Derek Pain: When the oil well dries up, turn to whiskey

No Pain, No Gain

Exploration shares have a well-deserved reputation for volatility. The hit or miss nature of this widely spread occupation can send prices surging into the stratosphere – or plunging down to the very depths of despair.

Pan Andean Resources, an oil and gas explorer and producer, has experienced the extremes of sentiment. It endured one of the most dramatic crashes ever recorded. One minute the shares were soaring majestically to around 140p; the next they had slumped to 12p and then struggled to hold above 30p. A botched drilling exercise in Bolivia caused the calamity. But I suspect chairman John Teeling would today settle for that 30p price tag. In these depressed times the shares bump along at 6.5p. Yet the company is one of AIM's few profitable oil groups and embraces an intriguing spread of promising but as yet untapped operations in South America.

As the resources veteran observes: "Industry insiders put a much higher value on Pan Andean's assets than the AIM market", where it is capitalised at a mere £7.75m.

Today Pan Andean gets most of its income from the United States although it makes a profit, albeit a declining one, from its Bolivian interests. In its last full year it achieved a £1.2m pre-tax profit, a 40 per cent advance. At the interim stage in the year, ending next month, profits were up 33 per cent to £619,000. The subsequent slump in the crude oil price will, of course, influence future figures.

The profits are being used largely to develop interests in South America, principally Columbia and Peru. Bolivia is not getting much attention these days as "political uncertainty and sub-economic commercial terms have made new investment unfeasible". Teeling says his strategy "is to sweat out these difficult times" but not jeopardise the "important position that we have built by continuously operating in Bolivia since 1988".

That was not the situation when Pan Andean had its memorable brush with stock market fame. The shares had climbed with remorseless pleasure as excitement intensified about the Bolivian drilling venture. The group, it was confidently assumed, was about to strike it rich.

But, following telephone calls to Bolivia, an inquisitive investor discovered there was in fact no oil – it had "migrated". In a deluge of selling the shares slumped. A red faced Pan Andean had to admit that the well was in fact dry and the investor had discovered that unpalatable fact before the company had received any such message from the oil face.

In Colombia and Peru, Pan Andean's role is increasing. There is talk that it is sitting on a Colombian field that could be hiding 300 million barrels of oil, and in Peru it has one of the largest onshore exploration land banks.

Other South American countries are being examined but Teeling cautions about "the rise of economic nationalism" making some unattractive. There are even indications that the Middle East or Africa could offer the next port of call.

In the US, Pan Andean has interests in the Gulf of Mexico and Texas. It believes its existing production sites still have plenty of energy left in them. But it suffered a sharp reverse late last year when a highly promising prospect, situated in a prolific oil and gas area 40 miles from Houston, failed to deliver. The well, where Pan Andean has a 31.25 per cent interest, has been plugged, although further exploration could take place.

Still, Teeling, a Dublin-based entrepreneur, is accustomed to the vicissitudes of exploration. His interests embrace a number of AIM-traded mining and oil groups, including African Diamonds and Petrel Resources. He also takes in one of Eire's most intoxicating success stories, Cooley Distillery. After the country's leading spirit companies, such as Jameson and Powers, fell into overseas hands, Teeling led a campaign to establish an Irish-owned whiskey group. He sought capital through an Irish version of the old Business Expansion Scheme, establishing Cooley around 20 years ago.

Cooley has grown rapidly, offering whiskey brands such as Locke's and Tyrconnell. Although still small in world terms, it has performed particularly well in the US. Rumours that Teeling plans a share flotation often circulate. With more than 300 shareholders it is, I believe, an obvious candidate for quoted life. But so far Teeling has kept Cooley well away from the stock market.