Profiling: Alcorn Gold Resources Corporation

Alcorn Gold Resources Corporation (PSE: APM) is a holding company which is primarily engaged in the exploration of oil and mineral resource. APM has the following service contracts:

APM1

Among APM’s SCs, SC 14 (B1) is producing and SC 51 is at the most advanced stage of exploration. SC 14 (B1) North Matinloc is producing in a cyclical manner where 16,107 barrels of oil were extracted in 2011. SC 51, an onshore oil exploration interest of the Company in Norhtern Leyte, is expected to initiate drilling this year with Otto Energy as the Operator.

APM has the following mining claims:

APM2

On December 12, 2012, the shareholders of the Company approved the resolutions of the Board of Directors to: [1]

  1. Increase the capital stock and change of par of the Company from  P3 billion with a par value of P.01 to P10 billion with a par value of P1.
  2. Change of name from APM to COSCO CAPITAL, INC.
  3. Spin-off of the oil and mineral assets to a wholly owned subsidiary.
  4. Confirm the subscription of the Lucio Co Group of 4,987,560,379 APM shares at P15 each through share for share swap of the following companies: [2]

APM3 APM4

Below is the basis of the P74,813,405,682 (4,987,560,379 shs x P15) subscription price: [3]

APM5

APM, to be renamed as Cosco Capital, Inc. upon approval by the Securities and Exchange Commission is intended to be the Lucio L. Co Group’s holding firm. Lucio L. Co Group cosnists of Lucio L. Co, Susan P. Co, Ferdinand Vincent P. Co, Pamela Justine P. Co, Camille Clarisse P. Co, Katrina Marie P. Co and Jose Paulino Santamarina. The Company expects the holding firm’s market capitalization to increase to P93 billion (or a per share market value of P15 [P93 billion/6 billion shares]) and the Company’s public float to fall to 6% from the current 30-35%.

Sources:

  1. Stockholders’ approval of increase in authorized capital stock, change in par value, subscription by Lucio L. Co Group, change in corporate name, reorganization and spin-off of oil and mineral assets and operations; appointment of officers, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8957_APM.pdf
  2. Additional Information re: subscription by Lucio L. Co Group, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9279_APM.pdf
  3. Supplement to previous disclosure re: subscription by Lucio L. Co Group, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9383_APM.pdf
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Making Sense on PXP vs TA Petroleum

Philex Petroleum (PXP)

TA1

PXP has 2.27% interest in the largest operating oil field in the Philippines, Galoc oil field. The oil field produced 2.4 million barrels with an estimated 1.61 million barrels expected to be produced in 2012. [1] Proved and probable reserve remaining is estimated to be 4.4 million barrels. [2]

 

TA Petroleum (TAP)

TA2

Note: An Operator is the party that will take all the costs and risks in the drilling.

 

Sources:

  1. Forum Energy Plc Annual Report 2011, p. 3, http://www.forumenergyplc.com/DocumentLibrary/FOR-16846-AR11-web.pdf
  2. Otto Energy Annual Report 2012, p. 15, http://www.ottoenergy.com/irm/content/annualreport/AR2012.pdf
  3. Otto Energy Annual Report 2012, p. 10-12, http://www.ottoenergy.com/irm/content/annualreport/AR2012.pdf

Investing in Trans-Asia Oil and Energy Development Corporation

Trans-Asia Energy and Development Corporation (PSE: TA, the “Company”) presented favorable first half report with a 70% jump in net income year on year. Earnings were mainly driven by TA’s electricity trading gains of 313 million. High electricity demand coupled with few electricity producers makes electricity trading profitable for TA. With electricity demand expected to surpass the existing capacity and committed capacity in the coming years, electricity trading might be one of the major drivers of growth for the Company.

As depicted in the chart above, we can speculate that there will be an electricity crisis by 2016-2017 in Luzon should there be no substantial investments in the Philippine electricity industry from this year to 2014 (which appears to be the case).

TA’s attractiveness is not only on its capability to generate gains in electricity trading but in TA’s promising business developments which in my opinion is substantially undervalued by the market.

Valuing TA’s Power Generation Business

Majority of TA’s power generation revenue is currently from their Bunker C-Fired Power Plant under Trans-Asia Power Generation Corporation (TA Power) which is a 50/50 joint venture with Holcim Philippines, Inc. (HLCM) On January 2013, the Company will have CIP II Power Corporation (CIPP), another Bunker C-Fired power plant, to be operational in La union. Unlike TA power which is committed to supply HLCM power for their cement operations, CIPP will operate as a merchant power plant and will only supply HLCM power in case of emergency. I expect CIPP to generate profit through electricity trading but for conservatism, let’s assume CIPP to operate at break-even.

Maibarara Geothermal, Inc.

The Maibarara geothermal power plant is constructed by Maibarara Geothermal, Inc. (MGI) a joint venture company of Petroenergy Resources, Inc through its subsidiary PetroGreen Energy Corp. (65%), PNOC Renewable Corporation (10%), and TA (25%). The construction is 35% completed as of June 2012 and is expected to be in commercial operation by third quarter of 2013.

Estimated profit that the MGI joint venture will contribute to TA is computed as follows:

South Luzon Thermal Corporation

The 135 MW coal fired power plant is constructed by South Luzon Thermal Corporation (SLTEC) a joint venture company between Ayala Corporation (50%) and TA (50%). Construction has not commenced yet as of June 2012 but the power plant is expected to be in commercial operation by the fourth quarter of 2014.

Estimated profit that the SLTEC joint venture will contribute to TA is computed as follows:

In full year commercial operations in 2015, SLTEC and MGI will contribute a total of 256 million. Assuming that the earnings of TA will not be less than P220 million until 2015, TA’s net income will jump to 476 million or an EPS of .114 (483 million / 4.2 billion shares*). At TA’s current price of 1.28, TA is trading at 11x earnings. The market properly valued the power generation business of TA considering that it would take 3 years before full commercial operations. What the market failed to value is TA’s gas resource, the Cinco prospect in SC 55.

*4.2 billion shares is already adjusted for the 1:2 share rights offering with an ex-date of Oct. 31, 2012

Service Contract 55 – Cinco Prospect

SC 55 has an area of 9,880 km2 in offshore West Palawan which includes the Cinco prospect with a mean resource estimate of 3.2 trillion cubic feet (Tcf) [1] which is comparable to PXP’s Sampaguita gas discovery which has a mean resource of 3.4 Tcf. The largest operating gas field, Malampaya, has only 2.7 Tcf. The only disadvantage of SC 55 prospects is the high capital requirement in exploiting the ultra-deep resources. Cinco is situated 1,400m deep while Malampaya gas field is only 846m deep.

On May 11, 2011, BHP Billiton exercised their option to farm-in and earned a 60% participating interest and assumed the operatorship of SC 55.[2]

On a press release, the Company disclosed that drilling of deepwater well on SC 55 is now scheduled to be on the first or second quarter of 2013.[3]

Estimated profit that the Cinco prospect may contribute to TA:

Disadvantages in investing in TA:

  1. BHP Billiton drilling of the Cinco prospect this 1Q or 2Q of 2013 may not be successful.
  2. Delays on the schedule of drilling may occur.
  3. Projected earnings will only be realized three years from now.

Other Oil and Development interests of TA:

TA’s interest in SC 51 is also note worthy. SC 51 has the following participants:

*On October 23, 2012, Frontier Oil Corporation (Frontier) entered into a Farm-in Option Agreement where Frontier can acquire 80% interest in the southern area of SC 51 through shouldering all the costs of drilling an exploratory well in the area.

SC 51 is divided into northern (on-shore) and southern areas (off-shore Cebu). The on-shore prospect, Duhat, is situated on the northern tip of Leyte.

Northern Leyte has been described by geologists as containing the most natural oil seeps in the Philippine archipelago. Duhat was drilled in 2011 but the well reached only 321 m, far from the programmed 1,000 m depth, when it had to be abandoned due to adverse pressures. Despite the shortfall, oil and gas indications were observed and a working seal and structure conductive of hydrocarbon entrapment were proven, indicating the presence of an active petroleum system. New seismic data is scheduled to be acquired in July or August of 2012 to locate a new well on the same prospect.

Comments:

The Company is bound to have huge increase in earnings in the future with its power generation business and high possibility of generating revenues from their gas resource interest. I expect TA to reach the price of P2.31 before 2015 should BHP Billiton’s drilling in the Cinco prospect turns out to be successful.

Since 2005, the Company has consistently declared dividends of at least P.04 annually exhibiting a dividend yield of 3.15%, 3.54%, and 3.82% for the years 2012, 2011, and 2010.

The Company declared a Share Right Offering (SRO) of 1 share for every 2 shares held for P1 each. The ex-date will be on October 31. For those who wish to enjoy TA’s dividend yield while waiting for its business developments to mature, it would be wise to participate in the SRO.

Sources:

  1. Otto Energy Annual Report, p. 14, http://www.ottoenergy.com/IRM/Company/ShowPage.aspx/PDFs/1848-75207268/AnnualReport2011
  2. Exercise of option by BHP Billiton to farm-in to Service Contract No. 55., http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3529_TA.pdf
  3. Press Release: “First Half 2012 Results,” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6546_TA.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Petroenergy Resources Corporation (PSE: PERC)

Petroenergy Resources Corporation (PERC, the “Company”) is engaged in oil and exploration development, geothermal energy, and wind power.

Oil and Exploration Development

The Company has the following interests:

The Company has minority interest in Gabon, West Africa oil fields namely, Ebouri, Etame, and Avouma. The oil fields produced 7.3 million barrels with a daily production averaged 22,100 barrels for 2011. Currently, 100% of the Company’s revenues are sourced from their interest in Gabon oil fields. There were no disclosures yet regarding the renewal of their Production Sharing Contract (PSC) in Gabon. The contract can be extended every 3 years and is already the sixth contract period with Gabonese government. Historically, the contract is extended 2 years before expiration.

Amount spent for the development activities in the Gabon oil field:

Philippine Oil Exploration Activities

 Among all the service contracts (SC) that PERC owns, SC 14C is at the advanced stage where drilling is planned to be by the end of 2012.

The most promising is their interest in SC 51. SC 51 has the following participants:

*On October 23, 2012, Frontier Oil Corporation (Frontier) entered into a Farm-in Option Agreement where Frontier can acquire 80% interest in the southern area of SC 51 through shouldering all the costs of drilling an exploratory well in the area.

SC 51 is divided into northern (on-shore) and southern areas (off-shore Cebu). The on-shore prospect, Duhat, is situated on the northern tip of Leyte.

Northern Leyte has been described by geologists as containing the most natural oil seeps in the Philippine archipelago. Duhat was drilled in 2011 but the well reached only 321 m, far from the programmed 1,000 m depth, when it had to be abandoned due to adverse pressures. Despite the shortfall, oil and gas indications were observed and a working seal and structure conductive of hydrocarbon entrapment were proven, indicating the presence of an active petroleum system. New seismic data is scheduled to be acquired in July or August of 2012 to locate a new well on the same prospect.

Geothermal Energy

The DOE awarded PERC the Maibarara geothermal service contract in February 2010. In May 2010, the company entered into a joint venture agreement through the Company’s wholly owned subsidiary, PetroGreen Energy Corp. (PGEC), with Transa-Asia Oil and Energy Development Corporation (TA) and state owned PNOC Renewables Corporation (PNOC-RC) to jointly develop and operate the 20 MW geothermal power project.

In August 2010, a joint venture company Maibarara Geothermal, Inc. (MGI) was incorporated with PGEC owning 65%, TA (25%), and PNOC-RC (10%). The Company expects MGI to be in commercial operations by the 2nd half of 2013.

 

Wind Power

The Company’s Nabas Wind Power Project shows promising results where data gathered indicated that it can sustain 40-50 MW wind farm development.

Other Data:

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Trans-Asia Oil and Energy Dev’t Corp. Update

Trans-Asia Oil and Energy Dev’t Corp. (TA)’s first half report shows the already promising future of the Company. The earnings for June 2012 surged by 70% or a jump from P129 million in June 2011 to P220 million this year. Earnings were mainly driven by TA’s trading gains of 313 million. Trading gains are the result of the company’s participation in Wholesale Electricity Spot Market (WESM). The Company’s purchased electricity from third party and excess electricity generated by the Company’s own power plants are sold to WESM. The Company usually enters into a contract with an independent power producer for a certain period of time. The fixed price in the contract allows TA to profit should electricity prices be higher than the cost in the contract. Electricity is a commodity that could not be stored; therefore, if electricity prices are lower than the contract cost, TA will be forced to sell at a loss.

Few electricity producers combined with high demand for electricity would mean high electricity prices traded in the WESM. Increase in profit due to high electricity prices is not a sustainable source of growth for the Company. However, with electricity demand to surpass the existing capacity and committed capacity in the coming years, electricity trading might be one of the major drivers of growth for the Company.


Source: www.doe.gov.ph

As depicted in the chart above, we can speculate that there will be an electricity crisis by 2016-2017 in Luzon should there be no substantial investments in the Philippine electricity industry from this year to 2014 (which appears to be the case).

Trans-Asia’s Future

TA has promising business developments on their power generation segment and oil exploration segments which I expect to contribute substantial revenue for the Company in the future.

TA has two major power plants under construction, 20 MW Maibarara geothermal power plant in Sto. Tomas, Batangas and 135 MW coal-fired power plant in Calaca, Batangas.

The Maibarara geothermal power plant is constructed by Maibarara Geothermal, Inc. a joint venture company of Petroenergy Resources, Inc through its subsidiary PetroGreen Energy Corp. (65%), PNOC Renewable Corporation (10%), and TA (15%). The construction is 35% completed as of June 2012 and is expected to be in commercial operation by third quarter of 2013.

The 135 MW coal fired power plant is constructed by South Luzon Thermal Corporation a joint venture company between Ayala Corporation (50%) and TA (50%). Construction has not commenced yet as of June 2012 but the power plant is expected to be in commercial operation by the fourth quarter of 2014.

TA’s oil exploration segment includes their minority participation in SC 55 which covers 900,000 ha. in offshore West Palawan. The SC 55 block includes the Cinco prospect with 500 million barrels mean resource potential. Drilling in the ultra deep prospect with BHP Billiton is expected to be on the first or second half of 2013.

A Note on TA’s Strategy to Maintain Their Share Price

The Company has a habit of declaring cash dividend and subsequently declaring share rights offering to replenish the cash they declared as dividend. At first glance, their P.04 cash dividend per year appears to be attractive but it eventually burdens shareholders with the SRO that effectively dilutes the earnings attributable for each share. Also, declaration of cash dividend would cost the Company 10% withholding taxes and declaration of SRO would require them to pay costs to the PSE relative to the amount they are willing to raise.

Despite the frictional costs, why is the Company doing what they are doing? In my opinion, cash dividends are declared to maintain TA’s stock price above P1. Management probably rationalized that the benefit of declaring cash dividends substantially outweighs the costs.

Maintaining the Company’s share price above its par value (P1) is necessary for the Company to issue shares to the public. Issuance of shares below par is illegal.

TA had consistently declared P.04 cash dividend since 2005 and I expect the company to maintain their strategy in the coming years.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Petron Corporation (PSE: PCOR)

Figures in BOLD are author’s estimate.

Business Profile
Petron Corporation (the Company), the Philippines largest oil refinery enjoys a market share of 38% as of 2011. The Company was incorporated in the Philippines in 1966 as Esso Philippines, Inc and was renamed Petrophil Corporation in 1973 when the Philippine National Oil Company (PNOC) acquired Esso. In 1985, Petrophil Corporation and Bataan Refinery Corporation (formerly the Standard Vacuum Refining Corporation) were merged with Petrophil as the surviving Corporation. Petrophil later changed its corporate name to Petron Corporation.

In July 2008, a company owned by Ashmore Group, SEA Refinery Holdings B.V. (SEA BV), acquired 40% interest in Petron. In December 2008, SEA Refinery Corporation (SRC), a domestic corporation owned by SEA BV, acquired the 40% interest of PNOC in Petron. In a related development, SEA BV sold 10.1% of the issued shares to SRC. As of December 31, 2008, the capital structure of Petron was as follows: SRC – 50.10%; SEA BV – 40.47%; and the general public – 9.43%.

On December 24, 2008, San Miguel Corporation (SMC) and SEA BV entered into an Option Agreement granting SMC the option to buy the entire ownership interest of SEA BV in its local subsidiary SRC. The option may be exercised by SMC within a period of two years from December 24, 2008.

SMC exercised its option to acquire 40% of SRC on June 15, 2010. SMC exercised its option to acquire the remaining 60% of SRC’s shares, in December 2010. With the exercise of the option, SMC beneficially owns approximately 68% of the outstanding and issued shares of stock of Petron.

At present, the Company has the following subsidiaries and affiliates and its percentage of ownership:

New Ventures Realty Corporation (NVRC)
A realty firm established on August 24, 1995 and 60% owned by Petron Retirement Fund (PRF). NVRC is authorized to acquire and develop land but does not engage in subdivision business. Land suitable for use as service station sites, bulk plants or sales office is purchase by NVRC which are then leased to Petron.

Petrogen Isurance Corporation (Petrogen)
Serves the insurance requirements of Petron and its allied business Partners such as contractors, suppliers, and dealers.

Overseas Insurance Corporation, Ltd. (Ovincor)
Ovincor was incorporated under the laws of Bermuda on November 16, 1995 for the purpose of expediting the reinsurance of Petron’s insurable interests as covered by Petrogen.

Petron Freeport Corporation (PFC)
PFC is engaged in the business of importing, transporting, trading, and retailing petroleum products and related products. As a registered Subic Bay Freeport (SBF) Enterprise, PFC is entitled to tax-free and duty-free importation of raw materials and capital equipment for use solely within SBF. PFC has retail division which handles the service station operation and manufacturing division which is engaged in refining, distilling, and manufacturing petroleum products, oil, gas and other vehicle substance.

Petron Marketing Corporation (PMC)
PMC operated sixteen (16) outlets at various locations. PMC also operated twenty three (23) quick service restaurants (QSRs) which are located in various service stations. PMC aims to convert company-owned company-operated (COCO) to company-owned dealer-operated (CODO). With this new direction, PMC will concentrate in the Franchising Business and support Petron Reseller’s network expansion program through providing manpower for the start up operations and assistance in the operations of stations with newly-appointed dealers.

Petron Singapore Trading Pte. Ltd. (PSTPL)
The subsidiary aims to optimize crude procurement and participate in Singapore’s Global Trader Program (GTP), which allows the Company access to a wider selection of crude alternatives, resulting in further optimization of Petron’s crude selection.

Petrochemical Asia (HK) Limited (PAHL)
In July 2010, the Company acquired 40% stake in PAHL with an option to raise interest to 51%. PAHL is the parent firm of the Philippine Polypropylene Inc. (PPI) which operated a polypropylene plant in Mariveles, Bataan. Propylene raw materials which is needed to produce polypropylene will be sourced from Petron’s refinery which can produce 140,000 MT of propylene yearly.[1]
Polypropylene is a raw material for making plastic. Polypropylene is resistant to heat and fatigue and is used for piping, flip-top bottles, plastic items for medical or laboratory use, clear bags, plastic ropes and packaging.[2]

Limayan Energen Corp. (LEC)
On August 3, 2010, the Company together with Two San Isidro SIAI Assets, Inc (Two San Isidro) incorporated LEC. LEC was formed to build, operate and maintain a cogeneration power plant as the Bataan refinery. The first phase will be online by early 2013 followed by the 2nd phase at the end of the same year. The cogeneration plant has four Circulating Fluidized Bed boilers that can generate a nominal capacity of 216 MW.[3] The power plant will be fuelled by petroleum coke or petcoke, an oil refinery by-product which will be sourced from the Bataan Refinery.[4]

Manila North Harbour Port, Inc.
On February 2, 2011, the Company acquired 35% equity in Manila North Harbour Port, Inc., which holds a 25-year concession from the Philippine Ports Authority to operate the Manila North Harbor. [5] Moving Petron’s depot facilities to North Harbor from the Pandacan Terminal would reduce the Company’s handling costs by as much as 80%. North Harbor has deep-water facilities which tankers can use directly which will allow bulk transportation of oil.[6]

Comments:
Petron’s attraction is the Company’s expenditures towards efficiency, cost savings, and developments to increase revenues.

The year 2013 and 2014 are years where the Company will enjoy a substantial growth in revenues as the 216 MW cogeneration power plant will go online by 2013 and the Refinery Expansion Project (RMP-2) will be in commercial operation by 2nd quarter of 2014 which will enable the Company to process a wider range of crude oil types. The 216 MW petroleum coke fired power plant will be able to generate the needed steam and power for the Bataan Refinery and sell the excess to the Wholesale Electricity Spot Market (WESM).

Source:

The author does not own any of the stock mentioned at the time of this writing. 

DISCLAIMER:
NOT A RECOMMENDATION TO BUY OR SELL