Yeah- I read the CIBC stuff. Although the analyst is being a little too emotional about it and not very analytical. It ain't hitting $20 anytime soon. His argument is simply that PEC has an aggressive winter drill program and that it is so small that if one or two of the 10 or so areas they are working comes in it will have a large effect (rather obvious conclusion). There are bound to be dissappointments and any investor should approach gas explorations investments with a tempered and cautious analysis.
Right now their big play is an area called the Berland River (I believe one of their wells is in the top 10 producing wells in Canada). The fact that they are beginning to diversify their plays helps in valuing the company. Unfortunately, all gas stocks react to dry or disappointing holes, which is what happened to PEC last year when the third Berland well was not a great show. The stock dropped from 5-ish to 3-ish ...CRUNCH. They are fallible.
I don't have my estimates handy now, but will put them up next week. No doubt, the guys running the company have the right contacts, which is why they've been able to get into so many new deals. They are the nimble guys who can move into areas that are too small for the big boys. That's what they've been doing lately, a la Elkton, etc... Expect to hear more interesting deals like that as well.
As for numbers, off the top of my head I believe cash flow next year based on existing production will be in the order of C$.80. It will increase massively for two reasons. 1- New production tie in's (Sunchild etc...) and most importantly 2- They bought into a larger chunk of the gas processing plant in Berland last year, thus doing away with rather large gas processing charges they were paying out.
But PEC is really not a CF play now (there's far cheaper), but a speculation on their portfolio of land and drilling/exploration dealmaking success. Maybe in 2-3 years you'll have a nice looking Cash Flow play.
Also, remember they're about out of cash by early summer, so they'll probably need a bit of money (share issue) and will surely look for the winter results to get the share up in the $6.50-$7.50 range and then raise the money.
I think there are about 10-12 new development areas to be drilled this year, so it's not just a Berland River play. Rather than put up incorrect info, I'll check my facts next week and post details. The two most exciting, however, are a northern area they've farmed into 3-4 wells that have excellent seismic (I think it's called Elkton) and a huge area of land they've accumulated with the US company Anshutz that they will begin spudding a well on within the next week. The Anshutz area (Edson) is where they believe they'll find an elephant or two. If either of them hit, it would be a 50-100% increase in the reserves.
I've heard they cased the most recent two well's (good news), but don't expect any announcements because they're fairly small. |
