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.
What do you think of the new PSA now that the 8K has been filed? How does it compare with your expectations, other deals, etc.? I’m specifically interested in your comments on the 64/36 split of the concession, the sliding scale split of potential oil revenue, and the 10% royalty payment to the government.
Editor: It tracks exactly with my expectations. If you do the math, you will find they are charging about $5,000 per unit. They could sell them for $3,000 and make a lot of money. I believe their hard cost run about $1200, and since there are others involved, they have no responsibility other than to deliver the kit. No installation, or anything else. Also- the terms are COD. The 10% royalty to the government insures it will all happen. If this arrangement gets fullfilled, the company will make a lot of money. Here’s my real problem- what’s it going to take to eat through this massive supply of stock? I have no idea.Â
Have you decided to buy this stock yet?
Editor: Not yet. However, I probably should have by now. They seem to be moving forward, but there are still plenty of steps and lots of time until anything is actually drilled.Â
can you explain this?
Here is a direct copy of the text from the 10K filed 10/13/2006.
“In the last fiscal year, we have drilled 2 oil wells and completed some field improvements on two leases. In fiscal 2005, while drilling our first lease known as the J. W. Norris (“Norris”)lease, it was determined that significant amounts of high pressure gas existed on the lease. As each well drilled continued to hit additional gas zones, the first twelve wells were left basically shut-in and it was determined that we would need to install a gas gathering system, contract with a pipeline transmission company and then execute a contract with a company to buy our gas. We have not yet sold commercial quantities of gas and we decided to abandon the gas gathering system when it became apparent that a sustainable flow of production could not be reached. The Norris lease is now being evaluated for drilling new well(s) into a zone that we hope to find reasonable production. So far our experience with the Norris lease has not produced what we had originally expected”.
From the recent 10Q: (one month after the above was released)
In addition, we expect to exploit our leases in Louisiana by operating numerous low volume wells that produce 20 barrels a day or less. We believe the relatively high price of oil will help make these wells more economically viable. We are currently in the process of completing the wells so that they are capable of production. We announced on May 10, 2005 that we have completed 10 out of a planned 14 wells for our first lease in La Salle Parish, Louisiana. As of November 2006, we are in the final phase of efforts to complete the gas gathering system on this first lease. This will allow us to start selling gas. Once we determine our flow rates and statistics we will be better able to assess the impact of these activities upon our revenue.
Editor: I believe they could be referring to two different properties. I don’t know for sure. To no one’s surprise, their big projects in Lousianna has resulted in nothing but law suits. This company’s entire future is wrapped up in that West African project, and as of late the market appears to be getting tired of waiting. However, this stock seems to have 90 lives, so it might be getting to a level where it is an interesting speculative buy.
I thought the company’s news release was the first piece of information in some time that actually had some meat to it, outlining with clear time lines their business objectives for the next 6 months, but after a very brief upward movement on the open that day, the stock has been moving downward ever since, breaking through its support at $2.00 on moderate, but not light volume. It has seemed for awhile that the market is leery of the company and needs something concrete to move higher, but I thought this release finally had some substance to it.
Am I missing something?
Editor: Oil and gas stocks had a great three year run, and these guys simply did not get it done when those stocks were the Wall Street darlings. What they did get done was a big financing with the most hostile seller in the microcap world. You want the stock to go up? Start by actually getting the drilling permits then drilling. You don’t even have to hit oil. Could be a pretty level to accumulate the stock in here.
You haven’t written about HDY in quite some time. I was at the road show in Chicago and met some of the Watts. According to them things are looking good and they are in discussion with potential partners in the purchasing of the data and eventually as drilling partners. Question: Do you think the road show to financial people and investors will show results in the value of the price soon? What have you heard lately on what is REALLY going on with the company and potential partners?
Editor: Three years of promises-actually, make that 12 years including the two previous versions of this company, which both failed. Just drill an f’ing hole, and I’ll start to take an interest again. Until then, it’s just another debt burdened story who has an undeliverable deal with a third world country.
This is the latest blog that I could find on HDY,
guess it is out of favor.
As you may know it has jumped in price.
As I hate to sell a loser, and usually pay a price, this one time I am currently a winner on. Question is when is it time to sell?
And I ask myself this question and the answer is when it is profitable…such as 3 positions up as much as 51%. I have to take the money cause I fear HDY will soon tank when the poor slobs who bought in get sold out by management and short term traders. Just a thought.
Editor: Here’s my thought- I wouldn’t buy the stock at this point in time. Despite some favorable publicity, they still have never drilled a hole, and the still don’t have permission to do so. This stock has traded down and quietly for months at a time, and odds are it will return to that state at some point in the future. That’s when you buy it. If they get permission to drill a hole, my view could change.
Here’s another thought- thestreet.com (Cramer) came out with some favorable press on the stock. This has happened to OTC Journal subscribers twice in the past. 1- GEPT jumped from $3 to $7 on Cramer after we were buying it in the $3 to $3.50 range. I said to sell it. Now the stock has all but disappeared. Cramer also came out on DXCM at $21 when I said to buy it at $16- It went to $25 and I said sell. Today- just north of $6. Enough said.