Pyramid Petroleum (PYR.V)

The company is a junior exploration and producer of oil & gas in both Alberta and the Gulf of Mexico. They have reported net profits in the first three quarters for this year. Although I'm no expert when it comes to penny stocks, I assume that it is rare to have a micro-cap stock to show profit and be significantly undervalued. I think Pyramid Petroleum is an excellent opportunity and I would be comfortable as an investor knowing that they aren't burning cash needlessly. In Q1, management recorded a net profit of nearly $200,000 with a total share count of about 37,292,595. For Q2, they reported a net income of $550,000. And recently, they reported Q3 net income of $397,234 (EPS of $0.01) which is a 1360% increase from Q3 2006. Based on my estimates, net income for 2007 may be 2.25-2.75 million or annual EPS of $0.06-0.07 for a PE of 5.71-6.67. Shareholder's equity is $7,496,379 so with a market cap of $18.65 million, the price/book ratio is 2.49. PYR is my best prospect for several reasons:

1) This company is a producer unlike a lot oil & gas companies which are drillers
2) Not only are they generating revenue, but they are profiting according to the Q1-3 statements
3) This company is expanding its operations with acquisitons and is set to increase production from 1301 barrels of oil equivalent per day (boepd) to 1803 boepd
4) Their oil platforms are based in politically stable environments
5) Cash flow positive

Risks:

1) Majority of interest in Gulf of Mexico where weather can affect production
2) Low volume trading
3) The numbers

If and when the figures are approved by the stock exchange, then fundamentally this company should be worth a lot more.

I would encourage all investors to read the corporate financial filings of comparable sector stocks in order to get a sense of the net asset value (NAV). Firstly, the comparative figures give you get peace of mind in whether or not your purchase or sale of a stock is justified. Secondly, the heresay from others will not affect your conviction as much since you will have hard proof to back your beliefs. And finally, you get a better sense of the industry which only adds to your educational benefit, etc. For Pyramid Petroleum in the Oil & Gas industry, I'll compare it with the now acquired Rally Energy (RAL.to).

PYR Q3 Financial Report:
http://www.newswire.ca/en/releases/archive/November2007/30/c6191.html

RAL Financial Report from 2004-2006:
http://www.rallyenergy.com/PressReleases/PR%20-%20%20March%2020%202007%20Year%20End%20Results.pdf

Historical stock prices for RAL:
http://finance.yahoo.com/q/hp?s=RAL.TO&a=00&b=1&c=2003&d=11&e=1&f=2007&g=w

Historical light crude oil prices:
http://futures.tradingcharts.com/menu.html

When Rally was producing approximately 2,000 boepd, its market cap ranged from $37-118.4 millon ($0.50-01.60/share x 74 million shares) when light crude oil was $32-48/barrel. The current market cap range for Pyramid has been from $11.1-18.5 million ($0.30-0.50/share x 37 million shares) while crude oil has been worth $50-100/barrel. PYR should be worth 4-12x its price based on production levels and the rising price of oil for a fair valuation. However, the valuation of property and reserves are different in both companies and the valuation will vary depending on crude futures.

Overall, the prospects look pretty damn transparent to me. I don't see this as a speculative oil & gas company because they have already proven their numbers on paper unlike drillers who have unrealized potential. My price target ranges from $1.60-$5.00 which would make the market cap between $66-200 million.