Petroamerica is too Cheap, Company Starts to Buyback Shares

POSTED ON March 24, 2014 BY Travis McPherson
CATEGORY Canacol Energy, Companies, Petroamerica Oil, Stories,

Petroamerica is generating significant cash flows and not getting rewarded for it (Photographer: Daniel Acker/Bloomberg )

With shares of Petroamerica Oil Corp (PTA:TSXV) continuing to trade at a deep discount relative to their North American peers, the company has announced a 55 million share buyback to reduce the float by ~10%. Management announced today that the TSX Venture has accepted their proposal to make a normal course issuer bid to buy Petroamerica shares in the open market. They will purchase up to 55,175,760 shares from today through to March 23, 2015.

The company intends to finance the purchase with its current cash on hand, which stood at $95 million on March 1st and with the cash they generate from operations. At current prices (~$0.30 per share), the total cost of the buyback is approximately $16.5 million (if they purchase all of the shares).

Petroamerica is generating significant cash flows from their Colombian light oil assets. They are producing $80 operating netbacks and with production north of 6,400boe/d, they are making over $500,000 per day in operating cash flow. Management is guiding a 2014 exit rate of 10,000boe/d (new management has yet to disappoint with guidance).

On that basis, and with an enterprise value of $121.5 million (negative $60 million net debt) they are trading at 0.66x current cash flow and 0.42x 2014 cash flow (based on 10,000boe/d). Although the international E&P space, in general, has been discounted for a few years now relative to the North American peer group; the discount Petroamerica receives is larger than any other I've come across in the sector.

On an enterprise value per flowing barrel metric, Petroamerica is trading at $19,000. To put that in context, Canadian oil/gas producers trade at many multiples higher than that, many over $100,000 per flowing barrel.

Petroamerica's growth plan (Image: Petroamerica Oil Corp.)

A perfect example of a Colombian-focused peer is, Canacol (CNE:TSX) which is currently producing 10,550boe/d and generates operating netbacks of only $32 per barrel. At a $745 million enterprise value ($126.8 million net debt) they trade at nearly 6.0x current cash flow and 5.2x their 2014 exit rate of 12,500boe/d. On an EV/flowing barrel metric they are trading at $70,380/flowing barrel (3.3 times higher than Petroamerica).

Why the steep discount? Although on a cash flow basis, Petroamerica seems extremely discounted, they are correctly discounted for having a relatively small reserve base (2P reserves of 5.1 million barrels) and no operatorship.

Given that, management is currently looking for accretive transactions in Colombia's light oil basins to gain operatorship (which is usually crucial for an acquirer) and to grow reserves. Their current reserve life index is roughly 2.5 years.

They have a number of targets to drill this year and are planning to spend $53 million on exploration and development.

The stock also has nearly 79 million $0.35 warrants coming free trading on May 9th which seems to be one overhang that has put a ceiling on the stock.

PTA data by YCharts

Read: Petroamerica Announces Approval of Normal Course Issuer Bid

Disclosure: The author owns shares and is therefore very biased. This is not investment advice. Do your own due diligence.

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

Disclaimer:

Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any significant positions will be disclosed explicitly. This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. Thomas Humphreys, Pacific Website Company Inc., and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. We reserve the right to buy and sell such securities or commodities without notice to readers. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Thomas Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in these publications or web site.

Forward-Looking Statements: This article may include certain "forward-looking information" within the meaning of Canadian securities legislation. Forward-looking statements include predictions, projections and forecasts and are often, but not always, identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "forecast", "expect", "potential", "project", "target", "schedule", budget" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions and includes the negatives thereof. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding the potential of the Company's properties are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are based on a number of material factors and assumptions. Important factors that could cause actual results to differ materially from Company's expectations include actual exploration results, changes in project parameters as plans continue to be refined, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, uninsured risks, regulatory changes, delays or inability to receive required approvals, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ from those described in forward-looking statements, there may be other factors that cause such actions, events or results to differ materially from those anticipated. There can be no assurance that forward-looking statements will prove to be accurate and accordingly readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date of this article. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Always do your own due diligence. We seek safe harbor.