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Tiny SAO TOME Gets Major Windfall
I've gotten numerous inquiry emails about Hyperdynamics (OTC BB: HYPD), the idea I first published in the September 20th edition. Since making a new all time high of $2.14 on September 22nd, the stock has been slowly grinding south, a few cents per day. Those of you who are concerned would do well to remember SHEP Technologies (OTC BB: STLOF) which was my offering last February at about $1.80. After grinding down to about $.80, the stock made a breathtaking run to $3 over a two week period in June.
The tiny Western African island nation of Sao Tome had a major windfall this past week when bids were opened to explore the Nigeria/Sao Tome Joint Development Zone you see picturedon the map.
Sao Tome is one of the poorest countries in the world. Its 170,000 people have a per capita income of $280 per year. Under the terms of a 2001 agreement with Nigeria, Sao Tome will receive 40% of the oil revenues generated from the joint development region.
The Joint Development Zone has been gathering seismic data on this area for some time. It is estimated there are between 3 and 8 billion barrels of oil in the zone.
In a unique closed bid auction format, bids were opened yesterday from major oil companies for the rights to explore the individual numbered zones. US and Nigerian Oil companies bid over $500 million in bonus money. The bids on the zones broke down as follows:
Block 1: $123 million from Chevron/Texaco
Block 2: $60 million from Fobil Engineering
Block 3: $35 million from Sahara Energy
Block 4: $100 million from ECL International
Block 5: $35 million from Sahara Energy
Block 6: $55 million from Murriel Brown
Block 7: $10 million from Fusion Zurich
Block 8: no bid
Block 9: $45 million from Fobil Engineering
These figures only represent signing bonuses only. Both countries will participate in ongoing revenue streams once the oil begins to flow. For tiny Sao Tome, this is a windfall beyond belief- the country's entire exports added up to $3.9 million in 2002. It is anticipated the agreements will be drawn up and signed by March of next year, and Sao Tome will then receive its first check.
This kind of activity bolsters the Bush Administration's position on increasing oil production for Western Africa. In testimony before the Senate Subcommittee on International Economic Policy, Export and Trade Promotion on October 21st, deputy assistant secretary for international energy policy John R. Brodman stated:
"West Africa, is one of the world's fastest growing sources of oil and gas. Oil production generates a large share of government revenue in countries such as Nigeria, Angola, Gabon, Equatorial Guinea, Republic of Congo, and Cameroon, and much oil remains to be discovered and developed in some of these countries."
Hyperdynamics (OTC BB: HYPD): Could Guinea Be Next?
After reviewing the results of the JDZ auction, is it any wonder I am fascinated with the opportunity offered off the coast of the Republic of Guinea?
Depicted on this map is the 64,000 square kilometer concession owned by Hyperdynamics. As I covered in the last edition on this company, a boat is currently taking seismic readings over 10,000 square kilometers of the concession.
Hyperdynamics is six to nine months behind the seismic data that had been compiled on the Joint Development Zone located in the Gulf of Guinea to the south. However, preliminary indications show the potential for as much oil as is expected out of the JDZ.
My recommendation on Hyperdynamics is unique. There is no time frame, target price, or stop loss. I have no idea how long it may take for other investors to catch on. If a company like a Chevron/Texaco signs on for a $123 million rights bonus, I don't know where the stock could go from a mere $40 million market cap, nor how long it might take.
Hyperdynamics will have a partner at some point in time if oil is going to be extracted from the concession. The company's only real asset is the rights to explore the concession. I don't know how to place a value on the asset, but I do know major oil companies were willing to pay $1/2 billion in bonus fees just to get the rights to exploit a similar concession to the south. There won't be a public auction. Hyperdynamics already owns the exploration rights.
As you can see from the chart, the stock is moderately schizophrenic. There is no discernible trend line. Just a couple of spikes, the second being slightly higher than the first.
However, looking at support/resistance lines, you can see that the stock is drifting down to the high end of its support range. It is now digesting the enormous gains it has made since coming up from the $.30 level earlier this year.
As more investors catch on to the continued expansion of oil exploration off the coast of West Africa, the audience for this stock should improve. Perhaps more seismic data will do the trick, or a deal with a major name in the oil industry.
In any case, it is evident from the results of this week's auction of the parcels in the JDZ that large oil companies are willing to invest in deep water wells off the coast of West Africa. As long as the seismic data shows potential, big money is on the way. The bonus fees on the JDZ alone came in over $500 million. Along with recognition should come significant profits for shareholders of Hyperdynamics.
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