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

Stock thoughts: PXP, ROX

PXP

PXP disclosed the sale of PERC shares to RCBC:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1723_PXP.pdf

PERC shares are sold to RCBC clients on a slight discount to market. If “clients” view PERC as short term, then we can expect profit taking should the power plant go to commercial operations in August.

 

ROX

A strategic investor may buy 20% of ROX:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1724_ROX.pdf

The funds to be raised will be used for plant modernization.

ROX’s strategy is good for shareholders:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1693_ROX.pdf

Investing toward efficiency rather than on expansion would increase ROX’s profit margins allowing their products to be price competitive against imports.

Everything About Philex

Philex Mining Corporation (PX) was incorporated on July 19, 1955 and went public on November 25, 1956. The company derives its revenues from sale of gold, copper, silver, and petroleum. Gold, copper, and silver contributes 96% of the Company’s revenues net of marketing charges through their operation of Padcal Mine in Benguet. Petroleum which provides approximately 4% of the Company’s revenue is sourced from their interest in the Galoc oil field through their interest in Philex Petroleum Corporation. Below is the Company’s corporate structure:

PX’s Padcal Mine in Padcal, Tuba, Benguet Province produces copper concentrates containing copper, gold, and silver.  The Company has an existing long-term gold and copper concentrates sales agreement with Pan Pacific where at least 60% of the total annual production is committed since 2009. The uncommitted balance was subject to a contract with Louis Dreyfus Commodities Metal Suisse S.A. The value of the shipments is initially determined based on prices during the final quotation period.

The final quotation period for gold and silver is one month after month of arrival in Japan while quotation period for copper are two months after month of arrival in Japan for the period April 2010 to March 2011 and three months after month of arrival in Japan for the period April 2011 to March 2012.

Padcal mine is covered by two mineral production sharing agreement (MPSA), MPSA 156-2000-CAR and MPSA 276-2009-CAR valid up to 2025 and 2034 respectively.

As of December 31, 2011, the Padcal Mine’s mineral resources and proved reserves are estimated as follows:

In August 2011, the economic life of Padcal Mine was extended to year 2020 from 2017. A total area of 13,729 hectares within the municipalities of Tuba and Itogon in Benguet is covered by the following mining agreements:

The Company spent P324.2 million and P271.7 million in 2011 and 2010 respectively for environmental compliance.  The Company and its subsidiaries have been consistent winners in environmental contests. Padcal mine has been ISO14001 Certified since 2002 for Environmental Management System and won several environmental contest namely, Best Mining Forest first runner-up in 2010 and 2009, and champion in 2008, 2007 and 2011[1].

The Company is currently exploring and developing mine sites which is done internally or through drilling contractors incurring P2.022 billion, 1.246 billion and P855 million for 2011, 2010, and 2009 respectively.

The Silangan Project which is owned by the company through Silangan Mindanao Mining Co., Inc. (SMMCI) covers Boyongan and Bayugo deposits in Surigao which are currently under pre-feasibility stage. Anglo American Exploration (Anglo) completed a prefeasibility study of the Boyongan deposit in December 2007 and concluded the project to be not feasible which PX disagree. In November 2008, Anglo offered to sell their 50% interest in the project. In February 2009, Anglo’s interest in the project was purchased by PX for $55 million.

As of August 5, 2011, Boyongan and Bayugo which is covered by MPSA-149-99-XIII (to expire on 2024) and EP-XIII-03 Lot-B located in Surigao de Norte has the following estimated mineral resources:

In May 2011, the Company executed a Farm-In Agreement with Manila Mining Corporation through the purchase of 5% interest in Kalayaan Gold-Copper Resources Inc. (KGCRI) for $25 million[2] where the Company should conduct exploration activities in the Kalayaan properties (adjacent to Bayugo deposits) for three years. Should it declare commercial feasibility within the period, PX will have the right to increase their holdings in KGCRI to 60%.

Other mining projects of the Company that are at advance stages are the Bulawan mine in Negros and Sibutad mine in Mindanao. Bulawan mine and Sibutad mine operated on 1996 and 1997 respectively and both ceased their operations in 2002 due to unfavourable metal prices. As of December 2011, the Company is contemplating in reopening the Bulawan mine and conducted diamond drilling to come out with a resource estimate. Sibutad mine which has a remaining resource of 17.1 million tonnes with 0.84 g/t is temporarily at standby due to the standing open-pit ban in the province that they are operating.

Another source for revenue for the Company is the sale petroleum. Petroleum revenues came from their ownership of Philex Petroleum Corporation (PXP) which has a minority interest in Galoc oil field. An interesting business development for the Company is the commencement in commercial operation of their subsidiary Brixton Energy & Mining Corporation (BEMC) in 2010. BEMC previously engaged in buying coal products from small producers and selling it by bulk since 2005.  On January 16, 2012, BEMC entered into purchase agreement with Republic Cement Corporation for the delivery of 50,000 MT with a base price of P3,200/MT. On May 21, 2012, PXP expressed their confidence to be able to sell 100% of BEMC’s output of 100,000 MT of coal and plans to expand operations through bidding for the six coal blocks near existing Brixton coal project. [3]

Other Data

Source:
1.   “MINING FOREST PROGRAM REFORESTS 88% OF DISTURBED MINING AREAS”; http://www.mgb.gov.ph/art.aspx?artid=320
2.   “Agreement with MA for exploration and development of Kalayaan Project; Lifting of trading suspension” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3577_PX.pdf
3.   Clarification of news article: “Philex expects to sell off full Brixton output” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3916_PXP.pdf

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