HyperDynamics Disaster

News came out from Hyperdynamics at 9:00 est on Thursday night, and it’s as ugly as it can possibly be. According to the press release, the Republic of Guinea has terminated its agreement to allow hydrocarbon exploration in the concession off its coast.

Here’s an excerpt:

“While SCS was in the process of commencing its drilling program offshore West Africa, it was shocked to receive a letter from USOil Corp. regarding cancellation of the 2002 Royalty and Production Sharing Agreement (the “PSA”) between USOil and the Republic of Guinea. The PSA is the contract that SCS has adhered to and complied with in dealing with the Republic of Guinea. The letter from USOil was a result of their receipt of a termination letter from the Government of Guinea.”

HYD spent millions of dollars and several years conducting seismic studies. Recently, HYD applied to the Guinea Government for three permits to drill shallow wells in late 2005.

According to the press release, HYD is going to attempt to resolve the issue amicably with the Guinea government, and barring success, will go into a binding arbitration process.

I have to admit, this is one development I had not forseen. In the intial stages of the coverage which dates back about 20 months, I was skeptical of the strength and existance of the relationship. However, as time went by and HYD conducted numerous seismic studies in the region, I became convinced the relationship with the government was for real. HYD SEC filings also contained hard information on the relationship, and those 10ks were signed off on by auditors. They must have reviewed the documents before signing off on the 10ks.

This news brings into clear focus the danger of doing business with an unstable third world country. To those who were always skeptical of this idea due to the instability factor, I tip my hat- you were right.

HDY had a window of opportunity to get rolling off the coast of West Africa, and the window has all but shut at this point. Perhaps something can be salvaged. I can’t say. I don’t know who’s fault this is- perhaps HDY for taking so long to start a drilling program

For me the speculation is now at an end.  I like microcaps with big upside. A few natural gas wells off the coast of Lousianna doesn’t do it for me. Billions in oil off the coast of West Africa was worth the risk.

By the time you read this the stock will no doubt have cratered. The company is not going out of business. They still have their Louisiana properties which are generating revenue according to recent disclosure. So far, we have no idea how much. Rumor has it in the $5 million in annual revenue range, but I cannot confirm.

However, in my view the majority of the nearly $100 million market valuation was predicated on the upside in Guinea. For the time being, that is gone.

The stock closed at $2.23 today.  I wouldn’t be surprised to see it trade into the $.50 range tomorrow. It might even be good for an oversold bounce if you have the courage try to pick the bottom.

As of the close of business today, we owned 38,200 shares of HDY. 10,000 shares were purchased in the open market at a cost of $2.59. The remaining balance was booked as income with a cost basis of $1.25.

It is now my intention to sell all those shares, take the loss, and move on. I won’t be selling them on Friday. In the market there is always a knee jerk reaction to bad news. Many will be in denial. Many will think the stock is a bargain and try to pick it up cheap.

If and when the stock rebounds from oversold levels I will offload the position and move on. I might even buy some if it gets cheap enough tomorrow.

If they are successful in reviving the relationship I can always buy it back. If my views change due to circumstances, I will publish accordingly.

Your comments, questions, and thoughts are welcome.

When you are betting on the future of young and unproven companies sometimes bad stuff happens.

Datascension Update: 1960 Presidential Election Revisited

I’d like to correct some inaccuracies in the July 26 edition entitled  JFK Invented It, Harris and Datascension Are Perfecting It.

As many faithful have pointed out, I mistakenly claimed the 1960 Presidential election was “won handily” by JFK. I made the mistake of working from memory, which has failed me. Perhaps the eventual popularity of JFK skewed my thinking. 

I have done the research, and now wish to publish the correction. The 1960 Presidential election was one of the most closely contested.  Only 118,574 popular votes separated Kennedy from Nixon. The popular vote was 34,226,731 to 34,108,157. The electoral college was not as close: 307 to 219. 

Despite my lax research, this reinforces the importance of polling and surveys. One could easily argue that Kennedy’s adoption of polling technologies gave him the edge that yielded the Presidency.

On the plus side, DSEN has enjoyed a nice little pop today on the news, albeit on anemic volume. The stock, which had traded below the $.30 mark is now back in the $.37 range.

Based on my long history of involvement in the microcap world, I believe this stock would be trading much higher volume and to much higher levels had this news come in September or October. The smart money participates when no one is watching and no one cares.



BrandPartners; Bullish, Bullish, Bullish

To me, BrandPartners looks bullish, bullish, bullish. Here’s the long term picture as measured from the low last summer.

Just as hoped for in the 5/17 blog on BPTR, the 61.8% retracement level turned out to be the perfect entry level for accumulation.

The long term picture for the stock looks outstanding. The stock made a 131% move from August to March. This year, a similar move would take us to about $1.60.  If the stock can trade above the March high of about $1.15, new highs should come into the picture, along with an upgraded listing to the AMEX.

American Water Resurfaces

American Water Star resumed trading yesterday after a 2 1/2 month hiatus from the market. There are definately some positives to look at, and one glaring negative.

On the positive side: AMW was able to maintain its AMEX listing and continues to trade there, so the company must have done something right to convince the exchange they could right the ship.

Secondly, the stock is trading at $.29 as I write this BLOG entry. The last trade on the day it was halted was $.37. Considering the enormity of the problem, the stock has not taken a terrible haircut.  This suggest one of two things. Either the stock is already trading low enough that all the bad news is built into the price, or not enough people have noticed it has resumed trading. Once aware, sellers could materialize.

There’s good news and bad news on the March quarterly financial statement. First the good: The balance sheet is quite reasonable. There is 7.8 million in shareholder’s equity, and about $4 million in inventory and receivables.  The company argues their plants are worth much more than the booked value, which is probably true but segways to the bad news. Revenues.

The glaring negative: Revenues for the March quarter were a dismal $900k. Absolutely pathetic as compared to the bold prediction of $80 million in ’05 made by Chairman Roger Mohlman in the 4th qtr of ’04. One would expect some business interuption as a result of the regulatory challenges, but this number is far short any reasonable expectation even with the challenges.

Which brings us back to the balance sheet issue. The three plants they own could be worth more than the booked value, but what value do they really have if they are not bottling? If they are not producing they are simply a cash drain on the company.

The software I use to generate charts does not show  the 2 1/2 months the stock didn’t trade. It simply resumes as if it were the next day, and leaves out the month of May.

Nevertheless, here’s the picture on the stock. Considering all that has happened, it’s really not all that bad.

Despite two attempts, recent calls to the company have not been returned. Now that the stock is trading again I’m sure another conference call with an update on corporate progress will be scheduled.

When the company starts talking about the future, the source of future revenues will be key. In the interim, my advice is to hang tight and wait for more information.