WESTERN Australian junior oil and gas company Carpathian Resources Limited has made the transition from explorer to producer as the directors move to generate positive cash flow to fund further exploration activity.
However, it has been a case of out of sight, out of mind for Carpathian as investors fail to be enthused by what the company is doing. This is partly as a result of legal wrangling between a Canadian joint venture partner and the Czech Oil Company.
Investors continued to trade out of the stock, pushing it down a further 20 per cent earlier this week to sit at just 8 cents, well shy of its 34 cent high in January last year.
Carpathian Resources, which takes its name from the region bounded by Slovakia and the Czech Republic, has started its oil production at the Krásná oil field at a depth of about 1,600 metres.
The company has an initial 75 per cent interest in the field, which will be reduced to 50 per cent once Carpathian has recouped the $750,000 capital costs of bringing the field into production.
In addition, the company is seeking to raise a further $1 million through a non-renounceable rights issue, which will fund drilling at the company’s first gas production well at the Janovice gas field, located five kilometres from the Krásná oil field.
Carpathian managing director Gerald Johnson said the fast tracking of the development of Krásná and Janovice was in line with the company strategy of bringing oil and gas fields into production as soon as possible.
“This transition into production will provide cash flow to support our exploration programs in these highly regarded oil and gas regions,” Mr Johnson said.
With cash flow now being generated, stockbrokers believe the company could underrated in the market.
In a report on the company earlier this year, DJ Carmichael senior analyst Peter Strachan valued the interests held by Carpathian resources at $9.1 million, or 33 cents per share, and significantly higher than the $2 million market capitalisation at its current share price.
Mr Strachan said the oil in the ground was worth between $8 million and $10 million to CPN. In addition, the company has remained debt free and has around $440,000 in cash.
Adding exploration interests boosts the broker’s valuation to $11.8 million, or 45 cents per share.
The Czech Government has proven up reserves at the Krásná field of 208,000 barrels of recoverable oil. Initial production expected of around 150 barrels per day is likely to generate cash flows of between $500,000 and $1 million per annum.
Hartleys analyst Kevin Tomlinson issued a report in early April highlighting the potential upside to the newly emerging producer.
He said the market for gas in the region was excellent with a strong, stable domestic gas price.
“Management has language fluency and an intimate knowledge of the regions,” Mr Tomlinson said.
However, he said a dispute at the Postorna discovery, which had an estimated recoverable reserve of between 5,000,000 and 9,000,000 barrels of oil, was delaying the start of production.
“Carpathian’s share price has been affected by the dispute at Breclav and a lack of share liquidity but the company is attempting to resolve both issues,” Mr Tomlinson said.
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