Thread by @TApocalyt

I am very long PetroTal #PTAL $tal.v after buying dips for past few months. The stock looks far too cheap to me. They are guiding production growth at 100% Y-o-Y rate, while guiding >50% FCF yield at that growth rate and debt is only 20% of market cap.

This is made possible with very productive wells at reasonable cost giving 4 week payback times. For example the latest 10H well came on online with 10,050 bopd 10 day initial production rate at $11.5m cost and with netbacks being about $65/bbl currently: petrotal-corp.com/petrotal-annou…

The reserves at their Bretana asset have been growing steadily year after year as they prove the reservoir approximately doubling from 2018 estimates. The 2P NPV-10 of $1 billion alone gives 100% equity upside at conservative oil prices and at a conservative 22% recovery factor.

However, the company also has potential for significant exploration upside. The nearby prospects offer natural expansion paths within the same block with a possibility to create another Bretana. PetroTal is currently applying for permits to perform additional seismic on these.

PetroTal also owns a lease to block 107 further south with very interesting prospects and leads. The Osheki-Kametza prospect with an estimate of 278mmbbl recoverable resource and about double the Bretana 3P OOIP. I expect PetroTal to drill the first test well during 2023.

Block 107 also holds the significant Bajo Pozuso lead with best estimate of another 259mmbbl recoverable. If even some of these prospects prove economical there is a lot of room for Petrotal to increase production. Here is a situation analysis on the potential of these prospects.

Buybacks are however what most O&G investors want at these valuations and PetroTal is moving forward to deliver that. They are working to pay off the $80mm in bonds by end off Q3, which frees them from covenants and allows capital returns without sacrificing growth(at >500% IRR).

The company has a record of prudent capital allocation despite the challenges of working in the Peruvian jungle and Covid, which hit them hard. Take note how the company produced positive EBITDA even during the oil price crash and has kept investing in a sensible manner.

Investors are concerned about ONP pipeline downtime and social issues that have lead to exports blockades. PetroTal has been working on both by securing an alternative export path to Brazil and showing industry leadership with a social fund for the benefit of the local community.

These concerns are much overblown now, since even the worst case of a total exports blockade during Q1 for six weeks still lead to record oil production and sales numbers. Providing local communities with benefits in contrast to inept government should improve public opinion.

I am now starting to feel that being located in Peru may actually be a net positive for PetroTal. Being the industry leader in a resource rich country, where people need basic infrastructure instead of punishing windfall taxes, doesn't sound bad at all for the equity investor.