Petromanas in the Energy Report

Petromanas Energy Inc. ($PMI), an Albanian-focused oil and gas explorer backed by Royal Dutch Shell, was discussed in the Energy Report recently by National Bank analyst Darrel Bishop. Highlights below.

Shpirag-2 well site in Albania - Photo: Petromanas

TER: One of the jurisdictions you follow is unusual —Albania. Can you explain the investment thesis and the current opportunities?

DB: We cover three companies in Albania. The first two are primarily focused on increasing oil recovery from legacy fields—Bankers Petroleum Ltd. (BNK:TSX) and Stream Oil and Gas Ltd. (SKO:TSX.V). Bankers is not a small company; it has a market cap of approximately $800 million (M). The third company we cover in Albania is an early-stage explorer called Petromanas Energy Inc. (PMI:TSX.V). It is an interesting story for many reasons. Earlier this year, Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) farmed in for a 50% interest in two of its blocks, which, combined with cash on hand, basically funds exploration plans through 2013.

TER: Are these offshore explorations?

DB: No, these are all onshore. Shell is interested in these blocks because of similarities to the Val d'Agri and Tempa Rossa fields located across the Adriatic Sea in Italy. One of those fields is currently producing 90 thousand barrels a day (Mbblpd) from fewer than 30 wells. Shell and Petromanas are currently drilling their first exploration well in Albania. That well cost $30M and is carried almost entirely by Shell. The well is a re-drill of an existing discovery that flowed oil to surface about 10 years ago, but the rate was limited due in part to a series of operational issues and poor decisions. Well results are expected by year-end. If successful, we see this as a potential company maker for Petromanas. Additionally, Petromanas has two other wells it is planning to spud before year-end, which means there are several potential drilling catalysts on the horizon.

TER: How about the political and social issues in Albania? For most investors, it must be an unknown.

DB: For the most part, it is unknown to most investors. Albania, up until about 20 years ago, was a Communist society. It's been in transition to democracy for the better part of the last decade. There are social and environmental issues in Albania. However, the government is pushing to turn things around and be more investment friendly. The country is applying for European Union status, which is a vote of confidence in foreign investment in the country. While the country is still in transition mode and has challenges, the big picture is positive over the longer term.

TER: Is the geology in Albania somewhat complicated compared to North America?

DB: The risks there are primarily a function of geology. To date, exploration and production activity in Albania has focused on shallow formations (less than 2,000 meters) that produce heavy oil. Petromanas is targeting much deeper, more complex sub-thrust structures. There has been limited exploration on these formations to date. With advances in three-dimensional technology and deep drilling, plus experience in geologically similar Italy, the companies feel like they have a better understanding of how to create exploration success in that geography.

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Disclosure: We own a (very high risk) position in Petromanas Energy Inc. This is not investment advice. Do your own due diligence and talk to a licensed investment advisor before buying or selling any security.

Tommy Humphreys

Tommy Humphreys, 30, is an entrepreneur, investor and writer from Vancouver, Canada. He founded CEO.CA, a popular junior mining and Canadian finance blog, in 2012. He has been the president of Pacific Website Company Inc., a private marketing and web development company, since 2007. Tommy has authored articles for Globe and Mail, Financial Post and others. He speaks at select conferences. Reach him by email: tommy@ceo.ca. Follow him on Twitter: @TommyHump More →

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Tommy Humphreys

Twitter: @tommyhump

tommyhump@gmail.com

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