Adding to Pan Orient

I increased my position in Pan Orient on Friday.

The more I look at the story here the more I like it.  The following comment from Raymond James was posted on the Investors Village board:

…after speaking with management we believe the recent discovery could have significant resource upside potential (see page 2 for details), and lead to a step-change in the company’s current production profile. The discovery represents an important milestone for Pan Orient as it moves towards its goal of increasing production from more stable sandstone reservoirs (as opposed to the prolific but highly volatile volcanic reservoirs which until recently underpinned the company’s production base).

The one short term negative for the stock is that it is expected that there will be a 10MMbbl writedown of reserves from their legacy volcanics field in Thailand when the reserve report comes out.  The reserve report will come out some time in the next month or two.

Chen Lin was interviewed earlier this week and he had some comments about POE as well:

Pan Orient has a slightly different thesis than Mart Resources because there is some exploration/discovery risk. It is drilling wells, potentially very big wells, but I don’t know if the wells will be successful. With Mart, there is much more certainty. However, though there is risk for Pan Orient, it is a very experienced oil exploration company, and it’s been in Thailand for five years, drilling and fine tuning its technology.

I shared with my subscribers a report that estimates each of the three Pan Orient wells in Indonesia is worth about $3 of net asset value (NAV)/share if successful in the first half of 2012 and $2 for each of the other three wells in the second half of 2012. In addition, Pan Orient also has an oil sands property in Canada that it wants to sell. The company has $1/share cash on the balance sheet and cash flow over $1/share right now, and this is in addition to the oil sands property that it has for sale. Thailand is ramping up production and Indonesia has the big wildcat wells at work. So in terms of risk-reward, it’s an ideal situation. I wouldn’t be surprised to see the stock be a ten-bagger by the end of this year. The company could be a $1 billion (B) company. It was a $2 stock when I recommended it in my newsletter. Right now it’s $3 and change. With some success in drilling in Indonesia, I’m looking for a ten-bagger. Seldom do you have those in one year, so I have pretty high hopes on the stock

I think that Chen Lin can be a little over-enthusiastic at times; I mean we are still a number of good events away from being a 10 bagger. Nevertheless, the possibility certainly is there and the possibility of a 50% return, which is nothing to sneeze at, is, in my opinion, extremely high.