These Companies Have Catalysts That You Can Not Afford To Overlook
Nathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The energy sector is exciting as high impact wells and new discoveries propel share prices while dry wells and below expectations drilling results drive the stocks lower hurting the valuations. This being said, significant news are brewing and major corporate developments are ongoing for the players below. The completion of these developments or some pending drilling results can impact the following stocks substantially. Eventually, adding these companies in your short-term radar is a "Must."
Drilling Around The World
As an adrenaline junkie, I add some hints of excitement by investing in companies that operate in countries with strong oil potential. For instance, I wrote an article about the Angolan players the other day, as Angola has become the second oil producer of Africa and is targeting the first position by 2015. This is how I stumbled upon Canacol Energy (TSX: CNE) that operates in Colombia and is awaiting game changer news from six different fronts:
b) The company starts drilling its Santa Isabel Block (100% WI) that is adjacent to VMM2 and VMM3 Blocks that host La Luna and Rosablanca formations which are Colombia's analogue to the Eagle Ford formation holding 3.2M barrels and 2.4M barrels of oil respectively.
c) Canacol also got very good drilling news from its first well (Agueda-1, 80% WI) in Llanos 23 Block which is adjacent to the oil rich Rancho Hermoso. It is currently drilling aggressively this Block and more news will be released by February.
d) It is also currently drilling the Guarango-1 well (100% WI) at the Putumayo Basin targeting heavy oil-bearing reservoirs in the company's producing Capella heavy oil field which is one of Colombia's largest discoveries.
e) According to the Q3 2012 report, Canacol is currently working to sell its WI in the following contracts: LLA 10 (39% WI), Caño Los Totumos (51% WI), Morichito (15% WI) and Entrerrios (60% WI).
f) Canacol is currently working to farm out both its Brazilian and its Guyana assets. According to the Q3 2012 report, the company is in advanced negotiations with potential partners to farm-out 50% of its 100% WI in the REC-T-170 Block and its 70% WI in the Takutu Block.
As conventional sources of oil dwindle, the companies are forced to look to alternatives like deep water drilling. It is believed that South America and West Africa touched one another 150 million years ago because the two Atlantic coasts share the same geology. Some recent giant discoveries by Petrobras offshore Brazil have come to add on this theory and they have excited the thrill seekers who believe that West Africa has the same tremendous oil potential. Petrobras' pre-salt discovery in Brazil is the largest oil discovery in 30 years, and one that could propel Brazil into the major league of oil exporters. Estimates of Brazilian pre-salt reserves indicate a potential for 70 to 100 billion bbl. For context, current Brazilian crude oil proven reserves are at 14.4 billion bbl. Kosmos Energy (NYSE: KOS) is preparing to spud the Sapele-1 exploration prospect (18% WI) on the Deepwater Tano Block offshore Ghana, with results anticipated by the end of February 2013. Additionally, Kosmos drilled its first well (100% WI) in offshore Cameroon in late 2012. It also anticipates the results from its first onshore well (100% WI) in Cameroon in early 2013. Will Kosmos replicate its success in Ghana where it drilled the giant Jubilee oil field in 2007?
Mart Resources (TSXV: MMT) is an oil producer in Nigeria. Mart's problem is its dependence on one pipeline to export its black gold and this has kept many investors far from committing funds into this company. The social unrest and the political turmoil are usual in turbulent Nigeria impacting Mart's ability to have a predictable cash flow every quarter.
To diversify and avoid future operating disruptions, Mart is currently working on a second independent 50-kilometer pipeline as an alternative to the current one-and-only pipeline. The pipes arrived in Nigeria in December 2012. Once the installation of the new pipeline is completed, it will be an infrastructure catalyst for Mart allowing it to gain access to Shell's export facilities. Additionally, the final results from the UMU-10 well are expected very soon.
Drilling in Canada
Significant stock movements could also take place in the Canadian energy patch during the next weeks, if some deals and transactions are completed successfully. Novus Energy (TSXV: NVS) is an oil producer of 3,600 boepd (77% oil and liquids). In December 2012, Novus retained financial advisors to optimize shareholder value. This includes a sale of the company or a merger with another entity. A deal will most likely take place with a significant premium because Novus trades with low metrics. With an Enterprise Value of $260M and 14.56 MMboe of 2P Reserves (latest report of Dec 2011), Novus trades for $72,000/boepd and $18/boe of Reserves.
Pace Oil (TSX: PCE) will be merged with two other smaller Canadian producers if the shareholders' approve the deal in February 2013. The new entity of 18,000 boepd will be both a growth machine and a dividend paying company with a hefty annual dividend of 36 cents that yields 10% annually. The completion of this deal will definitely attract a new category of income investors who seek for a steady monthly income coupled with a growth potential as the combined firm will have low rates of production decline and a prospective land of more than 700,000 net acres. The dividend looks sustainable long term as the payout ratio is very conservative and ranges at 35-45% of the operating cash flow.
The aforementioned companies have some significant "tricks up their sleeves". Although my crystal ball can't forecast in advance whether these "tricks" will have the size of a trout or a whale, it is certain that they have the potential to reward the investors handsomely.
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