Oil Triple Threat
Over Christmas someone sent me a book about growth and energy titled, "Life after Growth." It is one of the best books I have read lately because it explains both the energy problems we have to look forward to, but also why there is so much turmoil in the world today.
As of today, we have riots in Argentina, Venezuela, Thailand, Bosnia, Ukraine, Egypt, Spain, Turkey and more. To the average couch potato, they are unrelated because the Boob Tube hasn't told him what to think. To my readers, they get it.
As Tim Morgan explained in Life After Growth, the money economy and the energy economy are related. They used to be identical until an explosion of debt started in the 1970s. Now every government in the world is up to their ears in debt that we all recognize will never be paid. Morgan makes the very real and logical conclusion that the time of cheap energy and unlimited growth is over. Debt is a call on future energy and we have squandered our children's and grandchildren's future on Xboxes and flat screen TVs bought on the Never-Never.
If you intend to be serious about investing over the next 10-15 years, you need to buy and read the book. Energy and any analog of energy such as food and water are going to be in short supply. The book will cause you to think and change how you invest. So I am spending a lot of time looking for energy investments.
A friend told me about Pan Orient Energy (POE-V) a few weeks ago. It looks interesting. I spent some time on the phone with company president Jeff Chisholm about their plans for the future. They have become a sponsor and will be on both 321gold and 321energy.
Pan Orient is a triple threat.
They have operations in Thailand where they have existing oil production. On February 10 they announced oil sales of just over 500 BOPD. They followed that up with another press release on Feb 26 where they announced approval of their environmental impact assessment that allowed them to turn on three additional wells and increase total production from the L53 field to 1,100 BOPD. The Thailand operations alone will provide about $27 million a year free cash flow. This is on a company with a market cap today of only $110 million. Trading for 4 times cash flow seems pretty cheap and that project is only one of three.
Pan Orient just completed drilling a well in Thailand that they abandoned after not finding any signs of oil. Their next well to be drilled will start in June 2014 on the L-53A North target high impact target recently identified via 3-D seismic. This well is aimed at an 8 million barrel prospect. The cost of each of these wells is about $1.7 million. The value of their reserves in Thailand was about $.75 a share at the end of 2012; the company expects a large increase when results from 2013 are added up.
The 2nd major operation is in Indonesia where POE is soliciting farm out offers on three Production Sharing Contracts (PSCs) with P50 potential of 800 million BOE. POE has set a deadline on submission of the proposals for a farm out for March 31, 2014. Pan Orient plans on drilling 5 high impact wells in Indonesia this year. The unrisked prospective resources on these three PSCs are in excess of $15-$20 a share.
And last but hardly least; Pan Orient has operations in the Sawn Lake oil sands area of Alberta. They call this project the Sawn Lake Heavy Oil project. The company owns 71.8% of the project and has a 50% working interest and is operator. They have completed a test well and are equipping a facility as I write. They are using steam injection with production anticipated in early 2nd quarter 2014. Based on the sale of part of their partner's interest in the project, POE believes the heavy oil project adds about $1.50 in value per share.
Energy is going to go up in value in the future. I believe that $100 oil is the new normal. From a geopolitical point of view that's a bad thing. The cost of food and energy is causing chaos all over the world today. But for investors who understand what the future brings, it offers a rare opportunity.
Pan Orient is an investor and as such, I have to be biased. But objectively speaking, I think it's pretty easy to see the potential. The company is well cashed up with $.50 a share in cash. The Thailand operations are quite capable of financing continuing operations in Thailand and Canada. A successful farm out in Indonesia will lower both the cash required and risk.
I don't own shares currently but the drop in price after they announced the dud well offers investors a rare chance to pick up high quality energy assets cheap. As always, you are responsible for your own due diligence.
Pan Orient Energy
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September 24th, 2018
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