Can Canada's Alange pass the asset test?

Tweet

Fuente: Reuters.

Canadian oil and gas exploration and production company Alange Energy Corp is going through an image makeover after an internal review of its business practices and the appointment of a new CEO and management team.

Alange, valued at around $204 million and which has more than 1.2 million acres of property in Colombia, has also had to revise mis-stated third-quarter production figures.

The company, which had $35 million cash on hand as of mid-May, expects a capital investment budget this year of $40-$50 million, but has not given any definitive production forecasts.

The company's shares have slumped in the past seven months, losing three-quarters of their market value.

Should investors bank on the asset base while new management puts the house in order, or will the shadow of the recent past continue to weigh on the stock?

MORE SKELETONS?

"They (new management) are kind of making the right moves, but I think there are more surprises still to come out," said analyst Ian Macqueen at CIBC World Markets.

Macqueen, who rates the stock "underperform", reckons there the reserves are still overstated and some associated costs will come through in the January-March first quarter.

"There are a lot of skeletons in the closet from the old management team," he said.

Alange's core oil assets are Cubiro, La Punta, Topoyaco and Santa Cruz. Cubiro and La Punta are in eastern Colombia's Llanos basin, from which Alange sources nearly 90 percent of its production.

Cubiro is not an anchor asset, Macqueen said. "The only way to really create a bunch more value within this company is through exploration."

Alange, which has been looking to sell or farm out its non-core assets, recently adopted a shareholder rights plan, but said this was not meant to prevent a takeover of the company. [ID:nL4E7GG2UY]

The company's bigger peers include C&C Energy and Parex Resources Inc .

REFINANCED, REFOCUSED

The main upside are two wells Alange is to drill in Topoyaco and Santa Cruz. Analysts say these have to prove successful for the shares to rise appreciably.

"Alange's core production assets more or less justify the current market valuation," said analyst David Dudlyke of Stifel Nicolaus.

"A key upcoming catalyst will be the Topoyaco D prospect by virtue of its potential scale within Alange's portfolio."

Alange holds a 50 percent working interest in the Topoyaco property -- a block of more than 60,000 hectares in the Putumayo Basin in the northern extension of Ecuador's Oriente Basin.

Oil revenues are a main source of financing for Ecuador, OPEC's smallest member.

Dudlyke, who rates Alange shares a "buy", said the company is in turnaround mode - refinanced and refocused.

Pacific Rubiales , operator of the Topoyaco block, plans to drill an exploration well in July. The oil and gas company is focused on identifying opportunities mainly within Colombia's eastern Llanos Basin, and has working interests in 40 blocks in Colombia, Peru and Guatemala.