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Perfectly poised to exploit various opportunities, the oil explorer is one to back
by Timon Day
Shares summary
Big reserves and exploration acreage, fast rising production and takeover prospects, what more could an investor want for a company on a prospective PE of just six?
Business: Oil and gas exploration, and production company in South East Asia.
Vital stats:
Market value: £375 million
Historic PE 2007: 120
Prospective PE 2008: 62
Prospective PE 2009: 6
Sector PE: 14
1-month relative strength: -2%
1-year relative strength: 20.5%
Yield for 2007: n/a
NMS: 1,000
Spread: 2.3%
Arguably, Salamander is one of the cheapest independent small-to-medium sized oil and gas exploration and production companies worldwide. It has a fine record of finding new oil and gas fields concentrating on Indonesia and the Greater Mekong region which includes Thailand, Lao and Vietnam. Production rocketed by 77% to 7,820 barrels of oil/gas equivalent per day last year and is forecast to jump again to 9,000 boepd this year and 15,000 boepd in 2009.
The Sinphuhorm gas field in Thailand has been in production since November 2006 with additional wells being drilled to boost output. Salamander’s stakes in two gas fields operated by BP in Indonesia provided the balance of 2007 production.
The increase this year will come from the Bualuang oil field in Thailand scheduled to start production in July. The field belongs to GFI the oil and gas company bought for £96 million two months ago. It will increase Salamander’s oil production ratio to 60% of group output.
This corporate purchase is unlikely to be Salamander’s last, allowing it to grow rapidly through acquisition, exploration and winning of new licenses. The company now has around 56 million boepd proved and probable reserves.
The other big gas find that should start producing early next year is the Kambuna field in the Straits of Malacca offshore North Sumatra. It contains around 25 billion barrels of oil/gas.
Next off the block could be the Si That discovery that might contain one trillion cubic feet of gas with an appraisal well to be drilled in the third quarter.
Some 14 exploration and appraisal wells are planned in the next 18 months financed out of the fast growing cash flow. At the end of last year net cash amounted to $92 million compared to $127 million in 2006 with $16 million generated from operations.
Salamander is one of the best bets in this highly prospective region which boasts some of the largest producing basins worldwide and vast exploration potential. Rapid economic growth in the region and increasingly market orientated governments complete the upbeat scenario.
In Laos the company has a 70% stake in the Savannakhet licence which contains two probable gas fields totalling some two trillion cubic feet and oil of around 150 million barrels. Seismic testing will start shortly before a drilling programme kicks off late 2008.
Other exciting prospects are in Vietnam and East Kalimantan in Indonesia. Several exploration wells will be drilled in Sandakan Basin off the Philippines in the second half of the year.
A maiden profit of £9 million was struck for 2007 which should soar to about £17 million this year and maybe £150 million in 2009 depending on oil and gas prices.
This leaves the shares on a prospective PE of around six next year which looks far too cheap for such a fast growing company with a vast amount of exploration acreage.