The Petsec AGM presentation was easily the best I have witnessed from Psa.Both as to an impressive level of detail and ,more importantly, future prospects and mood very upbeat.
A video of the AGM will be on their website soon so please take the time to view it.Profitable time it will be.
My points below are largely from the Agm but also some discussions after the meeting over tea.
As I see it there are around 6 to 7 price drivers for this stock now that NG is $4 to $5 and condensate is part of their operations. Alberta is merely 1 of them and not the largest.Hummer and Marathon are beauties.
1.Marathon.
This is a beautiful asset. A magic pudding that is not well understood.It has only been on present capacity for 6m or so with the expansion of the pipeline. 4 wells have been drilled with the 5th currently underway and a 6th and poss 7th will happen in 2014.
Production is 150MMcfd +550bopd. Capacity of pipeline is 200 MMcfd.
By year end they will be producing at close to 200 MMcfd per day after 5th well.
Reserves on Marathon.
Current reserves are 124 BCF. This was done after 2 wells only in 2011.THIS is wrong.
Psa estimates reserves at greater than 200 Bcf (conservative said TF) and their partners estimate a greater amount than 200 poss upto 300 bcf ( time will tell).The key is there has been absolutely no reduction in pressure
For Psa then their share is on books at 6bcf but should see that upgraded to 11-12 Bcf in January. If their partners belief is correct , and time will prove this and esp after the wells in 2014,then Psa share will rise to up to 18bcf.
So overall reserves ,inclusive of MP270 and bibs and bobs,for Psa will increase in Jan 2014 to around 14/15bcf (currently 11.1Bcf-2p value $31.8m)) even after production in 2013 of around 3.5 to 4 bcf.
A 2p value will be around $40-$42m.
On Marathon proper value is not ascribed to this asset yet. It is providing vg cashflow this year.It underpins the value in company along with MP 270.
2. Main Pass 270 etc.
Current production here is >11MMcfd +250bopd. When it shut in it was at 7mmcfd or so.At the time of writing the Annual Report it was at 8Mmcfd and today its 11MMcfd.Thus Pressure is vg.
Reserves are > 14.33Bcf (Psa share 3.3bcf) and were increased in 2012 and its poss this will be static or an increase with this pressure and production.At the AGm a throwaway comment was the resrves will be much larger than estimated by Ryder Scott to date!
At Main Pass 270,due to the condensate, Psa is getting double the NG price for its gas. So $4 gas equates to $8 gas etc.
3. Production for 2013.
In Jan Psa estimated production of 2.9bcf for 2013. This is clearly wrong now and appears to be in region of 3.5-4bcf for 2013 and about 2000b oil.
Net daily production is 13 Mmcf gas and 80 bopd.( Remember it was 5.7Mmcfd this time last year).We are already at the end of May-so poss already have seen prod at at 2 bcf and 1200bo.If they kept up this rate they would get to 4.7bcf and 3000 bo with the extra 40mmcfd to come on for last 1/4 for well 5 of Marathon. I have allowed only 3.5-4 bcf but they may well reach this target by end of Sept.
Cashflow will be very good again for Psa and in the region of $15-$18m.In a perfect world of $4 NG and $100 oil and no stoppages they would be well over $20m.
The next 1/4 will provide a better clue to this but no stoppages yet.I will allow $15-$18m only.The half year is on track for over $10m though.
4. Unconventional.
Psa has spent a lot of time and money in studying 4 areas.$3.7m in land evaluation and acquisition and $4.3 in drilling and testing.
The Agm notes are very comprehensive on the four areas they have looked at but i will focus on two breifly.
A. Alberta.
This has oil. Thats not the issue.The rock quality is vg. To be determined if the completion quality (flow) is very good.
To date they have only completed 5 of the 15 stages of the horizontal frac.Only 15% of the frac fluid has been recovered yet and until it is around 60% can they get a real indication. We must await summer.40 million gallons of water has to come out first.
Why wait. The ground is now a bog and big equipment simply can not get in.Patience required and Oct looks a date.
The jv partners are very well funded private cos. One with $400m and the other $200m. Shale is a big boys game and the resources will be thrown at it to unlock.
What final % Psa end up with here I am not certain as they will preserve their cashflow for other opportunities.Oct will be very interesting.
B.Fort Worth Texas.
This looks vg for a deal.They have completed a 12m study and have the land they wish to acquire.They dont have the leases yet due to timing. In USA once lease is signed the drilling clock starts. It appears they also have two jv partners in mind and once they have agreed it sounds like the leasing will follow as a matter of process only. Land cost is cheap at $100-300 per acre.I expect a deal on this during 2013.
I note they also discuss other poss deal with obe of their Alberta jv partners.
c. Production assets.
Another throwaway line was that shale production assets are cheap at the moment due to some major cos debt issues.It is also poss that psa will acquire a share of prod this year also.
5. Conventional
For me, along with Marathon this is the real game.The increase in the NG price to $4-$5 opens up again their GOM prospects and drilling will occur.The mapped otential on their prospects is 400 to 750 Bcfe.
a. Hummer Prospect Main Pass blocks.
Psa has 37.5% in this prospect. Gross P-10 of 183bcf and 3.7mb. Extensiove work and polish put into this asset and is ready to go.
They are hoping to drill in 1st 1/4 2014 subject to the Federal permit. It will cost $3m. The first well will target 80-90bcf and if successful the 2nd well 200bcf.
This is a vg looking prospect .
b. Ship Shoal 36
Similiar sands to marathon. target of 150 bcf plus 3.7mb oil. Psa has 75%. It will also be look to be drilled in 2014.
c.Will join other jv wells as opportunities arise.
d. they have 3 other very large prospects they will drill if NG goes to $5.The change in Ng pricing changes everything.
Other business.
1. 2 new Directors will join Board soon. they have been identified. One of them is a deal lawyer in the oil sector and the other a Geo.
2. Staff nos have fallen from 55 to 13. the co is very lean and expenses kept to a minimum.
Overall.
Hopefully this has not been too rambling but the future for Psa ,especially at these levels is very bright.
1. US Assets $40m-these can be sold!!!!!! 2. Cash $25m. 3. Cashflow 2013 of around $15-$20m. 4. Drilling.
marathon Alberta Fort Worth Hummer MP Ship Shoal Buy Prod.
Cap a ridiculous $33m.
Psa has never been in such a good position from which it launched it price comeback. Its been down here 3 other times in its 30 year life and come back each time to levels in the dollars-I commend you look at the chart. This will occur here also but this time it has good cashflow,cash and assets.Remember also only 237 m shares on issue and MD has more than 10%. The sp is where WE all make money.
Easily the best AGM presentation by Psa in the 9 i have seen and one of the best i have seen. Life in Terry Fern yet.
PSA Price at posting:
14.0¢ Sentiment: Buy Disclosure: Held
