Special report: Pac Partners believes American Patriot Oil and Gas shares could shoot as high as 7.3c if oil can stay up around $US70 a barrel.

Lawrence Grech, an analyst at the brokerage, says that as the company (ASX:AOW) achieves sales and rising cashflow milestones over the next few quarters, the market value of its reserves will rise and debt will decrease.

“A transformational $US20.5m deal to aggregate US production assets – with two stage capital raising of $7.2m. The company expects it could generate at $US60/bbl oil around $US10m-plus pa in cash flow from mid-2019, be debt free in four years and generate free cash for growth, if deals become available and/or for dividends,” he wrote in a note this week.

“Our view is that with US petroleum capital skewed towards the far bigger prizes in shale basins, there is room for the nimble and efficient operator to acquire cheaply and revamp mature conventional fields’ reserves potentially very profitably.

“American Patriot Oil & Gas caught our attention as potentially capturing this type of mis-pricing opportunity via its three assets acquisition in onshore Southern Texas…. This is highly promising particularly when the context of location and field characteristics are reviewed.

“We see tailwinds for American Patriot with resilient US oil prices and upside for under-priced gas plus a re-rating of Texas conventional production acreage.”

A doer-upper

American Patriot is a Texas oil and gas company and focuses on collecting leases and selling them on after doing a modicum of developments to firm up the reserves and production.

Its focus is onshore southern and eastern Texas due to the high number of low-cost field revamp opportunities.

That “transformational” deal was the purchase of Foothills Resources Inc, and assets from Magnolia Petroleum Company and Burnett Petroleum LLC, for a collective $US20.5 million.

The two acquisitions, along with an earlier $2.3 million purchase of Peak Energy Asset, mean American Patriot is almost a mid-tier operator and is on track to becoming cash flow positive.

Mr Grech said American Patriot’s 2P proven reserves have risen to 7.03 million barrels of oil equivalent (boe) with 82 per cent of that being oil.

Typically “reserves” refer to oil or gas discoveries that are commercially recoverable using existing technology, while “resources” are either not yet commercially viable or are mere speculation.

A 2P means it’s proven and probable, while a 3P includes “possible”.

“With modest capex and relatively low-risk well reactivations, sales of about 550boe a day could rise to about 740boe a day later in calendar 2019,” Mr Grech said.

“These assets provide critical mass for America Patriot to grow by aggregating nearby under-performing fields efficiently.”

The risks in Pac Partner’s assessment include oil prices, well reactivation delays or oil field underperformance, but this can be partly mitigated by oil hedging up to 70 per cent oil output, and its spread of properties and large well numbers with a relatively short lead-time for remedial action.

 

This special report is brought to you by American Patriot Oil and Gas.

This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice.

If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.

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