PCL 0.00% 0.9¢ pancontinental energy nl

speculator column from the bulletin

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    This weeks Speculator article by David Haselhurst looks like a good opportunity for the contrarian crowd.

    Any thoughts anyone?


    David Haselhurst predicts imminent recovery for a struggling oil and gas play.

    Shares in Pancontinental Oil and Gas have more than halved since mid-year and last week tested a year's low of 2.6¢, a price that should be their absolute floor before a recovery in the coming months. Few shareholders appreciate that Pancon has high hopes of establishing significant income from two projects in the next six months or so. Perhaps shareholders will learn more about it at the company's annual meeting in Perth late this week. Ahead of that meeting, Pancon was to hold talks with its joint venturers in the Huinga 1B oil and gas discovery well in New Zealand's onshore Taranaki basin. More work has to be carried out on the potential of the well, which when discovered in April flowed both oil and gas from different horizons. Hydrocarbons were indicated over a gross column of 247 metres.

    Due to ground conditions and debris blocking the hole, however, a proper assessment of flow rates and reserves potential had to be suspended.

    The participants are understood to have realistic hopes that a sustained production rate of 2500 barrels/day could be established based on a recoverable reserve estimate of 67 million barrels of oil. Based on an oil price of $US27 a barrel, an exchange rate of US55¢/$A, then Pancon's 6.6% interest in the project would be worth a gross $2.96m a year, or a pre-tax net of $2.66m.

    That's equivalent to almost 2¢/share earnings on Pancon's issued capital of 136.6 million shares, following a placement of 8.8 million shares at 5.5¢ each in August to boost end-of-year net cash to around $700,000. Another way of putting it is that, based on potential earnings estimates from the Huinga block, Pancon at 3¢ a share would be on a multiple of just 1.5 times earnings from that project. Other listed participants are: Horizon Oil (formerly Bligh Oil) 25%, Australian Worldwide Exploration 13% and Impress Ventures 5%.

    The joint venture may also take heart from the discovery of oil in a neighbouring permit immediately to the south. The Makino 1 well, just 12km south of Huinga, intersected 6m of productive hydrocarbon sands in a structure that extends north into the Pancon and associates block.

    Since the initial results from the Huinga well appeared inconclusive, interest waned in the stock, particularly after mid-year when its next New Zealand well, the Waingaromia 2, on PEP38330 near the town of Gisborne in the north-eastern North Island, failed to produce more than a short-lived non-commercial gas flow.

    The saver for the present calendar year has been the recent discovery of oil in the Jingemia 1 exploration well, sited on the Perth basin of Western Australia, between the offshore Cliff Head and onshore Hovea oil discoveries. Pancon has only a 1.3% interest in this successful well but, also based on probable early production of at least 2500 barrels/day, on the basis of the sums done above on the New Zealand find, this could add a further 0.4¢ a share to Pancon's potential annual income beginning in the first half of calendar 2003.

    Such income would rein in the inevitable need to blow out the capital structure with ever larger and low-priced share placements. In the new calendar year, Pancon will be required to contribute to probable appraisal drilling on the Jingemia structure and production testing of Huinga. It also may be expected to farm out equity in other attractive plays for other parties to finance drilling.

    One such play may be a newly granted WA exploration permit, WA312P, covering 1850 sq km over the offshore Carnarvon basin, 50km north of Karratha, less than 1km south of the Wandoo oilfield (75 million barrels recoverable) and 11km east of the Stag oilfield (55 million barrels recoverable). Nineteen leads and prospects have been mapped. Pancon holds 33.3%, with the other participants being Sun Resources 33.3%, Victoria Petroleum 15% and Strike 18%.

    Pancon also has 40% holdings in large, shallow-water offshore permits covering 21,400 sq km in Kenya and 14,800 sq km south-west of Malta, with 60% held by chairman David Kennedy's company Afrex. Both may be targets for major farm-ins next year.
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