Jeff, Boyce, PTA

Jeff Boyce, founding CEO of Vermillion Energy (VET), and Executive Chairman at Petroamerica Oil Corp., pictured in Calgary (Jeff Boyce photo).

One of the most undervalued junior oil companies announced an update with mostly good news this morning, and a little bad.

Petroamerica Oil Corp. (TSXV:PTA), which trades at less than 1.4x cash flow, produced an average of 6497 barrels of oil per day for the month of February, and 6,453 barrels of oil per day for January. More than 95% of this production is coming from the Las Maracas Field in Colombia's Llanos Basin. This is strongly above the company's 2014 production guidance of 5000-5500 barrels per day.

The company has farmed out a 50% working interest in the exploration area of its El Porton block to Parex Resources, in exchange for Parex covering 80% of the dry hole costs for the Crypto-1 exploration well, which will be drilled in the second quarter of 2014. Al Knowles, who covers the company for Haywood Securities in Calgary, says that Crypto-1 has the potential to add materially to the company's production and cash flow in the event of a successful well there.

As a result of the farm out, PTA's planned capital expenditures for 2014 have been reduced from $70 million to $53 million.

The company has more than $95 million on hand as of March 1, 2014 and says it is looking at business development opportunities to strengthen and diversify its asset base.

Unfortunately the company's sole risk La Guira 2 well has been suspended for not flowing commercial rates during the test period. This was the disappointing part of the news release as PTA needs to continue to grow through the drill bit and for now investors will have to wait for the Crypto-1 well in Q2, followed by Malavar 1 and Los-Occoros-X-1 in Q3.

The Rumi-1 long term test facility (40% PTA working interest) is expected to be on stream before the end of Q2. The Curiara-1 long term test facility (25% PTA working interest) is more than 70% complete and should be on stream during the month of April. Haywood expects these two wells could add 250-400 barrels of oil per day to production.

Haywood reduced their target on PTA from $0.45 to $0.40 following this morning's announcement.

GMP Securities maintained their $0.55 target and Buy rating on PTA, summing up today's release as follows:

"Production levels, the farm-out and cash position are all positive, while the company’s latest well result is disappointing. Our thesis is unchanged in that PTA continues to be among the cheapest stocks in our universe, and with a growing cash position it will look to diversify its portfolio to get away from the single field risk that it is currently exposed to."

Read: Petroamerica Announces Farm Out of El Porton Block and Provides an Operations Update for its Activities in Colombia

Click here for the company's corporate presentation. 

Readers interested in PTA should check out our recent interview with Calgary energy banker Sonny Mottahed, which discusses the Colombian oil producer, and other international energy names.

Disclaimer: We own Petroamerica stock and are biased. This article is not investment advice. Always do your own due diligence. Thank you.