PPP - Pan Pacific Petroleum

[Datsun Disguise]

Thanks for that Eddie - Interesting view - and indeed it did close up 0.5c. Volume was only 1.3m on 52 trades, perhaps it was MM that pushed the price up today. I know that when wiseowl recommend the sp's usually jump a little on the Monday.

As I said I reckon the financials will be an interesting story, they are pulling out a lot of oil out of Tui, the half year didn't look spectacular on the books ($9m profit) but they had some decent write downs that shouldn't re-occur. The qtrly have all pointed to conservaive cash outflows so the bank balance should be looking pretty healthy.

Not holding yet...

 

[Datsun Disguise]

Hi All,
I've had my eye on PPP for a little while now but only recently did the numbers on it. From what I can tell this is a real sleeper. Not sure why it hasn't been picked up yet, so far as I can tell big things are happening now. Here's what I've found on the Tui area JV alone. There are other projects that are in the very early stages, so far it is a one trick pony - but it is quite a trick!

Market Cap
$162m

588m shares X $0.275

Note that there are no options and given the cash flow below I think any dilution due to cap raising is very unlikely.

Tui Area JV
PPP 10% share of: (lowest share of the JV)
Reserves 50.1 mbbl (When the Tui project was sanctioned 2P reserves stood at 26.8 million barrels.)
Daily Production ~45,000bbls per day

Balance Sheet (March qrtly activities report)
Cash $69.6m
Inventory 40,900 barrels
Debt $36m (loans & accrued tax obligations)

For the next lot of calcs I'm going to use $120 which should account for production costs (last oil price $145).

So cash backing for share price taking into account inventory and debt is $0.065 as at end of March (no not impressive but wait for it). Since March they've been pumping oil at say 4,000 barrels a day. That adds about $50m to the accounts, this brings cash backing up to about 15c (haven't considered tax but take off 30% and its 12c)

PPP are actually adding about 4,500 barrels a day to inventory. That's $540,000 a day or $197m pa. Put another way, per annum PPP are generating 33c per share - current share price 27.5 - 28c. So a current PE of about 0.85 - what's the magic number again? 13?

I've tried to figure out what I have missed becasue this seems too good to be true - I haven't found anything, so I hope that the peer review can confirm my research!

My best theory as to why this has slipped under the radar is;
1. Most junior JV partner
2. One trick pony (for now)
3. The December accounts showed a profit of just $9m - this due to a number of write downs and tax treatments.

I think that the next annual report due August-ish is going to have some big numbers at which point punters will notice and we should see some substantial appreciation in SP. So, let's hear some opinions - have I missed something or is this a potential big one?

 

[oldblue]

Hi D D.
Have you looked into PPP's hedging position? I remember reading some time ago that they had bought and sold options over a portion of their expected production for the first few years of Tui oil. I think it was required as a condition of their financing. I don't know what overall effect it would have on their income to 30 June 08 but you may get some clues from past reports.
The other big unknown is the rate at which Tui production drops beyond 2008. AWE, the operator , were forecasting a sizeable decrease post 2008 but this has probably been moderated a bit by the latest increase in reserves.

Disc: Holding AWE but not PPP.

 

[Datsun Disguise]

Hi D D.
Have you looked into PPP's hedging position? I remember reading some time ago that they had bought and sold options over a portion of their expected production for the first few years of Tui oil.

Ah yes, you've jogged my memory on the hedging - I do recall reading that they had something less than 10% of production hedged at about $90 a barrel. But don't recall the details of how long that would apply for. I'll have to have a dig through the announcements and see what I can find.

 

[Datsun Disguise]

Hi D D.
Have you looked into PPP's hedging position? I remember reading some time ago that they had bought and sold options over a portion of their expected production for the first few years of Tui oil. I think it was required as a condition of their financing. I don't know what overall effect it would have on their income to 30 June 08 but you may get some clues from past reports.

Found the answer, seems the obligation is not so bad after all, this from the company website (which is quite out of date, may be another reason why the market hasn't cottoned on to this.)

The Company partly offset the cost of these put options by selling call options which may require the Company to deliver no more than 187,600 barrels of oil (approximately 8% of expected production in 2007/2008) at USD$92.00 if the price of oil rises above that price.

The put options referred to guarantee a minimum price of $50 a barrel which would be exercised only if oil fell below that (pigs flying too?). So this will cause a minor change in my calcs for the previous 3 months if the options have been exercised, at any rate it's only a small percentage of this years production.

I've emailed the company for some more info, I'll let you know what I get back.

 

[stefoid]

PE doesnt really come into it if the oil dries up in 2 years, which it will. they need to get some more irons in the fire and show the market a plan for turning cash into longer term resources. the new appointment is a good start.

 

[Datsun Disguise]

PE doesnt really come into it if the oil dries up in 2 years, which it will. they need to get some more irons in the fire and show the market a plan for turning cash into longer term resources. the new appointment is a good start.

Yes, dead right if the current 2P reserves remain, but the recent extension to the lease of the production vessel might point to some theories within the JV that more oil is out there? They have a locked in lease until 2015, why on earth would you do that if you didn't know you'd have work for it to do? Following 2015 there are seven 1 year renewable options on the lease, so they've got it if they want it until 2022. I am reading between the lines, but sometimes you need to look at the actions rather than words.

I recall that AWE (JV partner & operator) was burnt badly after overstating some reserves, the feeling was that they were not going to repeat the same mistake, hence the low 27mbbl initial reserve statement that has slowly but surely increased to 50mbbl as production has continued and more is known about the field characteristics.

The reserve is producing at rates not initially expected and maintaining them for longer than was expected. In my view this is an excellent opportunity.

But lets say the oil does dry up after 50mbbl and thats it - lets assume the $120 I've previously used - that means $600m generated before tax, so about $420m to get into some quality prospects. Hardly a bad news story is it?

The other irons they have (but don't seem to be in the fire I must say) are;

Maitland 10% share (JV with Santos/Apache/Tap)
Gas, choked flow (due to sand influx) of 6mcf day. @$12/kcf = $72,000/day
Last report was October 2007 following the flow test, no news flow since

Carnavon Basin
5 Permits with identified targets

Taranaki
3 Permits

I would say that with the cash flow they now have PPP will be looking to get drilling programs moving on their best targets and looking to acquire new permits for which they wll not need JV's other than for expertise in operating. Can't see this being anything other than a good news story.

Haven't had a response back from my email to PPP yesterday.

 

[Datsun Disguise]

Got my response back yesterday, bit slack getting back to post it.

I was told that all my questions would be answered by the end of July when they issue their quarterly report. Unfortunately not even a hint of what's to come.

I also suggested that they should be providing the market with information on their strategy for growing the company into a significant O&G player. I would be looking for info on the existing permits and a schedule for the next 12 months. I'm told these suggestions have been forwarded to the exec for their info (and I hope action!).

So, as far as my email goes a complete duster!

At least there's only another couple of weeks until we get some info. Happy to hear from any other holders.....

 

[Datsun Disguise]

Just a heads up - I expect PPP to put our their qtrly activities statement out on the 31st of July. Over the past year they've always lodged it on the last day of the month following the qtr end.

The half year report disclosed a profit after tax of 1.7c per share ($10m after tax profit). As per previous posts the profit should be significantly higher this half. Sales for the half should be about $80m based on $100 a barrel & 4,500 bls a day. Take tax off and we should see about $40m profit (my estimate) giving a profit after tax per share of 6.7c.....

Current price is 24.5c.

 

[oldblue]

I've been following PPP for some time too and took a small position today at 24c.
Although Tui is their only earner at this stage, it should be a money spinner for some years to come. Back in June, before the latest upgrade of 2P reserves, AWE estimated that 2009 -2012 production, although reducing, would still be at 40-50% of 2008 peak and that the field would still be producing through 2017, admittedly at much lower levels. At about the same time a decision was made to drill a further production well in 2009 and the lease on the FPSO was extended out to 2015.
So we have every reason to expect a solid result for the next 2-3 years at least, irrespective of exploration results from Maitland etc. As cash accumulates, we can expect to see a combination of dividends, share buybacks and/or acquisitions. Should be an exciting time!

 

[Datsun Disguise]

Looks like it's me and you Old Blue. The activities statement will be out tomorrow, hopefully everything is spelled out nice and clearly and I won't have to do all my own calcs. The annual report was published in September last year so not too long to wait for the full story. Based on the December report we should get a cents per share profit statement tomorrow. Interested to hear if the new exploration and production manager has developed a strategy yet - it's only been 3 weeks so perhaps a bit much to ask.

 

[Datsun Disguise]

Profit statement out now first line sounds good;

Pan Pacific Petroleum NL advises a net profit after tax for the year ended 30 June 2008 of A$52.4 million.

Lets see - divide by 588m shares means about 8.9c per share after tax profit.

lets see if anyone cares.

 

[prawn_86]

Hey DD,

These guys have been on my watchlist for a while, but they have very few future prospects, and pathetic management. It sure is a nice profit, but they are not returning a div, or looking to the future. Its basically a shell holding co for a bank aco****.

they have >$80 mill in the bank, why not just return the interest received as a divvy just to get some interest happening? I dont see how the management team is worht $350k pa, when they dont do anything. Gimme $100k pa and i'll take all 4 of their jobs

 

[JTLP]

That is a nice result.

588m on issue though...mmm.

They should really look to buy back some of their stock. I hate all these oilers who produce but with such a large number of shares on issue. gah kills me!

Prawn if you could make a lazy 350k pa and just deposit oil money into a bank account would you want to do more work :

 

[Wysiwyg]

Cynically speaking, they could always tip the profit into some future plug and abandon exercises or maybe takeover a dud company or even go elephant hunting in Bhutan.Oilers

 

[prawn_86]

Prawn if you could make a lazy 350k pa and just deposit oil money into a bank account would you want to do more work :

Its 350k between 4 peaople, but no of course i wouldnt want to do more. But they are not really enticing people to buy in by doing nothing are they.

 

[Datsun Disguise]

I am expecting to hear about future plans shortly, given they have recently employed an exploration manager, but no hint of those plans yet.

Interestingly, the sp is 24c, equal to the asset backing of the company...

As the cash account increases so too will the asset backing and, I would assume in my innocence, would the sp.

900,000 barrels by $100 a barrel = $90m for 08/09 lets say half goes in royalties and tax so $45m profit for next year.

Assuming that the sp is chained to the asset backing until some future plans come to light, that would be asset backing of 31.6cps - and I would assume an SP not far from that, not outstanding is it.

Disappointed.

 

[oldblue]

I think we need to give new executive(s) time to get to grips with the situation/options. The result is irrelevant in that respect and the last thing we want is someone racing off into the wild blue yonder, just because shareholders want to see some action. It's very easy to spend hard earned cash!

 

[Datsun Disguise]

I think we need to give new executive(s) time to get to grips with the situation/options. The result is irrelevant in that respect and the last thing we want is someone racing off into the wild blue yonder, just because shareholders want to see some action. It's very easy to spend hard earned cash!

Yes, you are right, my inner bear has been talking to me a lot recently. PPP's ace in the whole is all that cash, in a time where raising capital is pretty difficult that is a big advantage. Hopefully the mgmt have enough sense to get themselves into some quality prospects, with an experienced operator at respectable ownership levels - say 30% or more. The current portfolio sounds pretty poor. A well thought out exploration plan with an experienced operating partner might be the thing to get this moving.

With the future looking a little more bright (ie new plans) for PPP maybe we could start to see the PE lift from the current 2.7 to something more like 13.

Cynically speaking, they could always tip the profit into some future plug and abandon exercises or maybe takeover a dud company or even go elephant hunting in Bhutan.Oilers

Hey! Great idea! - they could buy DMM, twice!! Not that DMM is a dud - just cheap.

 

[Datsun Disguise]

Noticed a couple of directors buying - nice to see. One for a 100k ish parcel, the other NZD1.8m worth - gulp.

Obviously some confidence there....

Looking forward to the qtrly activities statement to see how the oil has ben flowing.