With the impending UK Budget, plus the markets finally starting to reflect some of the economic concerns that we are seeing, not to mention the potential for further military conflicts in various parts of the globe, there isn’t actually much that I would be rushing out to buy at the moment.
It’s been a while since I commented on PetroTal Corp (PTAL) – a Peruvian based oiler. My views on this investment case turned negative back in late 2019, and I came in for some slagging on social media for even suggesting it was not the best investment since sliced bread. My last substantive comment was in June 2020, after the company placed to manage the working capital position, as I suggested was required. A cornerstone Institutional Investor is now engaging with PI’s and other II’s to see the best outcome for shareholders. I find this very interesting on several levels.
PetroTal Corp (PTAL) has updated the market today, and as expected has undertaken a placing to shore up the working capital position. The detail reveals how far this company has moved from “debt free” to an indebted producer. The lack of 2019 accounts, and details provided demonstrate just how knackered the finances are.
I called PetroTel (PTAL) a sell after the update and revelation of a contingent liability of forward oil sales at the start of May. Here we are only 3 weeks later and we get an update at 5:44pm on a Friday. I call that “no one’s watch o’clock” – but I was. It really confirms just how bollox’ed this company is, regardless of how the share price has moved in recent weeks.
When I considered PetroTal (PTAL) previously I was particularly focused on the net current asset position at the year-end (31st December 2019). Due to Covid19, the publication of the results to confirm the position has been delayed until mid-June, but my conclusion was a negative position with a very significant balance due to trade contractors. The company fessed up in March, it had agreed to manage the payment position with its contractors – effectively stating it did not have the cash to settle due accounts and was looking for further funding. With the field now shut in the cash flow will have stopped. This is clearly not good.
I wrote positively about PetroTel Corp (PTAL) in June and could see real potential for a business of significance to be established. In November I saw the need to restate the cash position as a serious negative together with the lack of Board level oversight as a reason to sell. Last Tuesday the company provided some good detail on the likely operational cash flow at various oil prices. Despite this good guidance (many other oil company’s should note the disclosure detail of netbacks at various oil prices), I have not changed my view. This company needs more working capital.
I wrote positively about PetroTel Corp (PTAL) in June and could see real potential for a business of significance to be established. I saw the largest risk being the technical risk associated with ramping up production to plan and even general social unrest in Peru did not seem to impact the investment case. Yesterday we were provided with the news that the cash position had been miss-stated in an operations update on 21st October. The implications draw me to now call this a sell.
I reviewed PetroTal Corp (PTAL) only a few weeks ago, concluding I could see a positive investment case, but noted keeping a close eye on progress would needed. The update today confirms production levels, but I was not expecting social unrest to have an adverse impact.
When the oil price crashed in 2015, opportunities from secondary asset disposals by the larger operators to smaller more focused companies was always going to happen- it’s the normal process in the commodity sector. PetroTal Corp (PTAL), is an example of this, where I can see upside from this business process. The shares are cheap.
