Petroz in the dock a speculative buy

Petroz has been the sleeper of the market over the last 8-9 months slumping to a low of 73cps in late 1997. The event that kickstarted the share price rise was the bid made by Davis Samuel Group which effectively valued the stock at $1.55 per share. It didn't succeed but it brought Petroz into the spotlight.

Despite this failure, Petroz remains a takeover target. Why? Simply because of its prime asset - the offshore permit ZOCA 91-12, in North Western Australia. This permit hosts the Elang-Kakatua Oil Fields and the giant Bayu-Undan gas-condensate discovery. The recent half yearly profit result of $1 m only serves to emphasise the importance of the Elang development to the company. The likelihood of further discoveries in the area is strong and with infrastructure in place, profit expectations from any new finds should be high. So why hasn't the share price reflected these positive points?

Good chance of success

Petroz is tied up in a court battle concerning the ownership of a significant proportion of its ZOCA equity and quite rightly, until the matter is resolved, it's impossible to determine exactly what share of production will be due to the company. Our reading of the case would suggest Petroz has a strong chance of success but until the matter is heard, we can only guess at the possible outcome.

Should Petroz be successful, then we would expect the share price to move closer to its fair value and a rise beyond the $1.50 per share level would not be unreasonable.

Secondly, both BHP and Phillips are locked in a technical battle over the design of the Bayu liquids Phase II project. The final decision has now been postponed until the end of June, making the company difficult to value with any degree of accuracy.

As Petroz is a litigated stock, any recommendation must be considered speculative in nature, but with an open share register, numerous raiders showing interest and significant oil production by the middle of the year, we recommend the stock as a speculative BUY.