Oil and gas firm President Energy (LSE:PPC) has announced that it will reactivate the Estancia Vieja field in Argentina later this year after identifying a live gas field at the site with potentially commercial gas flows achieved. Despite President reporting that first gas production at the field is targeted for late this year with gas reserves expected to increase, shares rose just 3.8pc, or 0.4p, to 11.5p, giving the business a market cap of £118.4m.
With today’s announcement coming just two weeks after President reported record profits at its Argentinian assets in January, there is a very real chance that the stock is now being under-valued on AIM. Especially when one considers that President is already cash-generative, is aiming to bring Argentinian production to nearly 4,000boepd, and expects to become a mid-tier Argentinan producer by the end of the year. Of the three previously-drilled wells tested at Estancia Vieja, which President acquired last year, two (EV 13 and EV 19) produced median rates of approximately 200 and 250 boepd each at a 6mm choke, exceeding expectations. The remaining well (EV7) offered weaker performance but President said its limited results still demonstrate that it can be a successful gas and condensate well. The wells were each drilled over 20 years ago and shut in on or before 2011. The gas from these wells was never commercially sold by the previous operator of Estancia Vieka and was used for power generation.
Gas prices at the time of shut-in were less than $2/MMBtu compared to current prices in excess of $4/MMBtu in the summer and over $5/MMBtu in the winter. Pressure recovery tests were also performed successfully indicating the potential for good production and three further gas well have been identified as available for testing later this year. Once an evaluation has taken place, President will determine the optimum production methods for the gas.
Peter Levine, chairman, and chief executive said: ‘The encouraging results of these tests demonstrate a producible and viable gas field at Estancia Vieja to complement our successful oil business at the adjacent Puesto Flores field.’
‘We are currently considering the optimum way to develop the field potential with the target of generating first gas production in the latter part of this year. We are excited by this additional opportunity that will further diversify the company’s portfolio of cash generative production assets’
Increasing opportunity
In January, President generated record profits of $1.3m at its Puesto Flores and Puesto Guardian fields in Argentina after all operating expenses (opex), general & administrative expenses and finance costs. The business achieved an average sales price of $63.50/barrel in Puesto Flores and $53.70/barrel in Puesto Guardian and expects to achieve approximately the same level in February. This milestone and today’s announcement mark major step in President’s strategic shift towards Argentina in recent years.
With a highly experienced manager in Levine, the firm is well positioned to take advantage of the booming domestic Argentinian oil market, through both consolidation and the continued development of its existing assets. President expects its Argentinian EBITDA to jump from around $28m in 2018 to more than $40m by 2020, with production expected to reach nearly 4,000 boepd in the country by 2020 – almost double its current level.
In an exclusive interview with ValueTheMarkets.com last month, Levine said President has found itself in ‘the right place at the right time’.
He said: ‘The oil majors are ramping up their activity in Argentina because it now has a forward-looking government. In the past, Argentina has been known for its boom and bust economy, but there has been a sea change in the investing environment. From an investor’s perspective, there is no clearer way of accessing this growth story. We are of scale and we are pure Argentina. There are not many ways that people can play this trend in the London market.’
After today’s announcement that President will increase production by reactivating its Estancia Vieja asset, the firm’s share price may not stay at 11.5p for long.
Author: Daniel Flynn
Disclosure:
The author does not own shares in the company mentioned in this article