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Posts from the ‘Pan Orient Energy (POE)’ Category

Week 177: Perspective

Five weeks ago I wrote that I was walking away for a while.  And so I did that.  It didn’t last as long as I had anticipated.

At the time I had taken my portfolio to about 60% cash and I had a number of shorts that helped hedge out the exposure from my remaining longs.  In early October I had basically stepped away because I had made some mistakes and lost confidence in my decisions.  It had started with the mistake of not looking closely at the oil supply/demand dynamic, which was compounded by the mistake of selling the wrong stuff when the bet began to go wrong.  As I lost money on a few oil and gas holdings, rather than reducing those positions I reduced other positions, presumably with the intent of reducing my overall risk.  Unfortunately this isn’t really what I was doing.  What I was actually doing was selling what was working while holding onto what wasn’t.  A cardinal mistake.

The consequence was that I saw my portfolio dip 12% from its peak by the second week in October.  More frustrating was that as stocks recovered in late October, I watched as some of the names I had sold near their bottom, in particular Air Canada, Aercap, and Overstock, recover their losses and were on their way back up.

I wrote my last post on a Friday afternoon after the market had closed.  Over that weekend I was virtually unencumbered by the markets.  My portfolio was cash, my blog was on hiatus, I had nothing to prevent me from thinking clearly. I don’t remember exactly when the moment came, but at some point that weekend I had a realization.

For those who have followed this blog over the past few years, you will remember that in December of last year I made a very large bet on New Residential.  The stock had gotten hit down to below $6 at the time.  I thought this was rather ridiculous and so I bought the stock.  I bought a lot of the stock.  I made it a 25% position in my portfolio.

In a narrow sense, the trade worked out.  By the end of December the stock had jumped close to $7 and I sold the position for a tidy profit.  But in the broader sense, it was an abject failure. Read more

Week 119: Getting Back on Track

Portfolio Performance

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See the end of the post for the current make up of my portfolio and the last four weeks of trades.

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Recent Developments

I always write words like those in the title with some trepidation. I’m never really sure if things are back on track, or just bouncing on their way to oblivion.

Nevertheless, the tangible evidence is that my portfolio has recovered and made new highs in the last month. I had a blip to the downside in August, and when I look back on that blip, I can attribute it to a few bad decisions. There was Niko Resources, Walker and Dunlop and Dex Media obviously and to a lesser extent Vitran and AMBAC.  All of these stocks had flaws that I should have recognized and gave greater consideration to, and none of these stocks deserved to be allocated outsized starter positions, yet in the case of Niko and Dex Media that is exactly what I did.

I’ve gone back to the drawing board since then.  I’ve tried to be more careful with my stock selection, tried to spend more time thinking through each idea before adding a position, and tried to work with the attitude that an opportunity passed up is better than one taken and lost on. Read more

Week 111 Portfolio Update: When Things Aren’t Working…

Portfolio Performance

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See the end of the post for the current make up of my portfolio and the last four weeks of trades.

week-111-Performance

Shake-up

In a previous post about Walker & Dunlop I described the consequence of being on vacation while the company announced poor results, which was that I was not able to take advantage of a clear selling situation.  The same was the case for Dex Media.

In the past I used the term “good enough investing” to describe what I’m trying to do with my portfolio.  I work a full time job, have a life and need a break now and then, and all that means I just can’t be on top of everything.  I try my best but I have found it necessary to employ techniques to mitigate this.  In particular, I sell stocks when things aren’t working out.

While I’ve had my share of winners over the past month and a half (AIQ, NVS, NCT, NRF, IQNT to name a few), I’ve also had my share of losers (NKO, EXE, VTNC, and the above mentioned duo) with the result being that my portfolio has done not much of anything. While I remain hopeful that both Niko Resources and Extendicare eventually pan out, the fact is that thus far they haven’t. Read more

Week 61: Good Enough Returns

Portfolio Performance

Portfolio Composition

Note: I have begun to add all new US holdings in US dollars. This will make it easier to distinguish between US dollar and CDN dollar holdings. However, I cannot move currencies for existing stocks and preserve gains so existing US stocks in the portfolio will continue to show up in the CDN Holdings portfolio.

Click here for the last two weeks of trades.

Portfolio Summary

The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

– Wikipedia

If I may propose a 80/20 rule for investing, it would be that I can get 80% of the returns for 20% of the work.

Now to be sure, I don’t mean this as an exact, quantitative measure.  You’re not going to get exactly 20% more returns by putting in 80% more work.

But qualitatively, I think its reasonable.  Let’s call it the good enough returns / best returns rule.  If you put in the work, you are going to get good enough returns.  And if you put in a bunch more work, you’ll get the best.

Don’t be fooled by it being only 20%.  20% is only relative to the amount of work you would need to do to get the best returns.  The absolute amount of work required to reach 20% is still a lot.

I think I put in more than 20% of the work, but not 80% more. Maybe 30-40%.  Now obviously I write and research and work a lot so what I’m saying is that to get to even good enough, you still have to work hard.

What would the best returns be?

The following is from Warren Buffett:

If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then.

It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.

I don’t think that’s bragging, and I don’t think that its just because he’s Warren Buffett.  I think you could do it.  But I think that to do it you would have to put in the full 80%.

And what does that other 80% look like?

Let’s take Impac Mortgage.  I think it has a few lessons as to where the incremental returns are if you are willing to put in the work.

First, when the news comes out, you have to be available to research the shit out of the name.  I’ve already given the history of my initial purchase of Impact mortgage here. Yes, I was on vacation, but if I hadn’t been I would have had to go to work in the morning and I would have at best been able to get an hour of research in before I left.  That would have given me enough time to get a feel for the company and to eliminate any major red flags, but not enough time to develop the comfort required to “go all in”.

As it was, by the time I got that comfort, it was 3 days later and the stock was 80% higher.  Imagine what could have been.  Had I been able to work through the night, read all the 10-Q’s and 10-K’s, listen to the conference calls, basically get to the point where I knew everything there was to know about the company, I would have most definitely went all in the next morning.  Instead of being a couple percent position, it would have been a 10% position.  It was that clear.

A second example from Impac Mortgage.  Once Impac came out with its quarter and skyrocketed, the next logical thing to do was to see if there was another Impac Mortgage lurking around somewhere.

I did a bit of work the next weekend to find it.  As much as time would allow.  I did some searches and looked for companies with the word home and mortgage in their name and did some google searches with key words like originator and such.  But I didn’t find any company that looked compelling and I moved on.

However, it turns out there was a company out there, it was just a bit more well hidden.  I didn’t learn about it until Olmstead, a tweeter I follow, posted a tweet on the company.

SNFCA is Security National Financial Corp, which doesn’t sound much like a mortgage company and that is why it didn’t pop up on any of my screens.  Nevertheless the company has a large mortgage origination business (in addition to life insurance and of all things mortuary services) and they reported equally strong earnings as Impac in the second quarter.

The stock has risen from $2.50 to over $4 in the last two weeks.  I haven’t bought a position yet but I have been actively looking at the stock this weekend and may buy into it next week.  But I certainly would have bought it at $2.50 had I known about it at the time.

I’m not complaining.  I’m just trying to delineate what it would take derive significantly higher returns.  And I believe that to do so, these are the sort of situations you need to have the time to search out and take advantage of.

Adding to my bank stocks, to gold and out of Pan Orient

In the last two weeks I really haven’t made many changes to my portfolio.  I only made four portfolio changes.  I added two community banks; Sound Financial and Premierwest Bancorp, I added a small position in a gold producer, Brigus Gold and I sold out of Pan Orient.

Sound and Premierwest are two more examples of my theme to look for little banks with upside potential.  In the case of Sound, it is a mutual holding conversion (see my writeup here for an explanation of a MHC) that is trading well below book value, has decent earnings and a good loan book.

Premierwest is, in my opinion, traveling down the same path that Community Bankers Trust did.  The bank, which was hit hard by the recession, has shown an improving loan loss portfolio and trades at a fraction of their tangible book value.  Like Community Bankers Trust was, they are getting close to the point where the Fed will allow them to begin to pay back unpaid dividends on their TARP preferred securities, and if (when?) this happens, the market should gain some comfort with their financial position and revalue the stock to something closer to book value.  Remember that with Community Bankers Trust, in the days following the news of their TARP dividend repayment the stock was up well over 50%.

I also bought a small position in Brigus Gold.  The company keeps hitting good results outside of their main Black Fox mine and the stock has done nothing to reflect that.  I also bought on anticipation that both the Federal Reserve and ECB were more likely to make pro-easing comments than they were to not.  So far, with Bernanke’s speech at Jackson Hole, that has turned out to be the case.  I think we’ll see more of the same from Draghi and the ECB in the coming weeks.  But I admit, I waffle back and forth on the long-gold stock thesis on a regular basis.  I wouldn’t look at Brigus as much more than a trade.  If gold starts to falter, Brigus will be the first to go.

Finally, I sold out of Pan Orient because along with their second quarter results they announced more problems with their drilling in Indonesia and more delays in their production in Thailand.  I have highlighted the key sentences from the news release below:

Jatayu-1 Exploration Well

Since the operations update of July 25th, the well was drilled through the first loss zone at 6,173 feet to a depth of 6,330 feet where total drilling fluid losses were once again encountered resulting in heavily gasified mud resulting in a four meter gas flare when the mud was run through a separator at surface. A cement plug was run to cure the losses and was drilled out to 6,329 feet where losses were once again encountered and the decision was made to run wireline logs and pressure points, which were run successfully. A preliminary interpretation of the wireline logs and pressure data collected over the interval of interest was unable to confirm the presence of gas pay.

Two further attempts were made to drill through the loss zone at 6,330 feet with a maximum depth of 6,346 feet achieved before once again having to set a cement plug in an attempt to deal with the drilling fluid losses. Presently, one last cement plug has been set and the well is currently drilling cement just above the loss zone. In the event that the drilling fluid losses that are unable to be controlled are experience in this latest attempt, the well will be suspended and the rig will mobilize to the Geulis-1 location with that well anticipated to spud in the next three to four weeks.

Thailand – Concession L53 (Pan Orient Operator and 100% Working Interest)

A 20 year production license has been granted over the L53-D East oil discovery. The production Environmental Impact Assessment for this production license and related development well drilling locations was not approved at early August meeting of the environmental regulatory organization and the second hearing is expected to take place in mid-September. Regardless of the outcome of the mid-September meeting, construction of drilling locations cannot take place until the end of the annual monsoon season which typically ends in late October each year. With a construction time of approximately one month per well pad, the drilling of four development wells is not anticipated to commence in Concession L53 until December 2012 with exploration drilling on the newly acquired 3D seismic survey likely to take place late in the first quarter of 2013.

The company subsequently released news that they were able to get through the difficult section and they may at least be able to test the target zone, so I may turn out to have been hasty in my retreat.

I realize that even after the dividend payment that the company has cash on the balance sheet that nearly equals the share price, but they are also drilling high cost (albeit high impact) wells that will consume that cash quickly.  Its simply a risk/reward decision.  The risk is that they consume cash and do not drill any successful wells.  The reward is that they hit and if they do the stock will be multiples of what it currently is.  I simply decided that I had enough risk in my portfolio and I didn’t want any more.

Exhausting Market, Pan Orient releases news, Gold stocks take off (again…)

Man is this ever a difficult market to invest in.  Stocks are up, stocks are down.  Gold is down, Gold stocks are down, oh wait now gold stocks are up. Oil and oil stocks are down, now oil stocks are up, now they’re down again.  Mortgage stocks are holding up, now they are way down, now they’ve recovered it all and then some.  Its quite insane.

All of this is because no one has any idea what is going to happen if Greece leaves.  Well first of all, no one has any idea if Greece is going to leave.  And if they do leave, then no one has any idea what is going to happen next.

Dennis Gartman wrote the following today:

Panic then is in the air. Confusion then reigns. Liquidity trumps all other concerns and in that environment we can imagine almost anything happening. We can imagine the Yen moving two or three Yen… higher and/or lower. We can imagine gold moving $50/oz.… readily… higher or lower. We can “see” the dollar moving 2-3 EURs… higher or lower, and in that environment we wonder what trades, if any, make even a modicum of sense?

He’s right. It’s a crapshoot right now.

Its binary.  If Greece doesn’t leave the Euro then we can pretend its all good for another few months or maybe a year.  If Greece does leave the Euro then its equallypossible that A. Nothing much of anything happens, at least outside of the Eurozone itself or B. Complete chaos ensues around the world. You can probably make the argument that the delta between A and B is +/- 20% on the markets.

It just isn’t something that can be accurately priced in ahead of time.  The consequences of Greece leaving are, to put it in the terms Donald Coxe has used, existential.  Yet this is the problem that the market is struggling with and the result is a rollercoaster and Im tired of it.

Pan Orient News

In the midst of the chaos Pan Orient released news today that they sold their 60% interest in a number of their Thailand offshore land blocks for about $170M.

Pan Orient has operated working interest in 4 offshore concessions in Thailand: Concession SW1 (SW1); Concession 44/43 (L44); Concession 33/43 (L33); and Concession 53/48 (L53).  This sale was for everything but the L53.  TheL53 concession is the concession that had the recent discovery that first excited and then disappointed the market.

In total Pan Orient had 19MMbbl of proved and probable reserves in Thailand at the end of 2011.  I wasn’t able to find where they break out the L53 reserves from the other concessions but if I use a rough ratio based on 2011 production, somewhere around 17MMbbl were sold.  This puts the selling price at about $10/bbl.  That’s not too bad.

On a flowing barrel basis, according to the Annual Information Form these concessions produced 1,306bbl/d in the fourth quarter of last year.   That would make the selling price $130 per flowing bbl, which again is not bad.

These blocks have not been given much value by the market because they have had production problems and reserve writedowns.  These blocks are producing from volcanic formations that are not commonly oil producing rock, there was skepticism in the market regarding whether these formations would be able to sustain production, and that skepticism was proven to be valid when Pan Orient took a technical revision of 12.5MMbbl on their year end reserve report.  To get $170M for these concessions now is really quite surprising. I was shocked.  Honestly I had to read the news release like 3 or 4 times to make sure I wasn’t missing something.  The blocks sold don’t even include the block that has had the recent discovery. Yet here you had a $2 stock that had just sold a piece of their assets, and not even really the core piece, for about $2.80.

Almost as shocking was that the stock opened after the halt at $3.25 and traded as low as $3.10.  Have we reached the point where cash is not even worth cash any more?  If you do the math Pan Orient had somewhere around $60M in working capital (mostly cash) before this sale.  This sale adds about another $160M (after netting out the working capital changes) or so.  So that’s about $220M total cash.  The stock has 60M shares fully diluted so that puts cash alone at $3.80 per share.  If the market wasn’t so awful and everyone wasn’t worried the end of the world was nigh I think the stock would be have traded quite a bit higher.  I added some shares at $3.25 (though to be clear, as I wrote before I had sold some shares late last week when I sliced 20% off almost all my holdings, so these shares were essentially just adding back about half of those).

Gold Stocks rising? Maybe?  Could be? Or more wishful thinking?

Also today, gold stocks took off.  In my umpteenth attempt to time the bottom for gold stocks, I bought a few more Newmont calls, added to my position in Atna, and added a position in OceanaGold.  OceanaGold is a trade, pure and simple.  If gold falters again and the stocks look weak, its gone.  If not I will ride it back above $2.

The action in the gold stocks has been interesting.  There has been 4 days over the past two weeks where Newmont  has risen while gold has fallen.  I figure that is about 4 more days than that has happened in the previous 6 months.

I have no idea what is going to happen to gold or to gold stocks next.  What I do know is that it makes sense that gold will rise in the face of a declining and potentially collapsing Europe.  The recent response of gold to the Euro decline makes very little sense to me. Lately it has been that if the Euro falls then gold falls about 2-3 times more.  Basically the market is saying that if there is a collapse of the Eurozone you would be better off going long Euro and short gold than the other way around.  Clearly this is not a sensible conclusion.  Gold should be, after all, the negatively correlated asset class paper currencies.  As the faith in paper currencies decline, gold should rise.  Look I’m not a gold bug.  I have no idea whether a gold standard would succeed or fail.  But I do know that gold should act in opposition to currencies, and this certainly seems like a rather good environment to be betting against paper currencies.  And so it is that I make a bet on a few gold stocks once again.

Exhausting…

I have to say though that the stress of these swings is getting to me a little.  With respect to Pan Orient in particular, I was quite worried that because the market is so awful and everything has been tanking on even the slightest bit of bad news that if Pan Orient released bad results from their Indonesian well (which is what I figured was the reason for the halt) that the stock would crater further. I really felt relieved when I read the news release and it was anything but bad.  However I was a little surprised with just how relieved I felt.  It was one of those moments when you kind of look at yourself and think wow, I’m really quite stressed about all this aren’t I.  Not surprising I suppose.

The only thing I know to do to have less stress is to have more cash.  Cash is, after all, the negatively correlated asset class to market stress.  I’m 35% cash right now.  I have said before that I want to be 50% cash by the Greek Election.  I stand by that, and will be working to get there by selling into any rallies.

Week 45: The Trouble with Value Traps

Portfolio Performance

Portfolio Composition:

Trades

Where are the gains?

What is really frustrating about my portfolio performance is how well I have done on individual stocks while making so little money overall.  Its been such a wasted opportunity.

Here is a short list of some of my winners since the beginning of this year:

The obvious question that occured to me was how is it that these stocks that make up a substantial part of my portfolio (PHH Corp and Newcastle are two of my three largest holdings) can be up an average of 42% and my portfolio as a whole is only up about 10% since the beginning of the year.

When I went back through the history of my performance for the year so far it became clear that really, most of the problems are the result of two mistakes.

  1. I bought the stocks of two oil companies and oil company stocks have been pummelled
  2. I compounded that mistake by averaging down in each case

Averaging down is such a dangerous game.  In the long run it can work out for you at times, but at other times it can really stick you into some tough spots. I averaged down on Equal Energy, which I originally bought at $5.50, when it got to $4.00.  It proceeds to go down to $3.00 before finally recovering recently to $3.40 where I have perhaps compounded my potential for a mistake by averaging down again.

I also averaged down on Pan Orient.  I bought an initial position in Pan Orient at $4.00.  The stock collapsed on poor results in Thailand and I averaged down at $2.75.  The stock is now $2.30.

Averaging down is the symptom, but the cause that underlies both of these situations is that both are value traps.  Both stocks are really quite cheap.  Of course they were really quite cheap when I initially bought them and they were really quite cheap when I averaged down.  They just got cheaper.  In the case of Pan Orient, the company has $1 per share of cash on hand, is able to generate $1 per share of cash from their current level of oil production, and have some upside to be realized from  the new discoveries in Thailand.  In the case of Equal, they generated $2 per share of cash flow last year and continued that trend in the first quarter by generating another 50 cents.  At $3 they are trading at 1.5x their cash flow generation.

The problem is that the wisdom or folly of averaging down is not a clear cut case.   If I look back on the times that I have been trapped by value, I can name just as many cases where I ended up a big winner as I can cases where the value was never realized.  I sat underwater some 40% with Tembec at one point before the market recognized the turn in the pulp cycle and the stock tripled from where I bought it.  Had I not doubled down with Western Canadian Coal in early 2009 I would never had had the truly phenomenal gains that came from the stock going from 50 cents to nearly 10 dollars.   To site a recent example, I tripled my position in Community Bankers Trust when the stock hit $1, which was down 30% from my original $1.30 purchase.  Now its $2.25.

I appreciate the wisdom of the Gartman axoim that you should never add to a losing position.  And in many cases I follow this axoim and I walk away from a stock simply because its not working out.  But there are cases where the value appears to me to be so clear that to walk away from it just because the market acknowledges even less seems foolish.  Such is the case right now with Equal and Pan Orient.  The same sort of scenario could quite easily be in the process of developing with Atna.

So what do you do?  What I do is I sit down every weekend or two and review these two holdings and the thesis behind them and generally I end up drawing the same conclusion that I originally did.  In the cases of Equal and Pan Orient I remain convinced that both stocks have to trade higher at some point.  So I hold and wait. And I hope that Europe doesn’t completely implode in the mean time (see my last post on cat and mouse).

Out of Shore Bancshares

I sold out of Shore Bancshares on Friday as I warned that I might.  Here is a case of a stock just not working out the way I anticipated.  Over the long run the bank is probably going to be just fine, but as I have already pointed out the non-performing assets are not trending down and so it is perhaps going to be a while before the market gives shore the “just fine” green light.  In the mean time I have been looking at some other names that are perhaps better banks to be in right now.

Out of Atlantic Coast Financial

I really wanted to hold onto my small position of Atlantic Coast Financial.  Its a lottery ticket to be sure, but its not very often you find a bank with a book value of almost $20 per share trading at a share price of $2.  Nevertheless, when I read the news earlier this week that the Chairman of the Board was resigning from his position because he felt the board and management were not working hard enough to put the bank back on its feet, I felt I had no choice but to sell.  I was somewhat surprised that the fall out since then has been minimal.  The stock is essentially trading at the same price it was at the time of the announcement.  That may actually be the best sign the company has given that they are turning around. It remains on my radar screen, and on my google alerts.

Maybe not a Gold Stock reversal

I thought that we had a classic reversal in gold stocks on Wednesday.  But now, not so much.  As I pointed out at the time, I am not a technical trader and generally pay no attention to such things and perhaps I should continue in that vein rather than trying to pick points that clearly aren’t working out.

I wouldn’t say that my theory that Wednesday was the gold stock bottom is dead, but its certainly on life support.  I sold some Golden Minerals that I had bought and in an account I don’t track here I sold the Newmont I had added.

Breaking my rule for Pan Orient

One of the rules that I try to follow is not to add to a stock that has fallen below my purchase price. I have been burnt a number of times by doing this.  I have ended up trapped in the position, and further averaging down only adds to the problem.

The rule, like all rules, is not of the steadfast sort, and so I do break it from time to time.  But when I break it, I do so tentatively, I think about the consequences, and make extra sure that my decision makes sense.

I broke the rule with Pan Orient on Tuesday.

I had a fairly small position in Pan Orient and had been waiting for something of a correction before I added to that position.  I didn’t expect the extent of the correction that occured, but after some reflection I decided to add to the stock.

The news that sent the stock down was this news release. What sent the market scurrying was twofold; news that the L44 block exploration was not finding economic oil, and probably more importantly the news that the L53 block was experiencing a relatively high water cut.

In particular, in the news release the company said that the L53-DST3 well had been producing at 540 bbl/d of oil with a 60% water before it was shut-in and cased to perform a sidetrack of a deeper zone.    In the February 27th news release the L53-DST3 well was producing at 1,200bbl/d of oil with no water cut.

This is potentially negative news, but its really anybody’s guess at this point just how negative it is.  Since the reservoir is high porosity / high permeability it could be water from coning.  It could also be that the perforated interval extended down below the oil/water contact or that it partially perforated a water zone.  There are also plenty of examples of fields that successfully produce at high water cuts for years.  The downside is that the watercut may be creeping into the oil zone and continue to increase with time until the well is uneconomic.  Only time will tell.

The market neglected to put any value on the good news from the release.  The L53-DST3 well tested a slightly lower sandstone zone (1,179m TVD versus 1,142 to 1,163m m TVD for the previous 2 zones) and that zone was flowing at 400 bbl/d.

In the L53-D2 well, Pan Orient tested the 5 zones that it had previously not tested but had referred to in the original news release of the L53-D2.  In that January news release the company said:

Pan Orient is pleased to announce that the L53-D2 exploration well is currently on 90 day production test flowing 27 API degree oil at a rate of 1,015 barrels per day through 17.8 meters of perforations between 1110.8 meters to 1154.7 meters measured depth (860 to 890 meters true vertical depth), within one of six conventional sandstone reservoir intervals interpreted as oil bearing based on oil shows while drilling and open hole log and pressure data analysis.

The news release on Tuesday told us that 5 untested zones have now all been tested and all 5 were found to be oil producing.  One zone tested at 929 bbl/d of oil while two others tested above 500 bbl/d.  These zones are in addition to the originally tested zone from the January news release that tested at 1,1015 bbl/d and produced 40,917 bbl in the first quarter, which if you assume it was flowing for the full 90 day period means that the well flowed at an average rate of 454 bbl/d for that period.

The bottom line for me is that Pan Orient is finding a lot of oil zones and even if a couple of them don’t work out to be as wonderful as say Coastal’s Bua Ban, they are still going to produce a lot of oil and book a lot of reserves from them.

At this point it comes down to valuation.

Thailand production averaged 2,725 BOPD in the month of March, of which 1,702 BOPD was produced from Concession L53 and a combined 1,023 BOPD from Concessions L44, L33 and SW1. Production in the first quarter of 2012 averaged 2,541 BOPD.  Based on the March production number and the basic shares outstanding of 56.7M, Pan Orient is valued at $52,000 per flowing barrel.

According to slide 5 of Pan Orient’s January 9th presentation, yearly cash flow at 2,500 bopd and at $100/bbl WTI should be around $60M, and at 3,000bopd it should be $68M.  Again, with 56.7M shares oustanding, that puts the valuation at around 2.5x cash flow.

The company has cash and working capital on hand of $58.5M according to their January 9th presentation.  So about $1 of the current shares price is attributable to cash.

Capital expenditures are expected to be $37M for the year so 2,000 bbl/d of cash flow more than covers capital expenditures.  With the cash on hand in addition to the cash flow Pan Orient has a CAPEX cover that is rarely seen in the oil and gas junior industry.

I just think this looks over done.  I wish now that I had waited another day to buy, as the stock trades at $2.50 whereas I added at $2.76.  But I didn’t want to wait too long.  The company will be releasing a reserves update on the L53 structure within a week or two and I think that could be a catalyst for the market realizing it has overdone the downside.