Continuing the search for promising penny share candidates in the reviving oil sector, the Penny Sleuth has been exploring Colombia. To put it a little more accurately, I recently met with oil industry veteran Menno Wiebe. After retiring to his native Canada, he decided that one cold winter was as much as he could stand. And he is now a non-executive director of AIM-quoted PetroLatina (LON: PELE).
Previously known as Taghmen Energy, this company floated on AIM in 2005 with the general intention of building an oil business in Latin America. But since then, the going has been downhill all the way. Taghmen never came close to making a profit and the share price descended faster than an Olympic skier!
Great opportunities to add to existing projects
What, apart from the sunny climate, I wondered had persuaded Wiebe to get involved in PetroLatina? 'I checked it out,' he told me, 'and immediately found that it had excellent assets - but no money.' He also told me a story, famous in the oil industry, about the Colombian president, Alvaro Uribe...
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Ending his address at an oil industry conference in 2003, Uribe asked the assembled delegates if they were happy with what they had heard. He was met with a stony silence and a sea of grim faces and realized that he had failed to strike the right note. Uribe immediately gathered these unimpressed oil industry executives, thrashed out an attractive fiscal structure and promised to send his army to the country's trouble spots and ensure a safe operating environment.
That did the trick. Foreign investors poured in, licenses were awarded, and drilling rigs began to dot the Colombian terrain. There was a catch though. These bold explorers were not allowed to just sit on their licenses for ever. They had to actually do some work, and some of them have since run out of the money to do it with.
So Wiebe reckons there could be some good opportunities to add to PetroLatina's existing interests in the country. But that is jumping ahead. For now he is concerned with delivering on the promises that were made last year when he was part of a team brought in to replace the previous incumbents. Now first amongst these was an undertaking to 'drill within one hundred days'.
A 400% production boost should lead to bigger things
Thanks to a $25m investment by a Colombian private equity firm via which PetroLatina was able to secure a rig, it has drilled four wells on its licenses in the north of the country where it has a partnership with the Colombian state-owned Ecopetrol.
These have included one significant new discovery and all are producing. Although none of them are, in Wiebe's words, 'a barn burner' they have increased PetroLatina's production from 200 barrels per day to 1,000 and given it a base upon which it hopes to expand over the next 12 months.
This oil producing region, which extends into Ecuador to the south, has produced many large oil fields and Wiebe has several reasons for optimism. In its existing wells he believes that PetroLatina could find oil not only the depths from which it is now flowing but also from deeper strata. And at its Los Angeles field, it has a number of wells that can only draw oil from a relatively tight circle, leaving plenty of scope for in-fill drilling. So the existing fields can be extended, and PetroLatina has three interesting new prospects.
The first of these is at Chuira to the north where PetroLatina has acquired a sole license on particularly attractive fiscal terms. Seismic surveys are promising but much depends upon the nature of the underground rock fractures. The second prospect, Zoe, has the advantage of proximity to oil pipelines. PetroLatina will be drilling here later in the year, and again the seismic data looks promising.
Wiebe, though, admits that Texaco drilled a well close by back in 1985 but in spite of finding evidence of oil, decided not to proceed. He speculates that this could have been due to worries over security or the fiscal terms offered by the government.
The final prospect is in the Putumayo block to the south, close to the border with Ecuador. Again, owing to security concerns this is a lightly explored region but it is an extension of the prolific Oriente basin of northern Ecuador, which has hosted major oil discoveries.
Reflected by the gently rising share price, PetroLatina appears to be back on track, and intends to be producing 2000 bpd by the end of the year. As with so many junior oil companies, much beyond that depends upon the success of its exploration program. At this stage this one goes on to my Watch List.
This article was written by Tom Bulford, author of the Red Hot Penny Shares newsletter, and is taken from his free daily email the Penny Sleuth .
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