As many here will know, Im constantly banging on about the lack of decent UK E&P plays and how Im finding more and more overseas, especially in Canada. Well, heres another one, which impressed me at the First nergy Global Energy conference last year.
Parex Resources - company website here
The group is focussed on two areas, Colombia and Trinidad & Tobago, where it is partnered with another favourite of mine, Niko in the Central Range Block, with a 25% interest in the Shallow licence and 15% in the Deep licence. It also has 50% of the Cory Morguga block.
There is a recent (7 April 2011) presentation on the website that will give a good oversight of the company's assets and plans.
However, what this doesnt cover is the deal announced last week that is of major significance. This saw the company acquire its partner in Colombia which holds the other 50% that it doesnt already hold in the Four Llanos Basin blocks. The deal cost $255m which is funded by a bought deal (at $7) raising C$165m and a convertible for another C$85m. Note, we took part in the bought deal which was heavily oversubscribed.
What the deal means is that the company has now increased its exit production rate for 2011 from 7,000 bopd to 14,000 bopd. The deal adds 5.2mmbbls of 2p and 3P of 9.6mmbbls. Note that this is only on the LLA-16 licence which is in production and does not include any reserves for the remaining three licences.
As an example, the other three licences (LLA 20,29 and 30) are each estimated to have 20mmbbls unrisked resources (Wellington West figs).
The company's now prodigious cashflows will fund all capex operations in the core areas. Estimated cashflow for 2011 $129m rising to $378m in 2012, which would put the company on a very low PCF rating - 2011 est of $2 and 2012 est of $3,30 per share). Yes, that woudl be a cf/s of just 2.25x on 2012 figs.
The increased cashflow has allowed the company to increase Capex in Colombia by $30-$35M for a total of $120-$140m. Before the deal Parex was looking to drill 16-20 wells in Colombia, 6 being development and 10-14 being explo/appraisals.
The real interest is the high impact potential for Trinidad, especially the Central Range Block. The Shallow and Deep reserves estimates are 400 mmboe and 500mmboe respectively with 60mmboe for the Cory Moruga block. CoS – 25%, 20% and 40% respectively. The first of two wells on the CRB Shallow licence should be drilled in Q2 2011.
The deal followed on from the company’s operational update, which was a mix of good and bad news, slightly more negative than good Id say but here it is.
Essentially they have had some problems with the cement jobs on wells at Kona which has led to water intrusion and shut in of potential production. This meant that the Q1 production came in less than many expected. One of the key issues here is the completion of the Kona oil treatment plant which is expected next month. This is a 25,000 bofd plant. The Kona-1 well will be shut in to allow an ESP to be installed after which production will be stepped up to 2,000 bopd (form the 1,160 ave over Q1. The plant will allow processed oil to be piped 7km to the local oil loading facility. The commissioning of the plant will allow those other wells shut in to be produced with a water disposal well, thus bringing production up to 4,000-6,000 bopd (post deal) from the Kona 1,2,3 and 4 and Supremo-1 wells. Note that Kona-2 has produced 2,634 bopd with a 14% water cut (better than expectations).
In Trinidad, the Firecrown-1 well on the Moruga block has had slight problems. It was re-entered to drill to the contract earning depth of 10,500ft but was halted at 10.330ft due to mechanical problems. Parex is now awaiting written confirmation from the ministry as to earning status (have they done enough in other words) before continuing with completion and testing.
So that’s a brief introduction to what I think is an interesting company that has been transformed by a sensible deal. Lots of newsflow, prodigious cashflows, solid balance sheet and high impact explo.