According to the company, these oil-rich and naturally fractured formations have many similarities to North America's Bakken source-rock formation in the successful Williston Basin.
In the first half of 2012, this debt-free company had 100% success in its drilling activities in its Taranaki Basin and this propelled the price up to $11, yielding more than 100%. It produces almost 2,000 boepd currently (49% oil) so TAG is richly valued for $180,000 per flowing barrel and trades 25x the FFO annualized. It also trades at $40 per million boe 2P Reserves which is another high metric. However, the company notes that its production will rise up to 4,100 boepd by March 2013. This remains to be seen.
By the end of the year, it is also adding a facility to strip out the natural gas liquids which will add about another 10% to its net backs.
The stock has pulled back lately. The high current metrics above, the losses as of the latest quarterly report in conjunction with the disposition of 2 million shares from a couple of insiders during the last weeks according to the regulatory filings, may be the reasons for this drop.
4) New Zealand Energy: It is a Canadian oil and gas company which trades at the Toronto Venture stock exchange (NZ.V, Financial) and the U.S. stock exchange (NZERF). The company's property portfolio collectively covers 2.25 million acres of conventional and unconventional prospects in the Taranaki Basin and East Coast Basin of New Zealand's North Island.
In the first half of 2012, the company had 100% success in its drilling activities as it made several consecutive oil discoveries in the Taranaki Basin. This exploration success propelled the price up to $3.6, yielding more than 250%.
The company produces less than 1,000 boepd currently and it has only 0.7 million boe 2P Reserves so its valuation metrics are very high currently. It is mostly a "wait and see" case as the company guides for a 3,000 boepd production by March 2013.
5) Coastal Energy: It is a Houston based oil and gas company which trades at the Toronto stock exchange (CEN.TO, Financial) and the U.S. stock exchange (CENJF). Coastal Energy was founded in 2004, it owns two blocks in the Gulf of Thailand that span 4,926 square kilometers (1.22 million acres). The company also has stakes in onshore assets and a natural-gas field in the country, and a contract to develop petroleum from a cluster of fields offshore Malaysia owned by Petroliam Nasional Bhd., the state-run producer known as Petronas.
Coastal Energy’s Thailand assets include the Bua Ban field. Its discovery was “game changing” for the company and this fueled a 100% rise during the first half of 2012. The share price dropped in early second half of 2012, but it rose again after some acquisition rumors along with new exploration success.
Total company's production is 24,500 boepd (90% oil) currently and it is primarily the offshore development that has driven the production growth year over year thus far.
Although there is still upside potential from the ongoing exploration program, Coastal trades with high metrics currently. PBV equals 6 and the market cap is more than 20x the FFO annualized. As of March 31, 2012, Coastal’s 2P reserves were 149.1 million boe which gives a decent $15 per million boe (86% oil) valuation. So I would wait for a significant pull back to consider a long position on this stock.
It has also to be mentioned that Coastal has a highly incentivized management team as 70% of outstanding shares are owned by management and the top four shareholders.
Conclusion
Among the producers above, I prefer Arcan Resources at its current price. It is worth also noting that Arcan has the most de-risked assets in comparison to the other four producers whose assets incorporate significant exploration risk.
