Catching up on recent news, 88 Energy (88E) announced its placing. Up to £8.1 million at a price per share of 0.55p to fund the drilling of Hickory-1 in early March. The well is said to have been significantly de-risked by recent Pantheon Resources (PANR) drilling and flow tests, interpretation of the Icewine-1 well logs and modern Franklin Bluffs 3D seismic data and associated AVO analysis.
PANR also issued news, aiming to make a case that its operations potentially are commercial. It is critical now for the company to get its share price up, otherwise it faces having to repay convertible bond holders in cash (which it does not have), or accepting an effective death spiral in its share price, the strength of which will also determine whether or not it will be able to raise further meaningful finance.
88E has been covered three times in the Private Blog as a company of interest: first, at around the 0.7p placing level to finance the Charlie-1 well (the share price subsequently reached a high of 1.48p prior to the spud); second, at around the 0.33p placing level to finance the Merlin-1 well (the share price subsequently reached a high of 4.7p prior to the well result); third, at around the 1.49p placing level to finance the Merlin-2 well (the share price subsequently reached a high of 2.817p prior to the spud).
I have no great faith in the actual viability of any of 88E’s projects; it’s just one that’s invariably been good for a pre-spud share price run. This time, though, it’s left little time between funding and spudding.
Petro Matad (MATD) announced a $6 million placing and subscription at 2.5p per share. The fundraising is primarily intended to enable the company to test the low-cost, high impact Velociraptor exploration prospect where it says success would be transformational for both the company and Mongolia. A firm date for the drilling of Velociraptor-1 is still awaited.
Molecular Energies (MEN) announced a Paraguay update. A drilling rig has been successfully procured and a contract signed. The estimated time for commencement of drilling now is in May and the drilling time projected to reach target depth is estimated to be 40 days from the time of commencement. The well is said by the company to have an unrisked recoverable oil in place estimate of 96 million barrels, with the entire complex having a total of 306 million barrels.
Predator Oil & Gas (PRD) announced a MOU-2 drilling update. The well now is suspended above the target pending re-evaluation of the drilling mud programme required for an unexpected geological formation. Meanwhile, an extended MOU-1 perforating and testing programme is to proceed. Pre-drill objectives remain unchanged according to the company, as do potential estimates of gas resources.
PRD has been covered twice in the Private Blog as a company of interest: first, at around the 4p placing level to finance the MOU-1 well (the share price reached a high of 22.5p prior to the MOU-1 spud); second, at around the 5.5p placing level to finance the MOU-2 well (the share price reached a high of 12.3p prior to the MOU-2 spud).
IOG (IOG) announced a corporate update. Gross production in 2022, the company’s first year as a producer, averaged 27.4 million cubic feet of gas per day from first gas in March, with total revenue of £79.6 million. With CalEnergy, IOG has applied for nine blocks in five licences in the UK 33rd Licensing Round, all containing gas discoveries. Year-end cash was £32.4 million. Market capitalisation is £42 million.
Lansdowne Oil & Gas (LOGP) announced it has raised £300,000, by way of a placing at 0.5p, to meet its expected share of Barryroe costs, while awaiting the outcome of the application for a lease undertaking. Progress depends on Barryroe Offshore (BEY) being able to complete its convertible loan note funding and BEY’s last news was that issuance of the circular convening the EGM to approve the funding terms had been deferred pending discussions with certain substantial shareholders.
PetroTal (PTAL) announced increases in its 2022 year-end oil reserves. The company has recorded a 46% increase in 2P reserves value per share to £1.39, with 2P estimated ultimate recovery now over 108 million barrels. Seven 2P well locations have been added, extending the 2P reserve life to 22 years and the 2P after tax NPV-10 value has increased to more than $1.5 billion. I highlighted PTAL when it was 7.6p. It’s now over four times that price at 42p.
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For those who find the article a little long and just want a summary of my trading approach, I’ve posted an abbreviated version of the last part of the last chapter below:
As mentioned, the key is always to be heading for an event, fully financed. This is the point in time when most share price rises take place. You do not want to be in at an earlier stage, with the exploration financing still to be done, or be in after the event, when the development finance will need to be done, but without the original excitement.
It has to be emphasised yet again that the project must be potentially transformational and it must be fully funded. It is only then that the share price has the unfettered potential to run upwards as the key event approaches. Fundamentally, what is important is that there is a story with serious upside, good news flow and strong promotion, which is not going to have a damper put on it by further fundraising.
As stated previously, there are some important further aspects, which I shall repeat: you do not want to see the placing to fund the project taking place at an already ramped up share price. The last placing, delivering fully funded status, is best if it takes place at a low point, not a high point, ideally well below any recent highs.
There need to be no convertible loans, investor sharing type agreements or similar devices outstanding. These simply constitute a death spiral and will kill any share price performance dead. Equally, it is best to avoid companies whose management have previously demonstrated a liking for such arrangements. These are highly profitable for all involved, with the exception of the company’s shareholders.
Crucially, there must be no large numbers of cheap shares recently issued. It is necessary to watch out for conversions of debt and issues of shares during any preceding suspension or prior to the original admission, hence the critical importance of actually reading the relevant part of the admission document(s) if appropriate. You need to know who could be selling, at what price, and how much.
Rather than taking placings, it is generally better to buy in the market on subsequent weakness while the placing churns before the run up. Indeed, it is often quite possible at some point to buy under the placing price. Scale in. Buy in stages.
Do not allow yourself ever to be triggered by a social media post, or someone else’s opinion. Ignore the promotional marketing aimed at the less knowledgeable, focusing only on the points that actually are important. Conviction in purchases is key and you will not obtain that just by listening to other people. You have to believe it yourself.
My take on shares and the market is different to many, but the approach I adopt has served me well. It might not result in as many trades, but what it does do is ensure that virtually all end in profit.
What I like most is a big drill, not one being undertaken by an already producing company, rather by an exploration company with no production. The numbers have to be potentially transformational in relation to its current market capitalisation and I want to see the drill being financed entirely by equity (no convertible debt or anything similar) at a share price towards the bottom of its recent trading range. Best is a company that has been around for a while with no large tranches of cheaply issued shares extant. Credible management is good, as are credible partners. Let them do their placing, then gradually scale in as it churns (remember there has to be time enough for that between the placing and the spud). Then, providing they are not misleading about dates, contracts, etc. (which is why I keep stressing the word credible) the shares will start moving up. I de-risk as the price rises to run the whole position for free and thereafter start to gently bank profit.
These trades do not happen every week, but there are enough every year to make good money. Success also requires doing nothing at times, yet doing nothing sometimes is the hardest thing to do. People often want to be in every trade, but to win it is important to learn to trade only when everything is in your favour.
Remember that ultimately these companies’ business projects usually fail. Focus on the strength of the near-term story and the key points that actually are going to impact the short-term share price performance. The test again is does the company have a credible, compelling story, strong and believable enough to entice large numbers of future investors to buy it, and which is sufficiently powerful to be capable of moving the share price significantly higher. Keep all of this in mind and ignore the irrelevancies.
As I have stressed, it requires patience and a control of emotions, in particular FOMO (fear of missing out), but with discipline it works. It is important to be relaxed and never over extend yourself financially. That way, as I said before, trading and taking profits becomes both pleasurable and effective.
So that is my approach and, as those who are familiar with me know, it works. For those interested in more, I post regularly on Twitter and publish my actual real time application of this approach weekly in the Private Blog (check it out). To date, 13 plays have completed their cycle, recording maximum gains of 53% to 1,324%. The average maximum gain is 282%.