Oil has been trading like a penny share, bagging at one point earlier in the week. For the first time ever, the price even went negative for delivery. It’s being hit from both ends with too much supply and too little demand and the worry is when will conditions stabilise.
Producers are cutting output, but the great unknown of course is the Coronavirus, which countries around the world have attempted to counter with varying degrees of success. It will all stabilise, people will just have to adapt. However that takes time and governments are hesitant to disclose what will be the necessary new rules until the population gradually adjusts. It’s not really about politics (experienced doctors, scientists and civil servants are in charge), the political aspect just impacts the way it’s all presented, which unfortunately in some countries hasn’t been done too well.
For shares it was another volatile week and many companies tried their best with news. 88 Energy (88E) announced that a petrophysical interpretation has indicated hydrocarbon pay in two formations. There’s always a laboratory somewhere that will produce a soothing analysis to keep the necessary optimism alive, but the reality is that Premier Oil pulled out and let 88 Energy have their interest for free. I think it’s time to move on from this chapter. 88E gets interesting again after it’s financed for the next drill.
Tullow Oil (TLW) issued an AGM trading update. It’s positive and the shares are now up over 200% from the low they hit last month. It just shows the type of quick profits that can be made in the current market environment. And this is a company capitalised at over £300 million. You don’t have to trade only small-cap pump and dump stocks to make fast money now.
PetroTal (PTAL) is being hit hard by the current oil price. The company now effectively has suspended all further development activity and the talked about reserve-based lending facility looks doubtful in this climate. Contractors also need to be paid. But financed, this still has potential and with a reasonably sized placing, PTAL could get going again. It’s one to keep an eye on.
Pantheon Resources (PANR) continues to seek a farm-in partner for its Alaskan projects. It would like a meaningful up-front cash component as well as carried terms on future drilling. I think that in the current environment this could take some time. For the moment, they’re reducing their salaries by 20%.
Gulf Keystone Petroleum (GKP) announced full-year results. Cash at 22 April 2020 was $164 million. Current market cap is £166 million. Operations now have been reduced to focus on the minimum safety-critical activities required for production, but once macro conditions improve, including resolution of outstanding payments from the KRG, Gulf will restart expansion activity to increase production to 55,000 barrels of oil per day. It doesn’t look expensive.
Empyrean Energy (EME) announced an open offer at 3.5p. There’s a sense of deja vu here. I remember buying EME at 3.5p in 2017. It looked like a no brainer then and so it turned out going to over 30p and delivering some of the best trading gains that year. Now we’re back where we started, unfortunately, I don’t get the same feeling again.
Red Emperor Resources (RMP) issued its quarterly activities and cash flow report. They say they’ve continued to conduct due diligence on a number of potential projects, but the current state of the global economy, and depressed oil prices, has made valuing companies and assets difficult. With A$4.7 million cash and access to more, they’re now waiting to take advantage of any opportunistic deals as and when they become available. It’s one that will get interesting again in the future.
Sound Energy (SOU) issued final results. I’m only commenting on this now since it claims to have assets of £186 million. It’s one that’s been continuously pumped for cash by certain people as a result of which large numbers of investors have lost hundreds of millions of pounds. It’s not a joke and I see some of the same people working Coro Energy (CORO) now. Reality is that these two companies plus Echo Energy (ECHO) (all three under the same control) have a significant debt of over £20 million each and possibly worthless assets. The CORO auditors made reference to a material uncertainty in relation to going concerned within their audit report last week. So watch out. I’ve been warning about these three all the way down.
Regardless of circumstances, the good companies will pull themselves back together and the bad companies will fail. If you want to know how to spot the differences, I explain it all in the Special Trading Course. Plus of course how to choose the ones that will deliver the large returns. The link for that is www.oilnewslondon.com/trading
Personally, I look for what I would call certainties. Those shares where I think a profit is as good as guaranteed. My trade ideas are in the private blog each week and the link for that is www.oilnewslondon.com/oilman-jim
If you’re not yet familiar with me, I’ve been involved in the markets for quite a long time. I bought my first shares in the 1970s and I’ve worked in the financial sector since the early 1980s. My particular knowledge is of the stock markets and I’ve been actively involved in these, both in the UK and the US for over 40 years from both sides of the fence. I’ve also had significant involvement in the oil and gas industry along the way, from drilling wells to negotiating farm-outs to majors, which enables me to see very quickly whether or not these companies are telling the truth.
Contact me on Twitter @Oilman_Jim
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The author holds one or more investments in one or more of the companies mentioned so this post cannot be viewed as independent research. This post does not constitute investment advice or a recommendation to buy or sell and may be incorrect or outdated.
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