I thought the HDY press release concerning the state of the Guinea process was extremely weak today, and obviously the market thought so as well. The stock traded its biggest volume since this ran began, and the bears out paced the bulls today for a 14.5% decline.
Short of getting the drilling permits, a little pullback like this was probably inevitable. In my view, the press release was very poorly worded. To read it, click here.
Here’s a quote: ” Their desire is that a new agreement be initiated through an open and transparent democratic process. Considering the challenges we have faced in the past, Hyperdynamics agrees with this approach. We would like shareholders to know that although this process is time consuming, it is laying a strong foundation for our long-term relationship. We realize our shareholders are anxiously awaiting news about our drilling program.”
Here’s the situation as I see it. They are trying to get a bunch of beaurocrats in a thirld world country to sign an a new agreement giving them exclusive rights to the concession. It might take a couple of extra weeks. Nevertheless, they are putting their best foot forward. So, why apologize for the length of time it is taking? If people get impatient and want to sell, let them sell.
They are either going to get the rights to drill the first wells or they are not, and who knows where we go from there.
If you don’t own this stock, or feel you don’t own enough, this veiled apology became an excuse for impatient people to sell. Considering the volume, it didn’t really sell off too bad.
Here’s how I see the technical picture. The stock gave back an almost perfect 38.2% retracement today. If you are late to the party, and didn’t invest when I called it a “must own” at $1.70, now is your chance to pick up all little. $3 is a reasonably good entry level.
If $3 fails, the next level to look at is the 61.8% retracement at $2.56. I already own 20,000 shares, but if the stock sees $2.56 before the awarding of the drilling permits has been announced, I would be tempted to add to my position.
At $3 you don’t have nearly the upside you had at $1.75, but there is still room for a trade into the news. $4 to $5 is probably a good target.
If they can’t get their agreement done, and can’t get the drilling permits, we are all doomed to lose a lot of money. If they do get the agreement and the drilling permits, there will be plenty of trading opportunities in this one for perhaps years to come.
My stop loss is in the $2.40 range. The longer it takes to get the deal done, the more likely the stock will grind lower. If you can’t accept that inevitability, sell it and take your profit now.
Comments and questions are welcome.
I know we are all in for the Africa project but what happened to La, haven’t heard a thing. Are they producing NG yet?
Editor: Funny- when Guinea was on the ropes it was all anyone could talk about. Now, no one seems to even remember that big deal. According to their most current financial statements at the SEC web site, very little revenues are being generated. That may have changed since the end of September, but there has been on public disclosure. I can’t say for sure one way or another.
waiting
Editor: Apparently, some are losing patience.
I find it exciting that a little co. with less than 10 employees has the moxie to brief the State Dept. on progress of the talks. It seems to me this co. has more juice than origionally thought and is now starting to show it for “the benefit of open and honest discussions” with the Guinea officials.
Editor: Don’t forget this little company has Red Poling on the Board- just the former Chairman of the Board of Ford, Board Member of Shell Oil, and Member at Augusta. He’s also a big investor. Connect the dots.
Help us keep the faith,
Editor: Amen, brother.
I could be wrong, but I thought HDY only owned the rights to drill. I don’t see how that gives them the ability to negotiate a new agreement with Ginea. Doesn’t USOil have to be involved somewhere? I think Mr. Watts is well aware of difficult issues he is going to face and hence the cautious nature of his statement. It’s going to be a while…
Editor: HDY bought the USOil deal. They put in a request for drilling permits, and were denied by a low level beaurocrat. The government has since apologized, and they are rewriting the deal directly with HDY. We are just waiting for a signing. Anecdotally, I hear all the terms have been agreed to- the Guinea gov’t is now squabbling over which minister will sign and represent the gov’t in its dealings with HDY. That is just a rumor- not confirmed by management.
I agree with you. Hiring a PR firm hasn’t really helped release more professional PR’s, giving the impression of a small time operation trying to make it big time on pure speculation. Just what do you think of the phrase “An open and democratic process” ? I asked a few friends not invested in HDY to read the PR. All of them felt it sounded like Guinea was trying to put a bidding process in place. To me this makes sense instead of giving the entire concession to an untested company. Also, it doesn’t sound like gas is being pumped in Louisiana. Oil too is nowhere near even 100 barrels a day, forget 750, their previously stated target for 2006. Kinda hard to set a baseline for this stock giving the non performance in Louisiana. All in all, sounds like a stock to watch from the sidelines for the moment. Not quite the time to get in, IMO. What is your opinion ?
Editor: Legally, they already have the rights to the entire concession through the USOil deal. I don’t believe it will be a bidding process- who would bid on it as they have the only seismic data for the area, and if someone else were given permission to gather data, it would take another 2 years. I believe the stock is a strong speculative buy at about $2.50- in the short term you are just betting they will be awarded the drilling permits to drill the first test well. This is a risky one, so there’s no telling exactly what will happen. Like you, I also can’t help but note the non performance in Louisianna. A disappointment.
I tend to disagree with your belief that they will either get the permits and agreement or they won’t, assuming you meant exclusivity. I feel they will be given the rights to drill exploratory wells in a few concessions, and rights to future concessions will be based upon their performance. This by itself sounds very fair to me. I do not see the need for Guinea to give exclusive rights to HDY based upon an agreement that most in the government were not aware of. Also, I wonder just who is advising the Guinean Government on these negotiations since no one in that regime has any experience in dealing with oil companies.
Editor: If that’s the way it comes down, that will be fine. I don’t care. Just get the drilling permits. I have heard one of the problems they are having relates to the Guinea gov’t deciding which minister they will deal with, so your experience observation has some basis in reality.
In these days of no cheap oil, US running at peak production, no major oil discoveries in the last 30 years, China/India emerging economies that use oil…imagine that! If oil is discovered in Guinea it might mean something….I hope. I’m not leaving the party just yet….still waiting for a dance. OBTW have you all heard of a new technology that drills sideways with precise control…Shell knows about it.
Editor: At this point, I’m just betting on them getting the drilling permits. I’ll use that event to take some profits on the stock. Actually discovering oil is way down the road, but would put the stock much higher than where it is today.
In your opinion, what would be a reasonable timetable for investors to expect if and when HDY gets the permits and the rewritten deal? Specifically, approximately how long until test wells are drilled and results known? What is a normal timetable and how might it be affected by “logistical infrastructure” (this term was used in the latest press release) issues that could be encountered in Guinea? Is this entire situation moving slowly or does it only seem that way? Your input is appreciated.
Editor: it will be a long time before wells will actually be drilled. Many months- at least six probably. Unless- they do a deal with a deep pockets partner with drilling equipment that can move quickly. The process for the stock to trade extremely well is 1. get the permits, 2. get a big name partner or multiple partners, and 3. drill some test wells. If they raise money, they could drill themselves. However, I don’t believe that would be the ideal scenario for the stock to trade well. That’s just my view, and I am no expert on resources development.