CIBC on PMG:
Petrominerales Ltd.
Ops Update - Q4/11 Production Of 35.4 MBbls/d;
19 Exploration Wells In 2012
Petrominerales (PMG-SP) provided an update on its operational activities. On Block 31, Jamuco-1 test results are expected in late January while logs from Iboga-1 indicated 42 ft of potential net pay and the well is being cased for testing. On the Corcel Block, drilling began on the Tente-1 exploration prospect (results expected in March). On the Guatiquia Block, PMG is cementing the liner on the Yatay-2 well (production results expected late January).
In the Foothills, the Bromelia-1 exploration well is drilled to 16,094 ft (anticipated TD is 18,800 ft). The company expects to have logs in February. Canatua-1 drilling will follow Bromelia-1.
On the Casimena Block in the Central Lllanos, logs from the Yenac-6 appraisal well indicated 34 ft of potential net oil pay. PMG production tested the Upper Mirador interval and recovered 1,664 Bbls/d of 16 degree heavy API oil at a 31% water cut, and placed the well on long-term production test. Following Yenac-6, PMG drilled the Yenac-5 appraisal well with logs indicating 58 ft of potential net pay; production testing will commence shortly.
In the Llanos Basin Heavy Oil Blocks, the company has drilled its first heavy oil horizontal well, Tatama-1, drilling to a TMD of 6,550 ft with a 1,000 ft horizontal section. PMG has begun a multi-rate testing program and expects to have results by the end of January.
In Peru on Block 126, the La Colpa 2x well has encountered a number of porous sands in the Cretaceous and is drilling at 5,623 ft. Depending upon log results, the Cretaceous sands may be tested for oil potential. The company plans to continue drilling to total depth to evaluate the Tarma, Copacabana and Green Sandstone formations.
PMG’s Q4/11 production averaged 35,377 Bbls/d. December production included production additions from Cobra-2 initially at 4,000 Bbls/d (the well is currently producing 1,900 Bbls/d at a 64% water cut). At the end of December, PMG added a water disposal well in the NE part of the Corcel Block that enabled it to bring on 700 Bbls/d of previously shut-in production. PMG still has 2,500 Bbls/d off-line awaiting expansion of water injection capacity. This production is expected to be brought back online in Q1/12 as additional water injection wells are completed.
Impact: Neutral. Q4/11 production averaged 35,377 Bbls/d, ahead of our 34,456 Bbls/d estimate but below the Q3/11 average of 37,124 Bbls/d. We note that the sales number may vary from the production number; there is a risk that the sales could be lower if there is an inventory build. In Q3/11, the company sold 39,923 Bbls/d (~2,800 Bbls/d above production) so inventory is low in comparison to historical levels.
Operationally, there are no material updates but a number of drilling and testing results could be released during the month of January and February, including three wells in the Deep Llanos, one well in the foothills, one well in the Central Llanos and the first horizontal heavy oil well test.
The company gave its first view on 2012 operations. The company plans to drill 19 exploration wells and 24 stratigraphic wells in the heavy oil acreage; however, no guidance was given on the 2012 budget. This forecast seems a little light on exploration given that the company probably ended up drilling 35 exploration wells in 2011.
The 2011 budget is estimated at ~$1 billion including the $264 million purchase of the interest in OCENSA. We are assuming ~$750 million in E&D spending, approximately equal to the 2011 program.
PMG
Re: PMG
BMO on PMG:
Good Initial Exploration Indications,
Waiting on Test Results
Event
Petrominerales released an operational update noting positive initial oil indications on a number of exploration wells although we continue to await the results of two potentially large catalysts for the share price. These are: 1) the Bromelia-1 foothills well, which is currently at a depth of 16,094 feet and expected to TD at 18,800 feet (log results due in February); 2) testing of Tatama-1 (heavy oil horizontal location) which successfully drilled a 1,000 foot horizontal leg and has now commenced a testing program (results due in January). Unexpected positive results included net oil pay on the Jamuco-1 and Iboga-1 locations on Block 31 (where we expected no commercial success), as well as porous sands on the La Colpa 2x well on Block 126 in Peru, which may be tested depending on log results. Overall the company was slightly behind on production expectations with Q4/11 averaging 35,377 b/d versus our estimate of 35,932 b/d. However, the company has 2,500 b/d off-line due to water disposal restrictions.
Impact
Potentially Positive.
Forecasts
WTI forecast assumptions (US$/b): 2012E: 87.50, and 90.00 thereafter.
Valuation
We have used a discounted cash flow model to estimate a net asset value of C$29.70/sh, which we use as the basis of our C$29 target price.
Recommendation
We maintain both our Outperform recommendation and C$29 target price.
Good Initial Exploration Indications,
Waiting on Test Results
Event
Petrominerales released an operational update noting positive initial oil indications on a number of exploration wells although we continue to await the results of two potentially large catalysts for the share price. These are: 1) the Bromelia-1 foothills well, which is currently at a depth of 16,094 feet and expected to TD at 18,800 feet (log results due in February); 2) testing of Tatama-1 (heavy oil horizontal location) which successfully drilled a 1,000 foot horizontal leg and has now commenced a testing program (results due in January). Unexpected positive results included net oil pay on the Jamuco-1 and Iboga-1 locations on Block 31 (where we expected no commercial success), as well as porous sands on the La Colpa 2x well on Block 126 in Peru, which may be tested depending on log results. Overall the company was slightly behind on production expectations with Q4/11 averaging 35,377 b/d versus our estimate of 35,932 b/d. However, the company has 2,500 b/d off-line due to water disposal restrictions.
Impact
Potentially Positive.
Forecasts
WTI forecast assumptions (US$/b): 2012E: 87.50, and 90.00 thereafter.
Valuation
We have used a discounted cash flow model to estimate a net asset value of C$29.70/sh, which we use as the basis of our C$29 target price.
Recommendation
We maintain both our Outperform recommendation and C$29 target price.