In an October 28 research note, Research Capital Corp. analyst Bill Newman CFA advised that Calgary-based oil and gas exploration and production company Pan Orient Energy Corp. (POE:TSX.V), which is focused on developing oil and gas assets in Thailand, may be "looking to get out while the getting is good."
Research Capital stated that "this morning, Pan Orient Energy announced the initiation of a process to accelerate shareholder value, which could involve the sale of both the Thailand assets and Canada assets." The firm additionally reported that it intends issue a special distribution to shareholders in the amount of CA$0.40 per share.
The report indicated that the special distribution and any other return of excess working capital will require shareholder approval. The voting process is expected to occur in mid-January 2022 and if approved the distribution is expected to be made sometime in Mid-February 2022.
Research Capital pointed out that earlier this year, Pan Orient Energy said it was considering the sale of its assets in Thailand as they have reached a mature stage.
The report mentioned that earlier today, the company reported it is now engaged in discussions with unnamed parties to purchase both the Thailand and the Canadian (Sawn Lake) assets. The analyst noted that it is highly likely that each respective asset will be acquired by different parties. Research Capital explained that it is anticipated that 100% of the net proceeds from the asset sales will be returned to Pan Orient's stockholders.
The analyst noted that Pan Orient Energy owns a 50.01% interest in the Thailand L53/48 Concession, which according to a reserves report prepared by Sproule International Ltd., has estimated net proven (1P) reserves of 1.4 million barrels of oil. Production attributed to Pan Orient's 50.01% interest in the Thailand assets is approximately 1,595 boe/d.
The report estimated the total value of the resource to be CA$25 million, or CA$0.50/share. The report completed by Sproule International also calculated the value of estimated proven plus probable (2P) reserves at CA$39 million, or CA$0.78/share.
The values placed on the Thailand reserves were calculated using Brent crude oil reference prices of US$48.00 during 2021, US$50.00 for 2022, US$55.00 for 2023, US$56.10 for 2024 and US$57.22 for 2025 increasing 2.0% annually thereafter. Research Capital indicated that current Brent future prices are now significantly higher at US$77.79 for 2022 and US$71.79 for 2023.
The analyst noted that the firm's interest in the Sawn Lake heavy oil assets located in central Alberta are held through its subsidiary Andora Energy Corp., which holds a 71.8% ownership position in the property. Andora operates five oil sands leases with 27 gross sections at Sawn Lake. Commercial viability has yet to be established so therefore no proven or probable reserves have been assigned, though Research Capital noted that "a historic, independent resource report effective December 31, 2014, showed a net Contingent Best Estimate resource of 153.0 million barrels."
Research Capital stated that timing could be good for a sale of assets which would positively impact the firm's market valuation and share price. The analyst wrote, "Based upon proven Thailand reserves only, and no value of the Canadian assets, and our expected exit 2021 working capital balance of CA$36.5 million we calculate a conservative valuation of CA$1.35 per fully diluted share."
Research Capital stated it is maintaining its "Buy" recommendation and CA$1.35 target price for Pan Orient Energy Corp. shares. The company's shares trade on the TSX Venture Exchange under the symbol "POE" and is currently trading at CA$1.20/share.
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Disclosures for Research Capital Corp., Pan Orient Energy Corp., Oct. 28, 2021
RISKS: While this is not an exhaustive list, we view the following risks as being noteworthy to investors in POE.
EXPLORATION RISK| POE has an exploration drilling program underway in Thailand. A portion of our risked NAV estimate is attributed to exploration drilling in Thailand.
COMMODITY PRICE RISK| POE is dependent on is cash reserves and cash flow generated from its Thailand oil production to fund its operations. A large drop in the price of oil could result in reduced expenditures.
EXCHANGE RATE RISK| POE is an international company and is exposed to currency fluctuations including the Thai baht, the US dollar and the Canadian dollar.
PRODUCTION AND RESERVE CONCENTRATION RISK| A large portion of POE’s reserves and production are from the L53-DD field. Production issues related to reservoir performance could cause actual results to vary from our forecasts
POLITICAL RISK| POE is an international oil and natural gas exploration and production with primary activities in Thailand and as a result is subject to political risks. The government extensively regulates the energy industry, with influence over exploration and production activities, prices, taxes, royalties and export restrictions. New regulations or modifications to existing regulations could adversely impact the company’s profitability.
RELEVANT DISCLOSURES APPLICABLE TO COMPANIES UNDER COVERAGE:
1. The analyst holds shares in Pan Orient Energy Corp.
2. Relevant disclosures required under IIROC Rule 3400 applicable to companies under coverage discussed in this research report are available on our web site at www.researchcapital.ca
ANALYST CERTIFICATION: I, Bill Newman, certify the views expressed in this report were formed by my review of relevant company data and industry investigation, and accurately reflect my opinion about the investment merits of the securities mentioned in the report. I also certify that my compensation is not related to specific recommendations or views expressed in this report.
Research Capital Corporation publishes research and investment recommendations for the use of its clients. Information regarding our categories of recommendations, quarterly summaries of the percentage of our recommendations which fall into each category and our policies regarding the release of our research reports is available at www.mackieresearch.com or may be requested by contacting the analyst.
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii) no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
