When the assignment for this month's issue was posted, I asked myself if I were going to look for value in the energy sector where would I begin.
I originally wanted to write about the efforts of my former intern Chris Glover who, at the age of 29, is in Ukraine hunting for coal bed methane leases with his own money. Unfortunately, his company isn't public yet, and although it would be an enjoyable yarn to write and hopefully for you to read, it wouldn't provide much in the way of trading opportunities.
The idea of Canadians scouring the globe looking for opportunities in foreign lands had me get on the blower to my former assistant and friend Katherine Perez who has her ear to the ground in Calgary with Blackmont. (By the way, Ms. Perez was kind enough to hire Mr. Glover for a summer many years ago on my suggestion, giving him a taste for the energy game.)
As life would have it, some attractive charts bubbled to the surface after talking to my friend.
Petrominerales Ltd. is not a new story and has been very generous to investors that bought after its 2006 initial public offering, which was priced at $3.75. It now trades at about $13. PMG operates in Columbia and, as of its first quarter 2009 report, had seen production jump 152 per cent from a year earlier to 21,771 barrels of oil per day (BOPD) on some impressive drilling results. Their May production has averaged just over 25,000 BOPD as the hits just keep on coming.
Management pedigree is also strong with John D. Wright at the helm. He was central to the success of Pacalta Resources, where they drilled up some great targets in Ecuador, and he has decades of experience in Latin America. PMG is majority owned by Petrobank Energy.
The chart shows a reversal of the downtrend that started last summer and a golden cross forming in April indicating that the uptrend may have more in it. There is some resistance at $14 but not much.
The next company that met the profile was Pan Orient Energy Corp. The company operates in Thailand and Indonesia and as of their first quarter 2009 report they were producing 6,165 BOPD, up from 4,604 a year earlier.
POE also benefits from having an experienced management team headed by Jeff Chisholm who has 18 years of international experience with Nexen, EnCana, and Niko Resources. When I hear Niko I pay attention.
Pan Orient has a 2009 capital budget of $60-million, of which 57 per cent will be spent in Thailand and 43 per cent in Indonesia on high impact drilling.
POE is pulling back from an overbought situation and the Moving Average Convergence/Divergence (MACD) is turning down which is signalling that perhaps the stock got too far ahead of its results and had to catch a breather. There is a golden cross that formed this month which makes this one worth watching for an entry point on the pullback.
The last company, Pacific Rubiales Energy , is listed in Canada but most of its management team is from Venezuela. I guess they decided to find greener pastures till the politics of nationalizations in their former theatre of operations settles down. I was wondering what the Canadian connection was and found oil patch veteran John Zaozirny on the board. Yes, that John Zaozirny, the vice-chairman of Canaccord Capital Corp. and former Energy and Natural Resources Minister in Alberta.
The company is operating in Columbia and Peru and has increased 2009 production to 55,000 barrels of oil equivalent per day (boepd) from 30,000 boepd in 2008. Nice.
The chart shows that the stock is in a nice uptrend that was signalled by a double bottom in the beginning of the year. There is also a golden cross that formed in May. It appears that PRE is moving nicely through any resistance that I can see on the longer term charts.
These are three stories that share similar patterns of growing production, seasoned managers, and golden crosses. Not a bad yield from a process that started with an assignment, the adventures of a former intern, a call to a former colleague and good friend, and some banging on the box.