heres a thought...., page-9

Having just entered this stock, I'm probably less emotional and disgruntled as others here on this board. This company may only be drilling small gas pockets as one of you pointed out, but they have been very successful at making a profit out of it. As some of you will know, I was a huge Hardman fan. They had a schite load of undeveloped oil at Tiof/Labeidna/etc, but their ultimately rerating came when Chinguetti was pumping at 75kbopd. AFter that, no matter what they found, they were constantly being hammered down to bits as Chinguetti started choking off the water injectors and oil production dribbled. The lessons learnt for me was that it's all about profit and cash.

In PSA's case, I think they have been very harshly treated for V257 dry hole - not dissimilar to Entek's recent dryhole (a 1-2 million drill cost that turned into a wipeout of 12 million in market cap IIRC). We have seen the likes of WPL, STO, BPT, OSH and ROC getting hammered at the start of the year for no reason even though they were continuing to pump out truckloads of cash (maybe not for BPT with their expensive acquisition and problems at B-M). They have all pretty much recovered some of those lost ground, but not PSA. Why is this company different from them? At the end of the day, it may be hunting after the small pockets of gas accumulations, but they have found a way to make money out of them, which is the most important thing :) No point finding lots of oil but continuing to make a loss producing the stuff (think ERG with their book orders but never making any money).

Regardless of future exploration, PSA's 2P reserves (when one places US20 for their developed gas assets of 38BCF and US8 for the undeveloped oil of 3.8-5MBO) is sufficient to lead to a NAV that is much higher than its current SP. The downside is that they will be spending a lot of capex in the coming year on development and exploration, with cash reserves expected to be drawn down to about just under 10 million. So if they enjoy further exploration success, I'm quite sure they will need to raise more fund to develop them in a timely manner - so dilution risk is strong. But that's a good problem to have.

The only other big risk I can see is their Mobile Bay production start-up. Should that falter, it will obviously disrupt their exploration plan since they have already factored the higher cashflow to fund their exploration programme. However, this is gas - so risk is much less than oil since it's a lot more mobile.

If and when Mobile Bay comes online smoothly, I'd expect a significant rerating. The other key stimulant is obviously the FID on Beibu discovery - expected in June IIRC.

As a whole, this looks very attractive from a risk/reward viewpoint and I will be looking to accumulate on any further weakness - which may eventuate as a result of tax loss selling.

My views only. Any other opinions/views will be very welcome as I have only just started to research into this company.

Cheers,
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