3D Seismic showing the La Guira 1 prospect (company presentation)

3D Seismic showing the La Guira 1 prospect (company presentation)

Petroamerica Oil Corp. (TSXV:PTA), a Calgary-based junior oil and gas company operating in Colombia's Llanos Basin, has started drilling its La Guira-1 exploration well on the Los Ocarros Block. The well was spud (read: started drilling) October 9, 2013 and is targeting the Mirador, Gacheta and Une Formations which produce at the adjacent Las Maracas Field, the company's cornerstone asset, which provides the bulk of their ~6200 barrels per day reported production (September, 2013). The well is being drilled to a total depth of 12,500 feet and is expected to take one month to drill and case. The company says La Guira is a potential satellite to the Las Maracas Field, and is located on the next fault block to the immediate south.

PTA holds a 50% non-operated participating interest in the Los Ocarros Block, with Parex Resources holding the other 50% and operatorship.

Read: http://online.wsj.com/article/PR-CO-20131011-906675.html

1.2x Forward Cash Flow

According to the company's Oct 2, 2013 Operational Update, PTA produced ~6200 barrels per day in September with netbacks of over $70 per barrel, which if production levels and oil prices maintain, the company should see approx. $158.4 million in cash flow for the year forward looking (365 x $70 x 6200). PTA's market cap today is $189 million.

Petroamerica primarily produces light oil from the Las Maracas field, with a little bit of production coming from Balay. The La Casona discovery (November 2012), is scheduled to come on stream in the next few weeks and provides a development opportunity for the company.

The La Guira prospect, spudded today, provides investors with something new to get excited about.

Thesis

PTA Executive Chairman Jeff Boyce, was founding CEO of Vermillion Energy (TSX:VET), and was Alberta's Amateur Baseball Player of the Year in 1981

PTA Executive Chairman Jeff Boyce, was founding CEO of Vermillion Energy (TSX:VET), and was Alberta's Amateur Baseball Player of the Year in 1981

PTA is cashed up ($64 million as of Sept 30, 2013), fully funded for growth, with good management.

Pacific Rubiales Energy (TSX:PRE), Colombia's largest state owned oil producer, has been buying light oil producers in Colombia of late (C&C Energia, Petrominerales), because it needs the light oil as a diluent for its heavy oil production (light oil blended with heavy oil makes if flow through Colombia's pipelines more easily).

Petroamerica, along with other oil producers in the country, are trading at historically low valuations. Pre credit crisis 2008 cash flow / share price valuation of Colombian oil and gas companies averaged approx 9x. Between 2009 and 2011 it was approx 6.5. Now it is ~1.5-2.8x. Forward looking, PTA is just over 1.2x.

Criticisms the company faces from investors include concerns over decline rates, which other companies in Colombia have had difficulties with. PTA says they are holding back the choke at their wells to prudently manage the flows, and have yet to experience such high declines. Additionally, investors want to see Petroamerica gain operatorship, which the company has said they are pursuing actively. Finally, there are ~593,000,000 shares out on Petroamerica, which some investors don't like. The company will only consolidate the share structure on positive news, such as a business combination, and are fully funded for future growth, management have said.

Officials from the company will be presenting at next week's Canaccord Genuity Global Resources Conference in Miami, which we will also be attending.

We have been following the company closely since August, 2012, and a shareholder since September, 2012.

Here's the 12 month PTA.V chart:

PTA 12 months (Stockwatch)

PTA 12 months (Stockwatch)

Please read Petroamerica's Presentation for a full disclaimer and cautionary note from the company. This is not investment advice. Always do your own due diligence. Thank you.