The big news came out Friday post close, and I’m very pleased to see the company is now positioned to move forward with the Guinea Concession.
When you think about it, all that has happened is that we are right back where we were about 6 months ago when the company announced it had been denied the permits to drill. The application was declined, and that’s when this saga began.
According to HDY’s press release, the new arrangement to begin drilling in the concession has been signed, and HDY is now free to begin the process under the new agreement. We haven’t seen the terms of the new agreement, and the company has promised disclosure through an 8K.
I am also informed by a third party close to the company that the agreement still needs to be ratified by their version of Parliament, and once it is law it cannot be changed even if there is a change in control of the government.
Several readers were quick to point out that I have been “wrong” about this situation. I beg to differ. In fact, I have been saying that I would rather be out waiting for the new deal to get signed. Once it did get signed, I knew I would have to pay more for the stock, but I was prepared to take the risk. If they couldn’t work it out, I wouldn’t be at risk. What’s wrong about that position?
It appears to have been worked out, and now it’s time to think about getting back in. I would image those that had the faith to stay in are a little disappointed in the price performance. It closed at $2.40 on Friday, made a high today of $3.20, and closed today at $2.80. That’s only a net gain of $.40 since Friday’s close, and about $1 off the recent lows.
I was asked a far more interesting question from another subscriber. This gentleman wanted to know where I thought it could go, and how long it might take.
I am not expert on offshore oil development, but common sense allows me to make some rational projections. I believe it will take some time to actually drill a well. All the drilling rigs in West Africa are in use, and they can’t just snap their fingers and get one to the site. There will be plenty of downtime and listless trading in this stock in the future. That will be the time to buy.
Where do I think it could go?- If there are 1 billion barrells of oil under the ocean’s floor in the concession, it could eventually go to $100, and anywhere in between.
I don’t feel the market will really embrace this situation until they prove the oil is there, which may take some time.
In the interim, the terms of the deal could be great, which would help the stock. They could still land a deep pockets drilling partner, which I believe would help the stock. They could also sell the rights to part of the concession if it is allowed under the terms of the new Agreement. Any of these events might keep the stock rolling.
Here’s the chart:
As you can see, the stock tried to jump up to the level from which it had the big decline last April.
However, in my view, things have changed. I could be wrong, but I believe that when we see the September quarterly filing, we will learn their current financier has converted lots of shares and sold them into the market. You can assume their number of I&O shares will go up, and their debt levels will go down.
Since I don’t own the stock now, I am pleased the financier is in the stock- it gives me a chance to accumulate it at a reasonable price.
I don’t recommend this stock for short term investors. If you have a one to two year time horizon, it could be great. I believe it will take that long to prove there is oil under that ocean floor. In addition, the energy sector is falling apart. The 3 year run in commodity stocks is over.
This is now a great speculation for the long term. I no doubt will own some. Once they close in on drilling, it should help the stock immensely.
Comments and questions are welcome.