Christmas Stock picks: Global Energy Development

If things go to plan, 2012 should be a major year for Latin American oil explorer Global Energy Development. Global has one of the largest 2P reserves on AIM, so the key to its future success will be translating these into meaningful production.

To the east of Colombia is the Llanos Basin, which is where the vast majority of its revenues are currently derived. However, more than 88 per cent of its reserves are in its Bocachico and Bolivar contract areas in the Middle Magdalena Valley – also better served by transport links.

Using a technology known as CHOPS (Cold Heavy Oil Production with Sand), it is re-entering a well that it last tested in 1999, when it achieved sustained rates of more than 300 barrels of oil per day (bopd).

Global is currently cleaning the old well, and will shortly install an abrasives-tolerant pump, which should help to significantly increase production.  In 2012, the plan is to further develop the Bolivar site, which has previously tested at the equivalent of 7,000 bopd.

Driven by increased production and higher oil prices, interim results to June revealed a swing to a $3.9 million pre-tax profit (2010: $1.3 million loss) on sales up 52 per cent to $17.1 million.

Global has a cash pile of $11 million, so can fund its own development plans, or accelerate them with the help of a partner. With a new broker, recent director buying and renewed investor interest, the shares look far too low.

Global Energy Development
Listing: AIM
Ticker: GED
Sector: Oil & Gas Producers 
Share price: 125p
Market cap: £44.7m
52-week high/low: 126p/63.5p