Malcolm Shaw / Hydra Capital
Pan Orient Fizzles in Indonesia
By: Malcolm Shaw
(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post.)
This morning Pan Orient Energy (POE.V, last at $1.02) was halted before market open only to release an operational update from the Anggun-1 exploration well in Indonesia where it is partnered with Repsol (Repsol was 51% and operator of the well.
The well is a duster and the stock has sold off accordingly. I figured the backstop in this scenario would be in the $1.00-1.50 range and with the stock trading at $1.10 as I type this, I'd say that the market is behaving as I would have expected.
With Indonesia now out of the picture, POE holders are left to focus on the cash ($26 million), the onshore reserves in Thailand (perhaps those have doubled year-over-year?), and the Sawn Lake heavy oil asset. Last year the Thai oil reserves value was pegged at $40 million on a 2P basis, so if I make a guess that Thai reserves have doubled this year (that's be adding up the structures POE has hit on this year), perhaps that 2P number goes to $80 million. In the Canadian market most stocks trade at less than 50% of their 2P reserve values, so if I discount that by 50% I find myself back at $40 million. Add in the cash and I arrive at $65 million on 55 million shares with a free call-option on Sawn Lake. Swan Lake is a great asset, but it is still heavy thermal oil, and I'm honestly not sure what the future holds for new projects fitting that description, so a free call is about what I'd expect to get. That seems to fit with what the market is thinking right now. POE has often been able to pull off asset sales at market valuations way above what they would get in the Canadian market, so my discounting may be a little harsh, but that will become a little more clear once there are some new Thai reserves to pore over early in 2020.