Jim, BPZ Energy (BZP) -- If a 10% drawdown in the stock price, which lasts for 3-4 weeks, would be enough to make you wish you sold, you might want to consider selling at least some of your position in the next week or 2. I believe there is a good chance that the stock price will pull back by that much on the announcement of their proved oil reserves. The reasons have mostly to do with a combination of 1) the typical psychology of how high-potential E&P stocks trade, plus 2) the fact that there are so many energy industry neophytes out there buying E&P stocks.
1) Psychology
The sizzle always sells for more than the steak. This statement condenses, in 1 sentence, how high-potential E&P stocks trade. The announcement of proved reserves will represent the "steak" in this context.
2) Energy neophytes
Everyone and their brother is buying energy stocks these days, and everyone thinks they are an energy expert. The problem is, a lot of folks don't even know some of the basics. I would venture to suggest that some of the institutions buying chunks of BPZ stock in the last month do not even know the difference between "original oil in place" ("OOIP"), and "proved reserves". So when these poor slobs see BPZ's internal estimate of 61 mmbo of OOIP showing up in their slide presentation, then they see that BPZ's petroleum engineers end up assigning a mere fraction of that, say 9 mmbo, as proved reserves, the knee-jerk reaction will be to assume that BPZ was yanking their chain, and that its a good time to blow out some or all of their BPZ position.
The more informed investors would recognize that PE firms are highly conservative, especially when put in a situation of being asked to provide a reserve estimate for a field that has not gone into production yet. They would realize that, even though the typical offshore oil well, with a formation showing good permeability, should be able to recover around 30-40% of the OOIP, the PE's, as conservative as they are, would probably initially only assume something closer to 15% recovery.
The above being said, I don't believe the pullback would be for more than 10% or so since there are too many folks now following this story, wanting to buy some stock or increase their position, some of whom have been caught sleeping at the switch with the stock exploding up as it has. I believe these folks will buy this dip.
The reason I believe the dip will last only 3-4 weeks is that by that point, they will likely have spudded the 18XD well, and since that well is targeting reserves that could triple the size of the oil field, folks will likely start bidding the stock price back up once that well has started drilling.
I had been planning all along to sell some of my position before the announcement of proved reserves, for the above reasons. I have already sold some stock, and have not yet decided whether I will sell more or ride it through the news. Another key factor influencing me is that the value of my BPZ position has burgeoned to point where it occupies far too high a percentage of my total portfolio at this time, for me to be comfortable.
In any event, best of luck to you and other BPZ fans. |
