Just in from Yorkton. Initiates coverage of PKC with a spec. buy.
As of June 10 Strain gives it a c$9.00 breakup value.
Rod, Ed et al any comments?
Thank you for your interest in Parkcrest Explorations. To keep you informed of the future of Parkcrest; I send you two recent reports published by Strain Consultants and Yorkton Securities.
If you have any questions you can reach me at 1-800-661-3788
Sincerely,
Frank Salerno
Investor Relations
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RESEARCH COMMENT
Natural Resource Group July 24, 1998
Oil & Gas Sector
PARKCREST EXPLORATION: COMPANY WILL PRODUCE OIL FROM ESTRO #1 & 3 AND
(PKC C$0.69, (-.01), ASE) TRUCK TO PIPELINE CONNECTION WHILE BUILDING PALO
BLANCO PIPELINE.
Recommendation: SPECULATIVE BUY Paul Hayes (416) 864-3670
12-Month Target: C$2.50 phayes@yorkton.com
Shares Outstanding: 9.6 million Shares Fully Diluted: $19.4 million
Volume: 29,600 12-Month High-Low: $2.10-$0.50
Market Capitalization: C$6.6 million
Recommendation
We are initiating coverage of Parkcrest Exploration with a Speculative Buy rating and a 12-month target of $2.50. Parkcrest is
Harken Energy Corporation' s (HEC, AMEX) 25% partner in the Alcaravan contract area, where two prospects have been
drilled. Oil production is to start from the first, Palo Blanco, on August 1, 1998. This oil production will be trucked to
Ecopetrol' s pipeline connection while a 3.2 mile, 8-inch pipeline is constructed. The second prospect, Anteojos, where the
Canacabare #1 was drilled, is awaiting the end of the rainy season to allow a completion rig to enter the location. Our target of
C$2.50 is based on NAVPS of almost C$5.00. Since valuation of Colombian reserves is in question after the failure of Triton
(OIL, NYSE) to get acceptable bid for its reserves, we feel that we must discount the NAVPS by 50%. We will monitor the
results of additional drilling and the price for crude oil in order to modify this target.
Background
Parkcrest Explorations Ltd. was formed on June 4, 1984 in British Colombia. The company' s first ten years were dedicated to
exploration for minerals and hydrocarbons. In January 1997, Parkcrest formed a strategic alliance with Harken Energy Corp.
Parkcrest has earned a 25% interest in Harken' s Palo Blanco field and the Anteojos prospect where the Canacabare #1 well has
been drilled. These two prospects lie in the highly prolific Llanos Basin in east central Colombia. The company also has options
to participate on a 25% basis in other locations in Harken' s 210,000-acre Alcaravan Contract. Harken is carrying Parkcrest for
approximately US$2.5 million (C$3.9 million) for PKC' s share of the development of the discovery and the 3.2 mile pipeline to
Ecopetrol' s connection.
Projects
Alcaravan Contract in Colombia: In the Alcaravan Contract, Parkcrest has 25% working interest, Harken has 50%, and
Rochester International (ROH, TSE) has 25% before royalty and Ecopetrol' s back-in. Two projects have been drilled, the Palo
Blanco and the Anteojos.
Palo Blanco Field : Two wells have been drilled and tested. These wells, Estero # 1 and 3, will begin production about August
1, 1998. This production must be delivered by truck while a 3.2 mile, 8 inch pipeline is constructed. All permits are in place
and actual pipeline construction is to start next week. Recent interpretation of the seismic and drilling data from the Palo Blanco
indicate the reserves are in the order of 200-350 million barrels. Harken is carrying Parkcrest for its share of costs until the end
of November at which time Parkcrest must repay Harken or reduce its interest by one-half.
Anteojos Prospect Parkcrest apparently has a discovery in the Canacabare #1 well. However, this is the rainy season in
Alcaravan. Therefore, completion and production testing must wait for dryer weather to allow a completion rig to enter the
location. Logs of the Canacabare #1 look good. We have learned that the Mirador and Ubaque look encouraging in the
Canacabare, with 77 feet of net pay. Additionally, the Gacheta sandstone is present with about 14 feet of pay. Porosity ranged
in an acceptable level from 20% to 24%. Oil saturation was a little low at 40%.
Yorkton Securities Inc. has acted as agent for financing of or financial advisor to Parkcrest Exploration within the past three years.
S C I RESEARCH NOTE
Strain Consultants, Inc. June 10th1998
Parkcrest Explorations Ltd. Charles M. Strain, CFA
(Alberta: PKC) Michael V. Strain
(ALL MONETARY VALUES ARE IN CANADIAN DOLLARS)
We are reiterating our speculative buy recommendation (May 1, 1997) from the initial coverage report on Parkcrest Explorations. We began recommending Parkcrest for two main reasons: the common stock sold at a discount to its peer group and the potential to add significant reserves through exploration and development in Colombia. These observations are even stronger today than when originally reported.
Since our last report, initial production testing at the Estero #3 well has been completed. As a result of the data obtained from the well, we have increased our estimates of the potential reserves of the Palo Blanco Field and our adjusted break-up value, or net asset value, of Parkcrest from C$1.34 per share to C$1.89 per share. In addition, we have increased our potential break-up value for Parkcrest on a risk-adjusted and fully diluted basis from C$3.81 per share to C$9.02 per share. Meanwhile, the price of Parkcrest common stock has dropped from C$1.12 to C$0.69. As a result, the common stock is selling at 36.47% of its adjusted break-up value, a much larger discount than we originally reported. For comparison, we calculate that the common stock for the peer group sells at a median value of 85% of the adjusted break-up value.
The Estero #1 well was drilled in February of 1997 on the Palo Blanco prospect and encountered the Mirador , Guadelupe, and upper Ubaque formations. The upper Ubaque Formation was tested at a rate of 4,116 barrels of oil per day (BOPD) before activities at the wellsite had to be suspended for the rainy season. The Estero #3 well was drilled as a confirmation well in the Palo Blanco prospect in March of this year and recently completed testing. The upper and middle Ubaque formation were tested at a combined rate of 2,036 BOPD. Parkcrest and its partners recently announced that tests of the Mirador and Guadalupe formations in this well did not encounter commercial rates of hydrocarbon production. The disappointment of the failure to establish production from these two formations is offset by the fact that the well data indicates that the likely size and potential recoverable reserves of the field are possibly 200% to 400% larger. The geologic evidence indicates that the Ubaque formation is likely a barrier sand bar that could contain a field considerably larger than the fault trap fields that are typical of this area. A 3-D seismic survey was acquired over the Palo Blanco area and is currently being processed for interpretation of the data. This information should help to further delineate the potential size of the discovery.
Plans are to begin trucking up to 1,500 BOPD from the Estero wells as soon as the wells can be completed for production. Construction of a pipeline to transport oil from this contract area could begin later this year and should be completed in stages over the next two dry seasons.
The Canacabare #1 well was drilled and logged as an apparent discovery on the Anteojos Propsect in the northeast corner of the block earlier this year. Electric logs of the wells indicated significant pay in three formations in this well. However, the rains prevented complete testing of this well. A completion rig will be put back on the well at the end of the year and testing will be completed.
In summary, we view the results of the drilling at both the Palo Blanco and Anteojos prospects as positive. Although the initial production tests at Estero #3 were less than those at Estero #1, we are encouraged by the data obtained from latest well. The indications are that the Palo Blanco prospect is of a different depositional setting than originally modeled. The implications are that the potential reservoir in the Ubaque Formation could be much larger than originally anticipated.
a Copyright 1998 Strain Consultants, Inc. The study herein is not an offer to sell any securities; it does not include every material fact respecting any company, industry, or security and should not be relied upon as a sole source of information and opinion for making investment decisions. Some information in this study is opinion and the opinions expressed here should not be construed as statement of fact. Such opinions reflect the judgment of the author at this time and are subject to change. Facts have been obtained from sources considered to be reliable, but are not guaranteed. Past performance is no guarantee of future results. Strain Consultants, Inc., its officers, directors and/or employees may have an interest in the securities of the issuer(s) described herein and may purchase, sell, trade or act as a market maker while this report is in circulation. No employee of the firm is a director of this company. The subject company(ies) may pay a fee to Strain Consultants, Inc. for services including the Peer Group Analysis Service.
P.O. Box 42308 Houston, Texas 77242-2308 (713) 975-9260
Frank Salerno
www.parkcrest.com |
