Spotlight: The Philodrill Corporation (OV)

Business Overview

Philodrill Corporation was incorporated in 1969, with the primary purpose of engaging in oil, gas and mineral exploration and development.  The company has also registered being a diversified holding company, investing in petroleum exploration and production, financial services, property development, mining and infrastructure development, as its secondary purpose.

The company's active petroleum projects cover production and exploration areas in offshore Palawan and South Sulu Sea and onshore Mindoro under various Service Contracts (SC) with the Philippine government through the Department of Energy (DOE).

In the financial services sector, the company is a 40% shareholder of Penta Capital Investment Corporation (Penta Capital), an investment house.

In the mining sector, the company holds minor equity interests in the following companies: Atlas Consolidated Mining, Vulcan Industrial & Mining Corporation, and United Paragon Mining Corporation.

Petroleum Projects

1.) SC 14 (Nido, Matinloc and North Matinloc) - in production.  Block operator: OV.  For further revaluation.  Based on crude oil sales agreement, all were sold to Pilipinas Shell generating 11% of total gross revenues.  OV interest 26.106%, 41.608%, 33.111% respectively.

2.) SC 14 C-1 (Galoc - Northwest Palawan) - in production. onto Phase 2 development.  Field operator: Galoc Production Company (GPC).  Other Partners: Nido Petroleum Phils, OPM, FEP. 7.21495% OV interest.  Oil being sold to foreign companies (i.e. GS Caltex Singapore, SK Energy International)

3.) SC 14 C-2 (West Linacapan) - Block operator: Pitkin Petroleum.  50% JV with Resource Management Associates Pty.  7.0175% OV interest

4.) SC 14 (Retention Block, Tara, and Libro) - no exploration.  Operator: OV. 33.751%, 27.5%, respective OV interest.

5.) SC 6A (Octon - Northwest Palawan) - new block operator : Pitkin Petroleum.  Partners: PetroEnergy Resources Corp, Anglo Phil Holdings, Trans-Asia Oil & Development, Forum Energy Philippines, Philex Petroleum, Alcorn Gold Resources Corp.  15.495% OV interest.  Status: Exploration

6.) SC 6B (Bonita - Northwest Palawan) - farm-in groups: VenturOil Philippines, Peak Oil and Gas Phil Ltd., Blade Petroleum Philippines Ltd.  Transfer and assignment of block operatorship from OV to Peak Oil, if approved.  Other partners: Phoenix Gas&Oil Explo Co, Oriental Pet. & Minerals Corp., TA, FEP, Alcorn Gold Resources, Corp.  6.5625% OV interest.  Status: Exploration.

7.) SC 41 (Sulu Sea) - still looking for prospective partners 

8.) SC 53 (Onshore Mindoro) - block operator: Pitkin Petroleum.  Evaluation progressing.  Other Partners: RMA Pty, APO, Basic Consolidated Mining Corp. (BSC). 22% OV interest. Expiry date: 7/2014.  Status: Exploration.

9.) Swan Block - ongoing negotiations with PNOC-EC

Key People 

Son of National Bookstore founder, Soccoro Ramos.
Chairman/President of Atlas Mining

Listed as #30 in the Forbes' list of top 40 Richest in the Philippines, the Ramos family has been actively involved in transporation, oil & gas exploration, mining, property development, etc.  The family started out with the success of National Bookstore, founded by Mrs. Soccoro Ramos, Alfredo's mother.

1.) Alfredo C. Ramos - President/CEO and Chairman of the Board. Held directorship in Atlas Mining (AT), Anglo Philippines Holdings (APO), MRT Development Corp, National Book Store (NBS), Shang properties (SHANG), United Paragon Mining (UPM), Vulacan Mining (VUL), etc.

2.) Nicasio Alcantara - Independent Director.  Held directorship in Alsons Corporation (ACR), BDO Private Bank, Seafront petroleum.  Listed #5 top shareholder (0.1892%)

3.) Christopher M. Gotanco - Director. Held directorship in APO, Boulevard Holdings (BHI), MRT Dev Corp., Penta Capital, VUL.

4.) Honorio A. Poblador III - Independent Director.

5.) Presentacion S. Ramos - Director.  Held directorship in Alakor Securities, APO, NBS, VUL.  Wife of Alfredo Ramos.

6.) Adrian S. Ramos - Director. Held directorship in Alakor Securities, APO, AT, Carmen Copper, UPM, VUL.  Son of Alfredo and Presentacion Ramos.

7.) Augusto Sunico - Held directorship in Alakor Securities,Anglo Philippines Holdings, Manuel L Quezon University, Penta Capital, UPM, VUL.  Brother in law of Alfredo Ramos.

8.) Marciano Padilla - Director.  Held directorship in AT, Padi's Point Restaurant Group.

Companies among the 20 Top Stockholders

1.) Alson Consolidated Resources, Inc - 0.2953% (#2)
2.) Vulcan Industrial & Mining Corp - 0.1201% (#10)
3.) Ayala Corporation - 0.098% (#13)

Dividend Policy

Subject to availability of funds and balance of Retained Earnings.  Previous Dividend Yields register to around 3-5%.

Quick Numbers

Fundamentals

Book Value of Equity (3Q 2012): ~Php3.19B

Outstanding Shares: ~191.9B

BV/share: Php 0.0166


Debt Ratio (Long term): 0%
Beta: 0.925
Cost of Capital: 10.9%


Net Income: 
2012 3Q:  Php 283.5M (projected)
2011:  Php 1.065B
2010: Php 557M
2009: Php 108.6M
2008: Php 15.1M   

time-weighted average NI: Php 555M


A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (based on earnings - DCF analysis) at around:

Fair Value/share: Php 0.038

The latest price as of 2/1/13 is Php 0.044.  Oil production has still not been consistent as some sites may be needed to be closed for added improvements.  The company is also finding ways  to lessen the cost and to improve production.  This earnings projection only involves income coming from the production sites.  Potential income coming from the other sites currenly being explored has not yet been factored in.  Opening of an oil well could result to a huge gain in revenues.  Assuming by 2013, OV's target of Php1B net income is to be realized moving forward, then we can raise the stock's fair value price at around 0.078, even at conservative growth levels.

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Technicals

One year major support line stands at 0.038.  There has been exuberant buying last year which pushed prices up to 0.061.  Tracing on past news, the run-up was caused most likely by the 5% cash dividend declaration in February, for which the stock price went back towards support at ex-div.  Technical indicators still show weak momentum.  An anticipated cash dividend declaration may not provide enough catalyst, given that last year's income were not as big as in 2011; cash div may not be that big.

Analysis

It may be a coincidence that the 1-year support line is equivalent to our conservative fair value at 0.038.  If one remains to be bullish in our upstream oil industry; thereby hopeful that exploration efforts down south are going to be fruitful, then buying at current levels is relatively safe.

The company forecasts its income to reach the Php1B mark next year and may even double in 2014.  Although be reminded that this is more of a company target and is still subject to market conditions (oil prices) and the finishing of new oil wells.  

PD:  I have entered initially into OV at 0.044 based on technicals as prices broke a minor resistance at 0.042, and is now above the ichimoku cloud.  Given this recent research on the company's fundamentals pointing current prices are at fair value, I only intend to trade this stock within a range.  I believe this one will still remain a sleeper until new oil wells are declared to be open.

References: Financial Statements of OV (3Q 2012, AR 2011)
                    Images via Google search

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This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Spotlight stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome.