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Is President Energy finally on recovery path?
Latin American oil producer President Energy (PPC:AIM) could potentially exceed production guidance if a work programme proves successful.
This could be the catalyst to revive a share price depressed in the wake of operational issues last year.
The current target from President’s Argentinian Puesto Guardian concession is to hit 1,200 barrels of oil per day (bopd) by the end of September this year.
It has already managed to go from 500 to 800 barrels of oil per day thanks to taking remedial action to fix two wells. There’s another project on the cards which boost the output level.
President will soon undertake fracking to increase pressure on several wells which are currently closed off.
The action is expected to boost the flow of oil to the surface from these wells which could then be brought back into production.
President’s chairman Peter Levine is well known in the oil sector having made a lot of money for himself and shareholders in his previous venture, Russia-based Imperial Energy.
Imperial floated on AIM in 2004 with an initial market cap of just £2m. In August 2008 the company was bought by Indian state energy company ONGC for £1.4bn.
This success explains the presence of heavyweight institutions such as Schroders (11.2%) and JPMorgan (8.2%) on President’s shareholder register. Levine himself has a 31.9% stake.
So far President hasn’t been anywhere near as successful as Imperial. Its shares have lost nearly 90% of their value since Levine took control of the company, then called Meridian Petroleum.
The company has encountered several difficulties including the Argentine government’s decision in April 2012 to seize the assets of Spanish firm Repsol.
It has suffered inconclusive results from drilling in Paraguay and more recently had difficulties on its DP1002 horizontal well which was aimed at doubling output from Puesto Guardian. Investors should therefore treat this stock as extremely high-risk.
Alleged gross negligence
Despite using leading contractors such as Schlumberger and Baker Hughes, multiple issues were encountered on the well last autumn and Levine says the company has instructed lawyers over the debacle which he claims was caused by ‘gross negligence’.
Having raised $20m to help get the company back on track in November 2016 the company has the funds to complete the current work improvement programme.
It is also looking at the acquisition of producing assets in Argentina with development upside. Levine believes the political environment is friendlier in Argentina than a few years ago.
President’s portfolio also encompasses producing natural gas assets in Louisiana which help cover general and administrative costs and exploration acreage in Paraguay.
We think there is a merit in buying President at 7p, but only if you have money you can afford to lose.