Interview with Paul Kroshko, CEO of Petroamerica (PTA-TSX)

29
Nov

Interview with Paul Kroshko, CEO of Petroamerica (PTA-TSX) a Canadian-based junior explorer focused on light/medium oil in Colombia. PTA has assembled a large portfolio of prospective oil properties in several prolific basins, and is joint ventured with established producers in Colombia.

Mr. Kroshko was VP Exploration at Petrominerales in Colombia from May 2006 to May 2008. Prior to this he had been Latin America Exploration Manager for Petrobank. During his tenure leading the exploration initiative, Petrominerales discovered several new fields including Corcel and Mapache.

Q: Let’s start at the beginning. How does a boy from the University of Western Ontario become a legendary Latin American Oilman?

Kroshko: Let me tell you, it was a long and winding road. I got a degree in Zoology from the University of Western Ontario and went on to get further degree in geology and geophysics. During the summers I worked in the bush doing the exploration grunt work in the mining industry. Blasting trenches, living in tents, fighting off bears – all that stuff. After university I was hired by Shell Canada who had a robust training program. Later I worked in Asia, North Africa, Indonesia and South America. And I learned a lot about the process of how to find oil.

Q: Sounds like you had itchy feet. What made you continue working in South America?

Kroshko: After working several years in Nexen, I met John Wright who was the CEO of Petrobank/Petrominerales. He offered me a job as a senior geophysicist and I eventually became VP of Exploration. Colombia was relatively quiet at that time. A challenging place to operate. But I could see the potential. I learned to speak Spanish and I got hooked.

Q: At Petrominerales you had a big discovery.

Kroshko: Corcel was a significant discovery which extended the limits of the conventional Llanos play.

Q: Colombia has surged 20 places on the World Bank “Ease of Doing Business” Index. How has the Colombian business environment changed in the last 10 years?

Kroshko: In recent years a lot of positive changes have been made including improvements in security and changes in regulations. These changes have made Colombia very competitive in the international arena. Let me put it to you this way: when you sign a contract in Colombia it never has to be renegotiated.

Q: Currently about 660,000 barrels of oil flow out of Colombia every day. Do you have a prediction what this figure might be in 2 years?

Kroshko: I don’t have a crystal ball – but I’ll say this: the ANH is doing a fantastic job of encouraging foreign investment through their competitive bid rounds, and we expect to see a number of discoveries feeding back into the production output.

Q: Pacific Rubiales is a Colombian oil producer that has seen its stock rise from $2 to $29 in 2 years. You have a farm-in agreement with them on the CPO-1 block. Why aren’t they doing this work themselves?

Kroshko: Pacific Rubiales picked up CPO-1 in the 2008 bid round. For them, it’s a risk-mitigating business deal, having us pay the first $8.6 million on the seismic and first well.

Q: What’s in it for Petroamerica?

Kroshko: We get 50% of the proceeds, and access to their experience and infrastructure. Historically, these farm in agreements work well for both parties. CPO-1 is directly on a trend with the prolific Caracara fields, which were bought by Cepsa for $920 million in June 2008.

Q: And this is part of the famous Llanos Basin?

Kroshko: Yes, it’s underexplored land with great potential.

Q: Balay-1 produced 1,300 barrels a day from natural flow, and the watercut is less than 1%.

Kroshko: That is correct. On July 14 we began a six month production test under natural flow though a restricted choke which is now producing about 1,000 barrels a day.

Q: Petrobras is the operator on this well.

Kroshko: Yes.

Q: Why don’t they put a pump on it?

Kroshko: Actually there is a pump down the hole, but it isn’t turned on.

Q: Why not?

Kroshko: Because we are following a program testing sequence which includes assessing the reservoir quality, size and performance.

Q: An article in “Upstream Magazine” cited a Petrobras management source as saying Balay-1 will be capped at 15,000 barrels per day.

Kroshko: That article is speculative in nature and therefore I prefer not to comment on it.

Q: 15,000 barrels a day would be a company maker.

Kroshko: Right now Balay-1 is flowing about 1,000 barrels a day with no pump. As I said, anything else is speculation.

Q: On October 20, when your stock price was $.29, David Ricciardi of Jennings Capital initiated coverage on PetroAmerica. They’ve rated it a “Speculative Buy” with a 12-month target of $.80 – a gain of about 170%. The stock price is now $.48. Obviously Jennings Capital is bullish on PTA. What do you see as your short term catalyst?

Kroshko: The Llanos basin has a lot of oil in it. We have key properties there. We are drilling. The results of those tests will drive our stock price.

Q: What about the long term catalysts?

Kroshko: From 1999 to 2005 Colombian oil production decreased 35% due to lack of investment. There’s a backlog of exploration work waiting to be done. 50% of the explored blocks in 2009 yielded positive results. We’ve done our homework. Right place at the right time. The growth of the Colombian economy depends on increased oil production, so the regulatory environment is extremely favourable.

Q: On November 17th, PTA closed a $25 million bought deal equity financing underwritten by Raymond James, GMP, Haywood, Cannacord and Jennings. How much money has PTA raised in total?

Kroshko: A little over $90 million.

Q: You also have the backing of Endeavour, who have been instrumental in the financing of Bankers Petroleum and Pacific Rubiales.

Kroshko: Yes, Endeavour is an important relationship.

Q: You’re doing business with established operators, like Pacific Rubiales, Dyas and Petrobras. How did a new company like PTA close these deals?

Kroshko: Our key relationships flow from the pedigree of the technical team and our innovative business strategies.

Q: You’ve just appointed a new VP of Exploration, Ralph Gillcrist.

Kroshko: That is a very big win for PTA. Ralph has a long and successful history with Colombian oil exploration.

Q: How long have you known Ralph?

Kroshko: About 10 years. I’ve worked acreage in the past that Ralph has picked up. He has a PHD in structural geology; he has worked internationally and has a lot of experience in the Llanos basin. If you are developing an oil asset in Colombia, you know Ralph or know of his work.

Q: Why attracted Ralph to Petroamerica?

Kroshko: The experienced management team, strong financial backers, and the anticipation of early cash flow from the Balay discovery.

Q: According to disclosures on “Canadian Insider” recently you and Pat Klassen have been buying large blocks of PTA.

Kroshko: The geology of the land package, and the business model of the company give us enormous confidence in the stock price. Colombia is a very exciting place to be. Simply put, I’m buying stock in PTA because I have confidence in our exploration program and people implementing it.

Q: Thank you for time.

Kroshko: My pleasure.