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
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Speculating on Trans-Asia Property Dividend

Kindly see video below before reading the rest of the post:

Trans-Asia Oil and Energy Dev’t Corp. (PSE: TA) speculation is based on Dr. Francisco Viray, Pres. and CEO, Trans-Asia Oil and Energy Dev’t Corp. statement on October 25, 2012 interview in ANC.[1] In the video TA bared their plans to spin off their subsidiary Trans-Asia Petroleum (TAP), formerly Karang Besar, and list the company by way of introduction. According to the Dr. Viray, they are planning to list the company by 2013 which is logical, in my opinion, since TA has two upcoming drilling.

Listing by way of introduction (LBI) refers to listing of shares where no public offering will be undertaken. LBI requires the company to meet any one of circumstances under the Amended Rules on Listing By Way of Introduction and the listing requirements under the Revised Listing Rules.

Listing by way of introduction may be appropriate in the following circumstances: [2]

  1. Where securities for which listing is sought are already listed or traded or will simultaneously be listed on another stock exchange or subject to approval of the Exchange, is listed on another trading market;
  2. Where the security of an unlisted issuer are distributed by way of property dividend by a listed issuer to shareholders of that listed issuer;
  3. Where a holding company is formed and its securities are issued in exchange for the securities of one or more listed issues and the listing of the listed issuer is withdrawn at the same time as the securities of the issuer are listed;
  4. Where listing of securities in an exchange is mandated by law of by the SEC, in the exercise of its powers under the Securities Regulation Code; OR
  5. Where public offering of securities is mandated by law or applicable regulations; Provided, that the applicant company secures a clearance from the relevant agency stating that such agency does not object to the listing by way of introduction of the securities of the company;

TAP will have to conform to circumstance “2” which is to declare a property dividend in order for the company to list by way of introduction. Regarding the listing criteria, TAP will be able to meet the listing criteria of the secondary board where a company shall only demonstrate superior growth potential which is inherent to an oil and exploration company.[3]

TA1

A company worth noting that took a similar path as TA is Philex Mining (PX). PX is a mining company that has 64% interest in PXP which is a company engaged in oil exploration. PX spun-off PXP by declaring it as a property dividend and listing the company in the Philippine Stock Exchange (PSE).

On May 26, 2011, PX disclosed the results of the Board of Directors Meeting where it was agreed that 1 PXP shares is entitled for a shareholder of 8 shares. [4] On that same day, on a press release, PX disclosed that they will seek SEC approval for the PXP property dividend. [5]

On July 21, 2011, PX disclosed the SEC approval of PXP property dividend. [6] On August 18, 2011, [7] PXP shares are distributed to the shareholders of PX and PXP was listed by way of introduction in the PSE with a listing price of P1.20 on September 21.

For this year, an insider of TA has been buying a lot of shares in the market:

TA2

The transactions above hints that TA shares are undervalued even at 1.80. How much exactly is the value of TA Petroleum should it be distributed to shareholders?

PXP has a listing price of 1.20 per share or a market capitalization of 2.04 billion. Assuming that TAP will command the same market capitalization we can have the following valuation:

TA3

We can reasonably assume that upon the announcement of TAP stock dividends, TA’s intrinsic value of P2.08 (projected EPS of .16 x PE ratio of 13x) should increment by 0.47 to acknowledge TAP’s value. TA’s value should be at P2.55.

TA has a board of directors who have shareholder value in mind. The company has declared cash dividends of P.04 since 2005. The Company has announced that the annual stockholder’s meeting shall be held on March 21. [8]

Numerous Catalysts for This Year

First catalyst would be possible announcement of TA Petroleum property dividend which might be before or after March 21 but not beyond the first half of this year.

Second catalyst would be the drilling of Cinco prospect in SC 55 in partnership with BHP Billiton in August.

Third catalyst would be the drilling of on-shore oil prospect in SC 51 in August.

Fourth catalyst would be the commercial operation of Maibarara geothermal power plant on the third quarter of this year.

 

RISK:

Non-occurrence of TA property dividend will substantially impair the valuation.

Source:

  1. Company Call: Trans-Asia Oil and Energy Dev’t Corp, http://www.youtube.com/watch?v=y50_ahfcjhY
  2. Article III, Section 1, Amended Rules on Listing By Way of Introduction, http://www.pse.com.ph/stockMarket/listedCompaniesRules.html?tab=0
  3. Part E, Section 2, Subsection e, Article III, Revised Listing Rules (MFB 149-2004), http://www.pse.com.ph/stockMarket/listedCompaniesRules.html?tab=0
  4. Declared of dividend Composed of property and cash, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3991_PX.pdf
  5. Press Release: “Philex Mining declares Dividend; To list Philex Petroleum shares on the Philippine Stock Exhcnage,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-4002_PX.pdf
  6. SEC Approval of Dividend, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-5417_PX.pdf
  7. Distribution of shares of Philex Petroleum Corporation, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-6197_PX.pdf
  8. Annual Stockholders’ Meeting on March 21, 2013, Record Date on February 19, 2013, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-0619_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.

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.