EEN - Undervalued & Oversold

My New Year greetings to you all. I have found nothing at all to add to the EEN story during the past weeks, whilst waiting for news from the drill bit after touching bottom at Tigris, but I do think that you may share my pleasure in discovering, also in Columbia, an oil share undervalued IMO on actual performance rather than on risk laden exploration or drilling activity.

Floated at £70m nearly two years ago 'It' acquired Petroleos del Norte Plc (PDN), for £32m in March and the cap then continued to fall with the rest of the sector, to the current 'only £26m'. I am of course referring to PetroLatina (PELE) once known as Taghmen.

PDN did not seem to be aware of the value of the 25,000 bopd capacity pipeline it sold with the other assets. LemmingInvestor (28 dec) records transit fees last year of £1m/pa from 2,800 bopd flowing from EcoPetrol's Rio Zulia Field. But EcoPetrol and PetroBras have just agreed to invest US$40 m in the Tibu Field, over the next two and a half years. They estimate that future oil production will raise pipeline throughput to 15,000 bopd, so there is scope for PELE to earn a further $4min transit fees as the area develops. That extends the valuation of the pipeline to more than PELE's cap value.

Ecopetrol have already begun an extended exploration drilling programme in a nearby field, suggesting that one day the full capacity will be exploited.

Another dormant asset, Serafin,a proven gas field, is about to be reactivated. When tested, gas flow was substantial - up to 16m cub feet/day. At the time of the discovery, the price was low and the present pipeline non-existent. The well was blocked. Recently the price of gas in Colombia has risen to $2.50 / $3 per thousand cubic feet. Re-entering the Serafin gas well in Q1 '07 and connecting 3.5km to an existing pipe line, management expects to exceed 6 mmcf per day from Q2 '07 onwards - likely to return an extra profit of $3m/pa, with little or no risk.

Total additional income already visible over the next three years is $11.5m (£5.9m). This is additional to the annualised sales figures of $10.24m/pa
achieved for the last 15 days of H1 from the three fields newly acquired from PDN plus the $1.5m current revenue from the pipeline. No brainer isn't it?

The cap value has fallen from £70m at the time of flotation aand before the acquisition. Lemming's buoyancy theory suggests that a return to £70m is much easier than to drive the share price there for the first time from the current level.

And to make things even more attractive, talking to the current CEO Nicholas Gay (of Petrokasakhstan fame) comes as a breath of fresh air, and proof if ever it was needed that Compliance does not require anal retention on the CV of every CEO of small exploration companies.

Good luck to you all in 2007