₪ David Pescod's Late Edition January 28, 2008
PETROLIFERA PETROLEUM (T-PDP) $8.09 +1.06
The chart on Petrolifera Petroleum shows you how well this company has done...and not done over the last roughly two years of its existence. With a running start in Argentina, they quickly went from zero to 10,000 barrels a day and then all of a sudden, anything and everything seemed to go wrong.
Last week they had an analyst tour for anyone who didn’t mind sitting on planes for 17 hours to get to Argentina. Warren Verbonac of Octagon Securities is one of the analysts following the story and frankly one of the most aggressive.
About the things that went wrong in the last while, he writes, “Petrolifera’s difficulties during 2007 were wellknown prior to this week’s market correction, although many of them are not of the company’s own making: Difficulties with their field operator in Argentina, who has since been replaced; Delays in receiving production equipment; Rapid production declines requiring pressure maintenance and specialized pumps; What appears to be a temporary increase in Argentinean export taxes; A Canadian banking crisis that has frozen commercial paper, tying up much of the company’s cash; and as if that weren’t enough, a market correction based on an American recession.”
As we mentioned, of the many analysts following Petrolifera, Verbonac writes, “The real reason for accumulation Petrolifera stock, and the reason why we maintain a high target relative to the current stock price, is the exploration potential in Peru, a program that could entail several years of drilling and development.”
He continues, “This is a complex, difficult area, but one that Petrolifera’s management possibly understands better than anybody. The Company has been working up this play for several years, during which time the seismic structures keep increasing in both number and size. Although the drilling date continues to get pushed out due to the difficulty of drilling in a remote jungle, we expect the drilling to commence within a year.”
He continues about the area of the world where they are working in; “Petrolifera’s gas prospective block is near the Camisea discovery of over 16 tcf of gas and 850 million barrels of liquids. Their oil-prospective block could also begin drilling within a year, and contains numerous structures analogous to the Corrientes discovery of over 200 million barrels. Even a partially successful program on these two blocks would meaningfully impact the value of Petrolifera.” One of the reasons that Petrolifera has had a running start at obtaining some of the prize concessions in Peru, is that company President Gary Wine previously worked for the Government of Peru in different capacities related to the oil and gas business and knew what areas of the country to be looking at when the concessions became available.
We’ve gone through something over the last few weeks that you come across every ten years or so and it’s not fun. You can call it a crash, you can call it extreme volatility, you can call it whatever you want. All I know is that some of my favorite oil and gas stocks are currently giving us a two-for-one sale. With no advance warning.
So what next is the question millions are asking and we notice a very interesting article by Don Vialoux, a technical analyst and sometime writer for the Financial Post. This past weekend he wrote about the VIX index which he suggests is better known as the “Fear Index”.
He writes, “The index rises when uncertainties in equity markets occur. From 2003 to 2006, when equity markets were relatively unconcerned about extraordinary stock market events, VIX ranged between 10% and 23%. Levels at 30% or higher are considered high.
Last week, the Index reached 37.5%.”
Yes, in our neighborhood, the Fear Index was alive and well and scary!
Vialoux writes, “Once again, VIX has reached a rare, but important level tied to a period of panic or capitulation in U.S. equity markets. The indicator is pointing to a period of recovery in U.S. equity markets into the March/May period” he writes, and my goodness, do we ever hope he’s right.
He points out the easiest way to invest in this maybe through exchange-traded funds that track the big-cap U.S. equity indexes, but as these charts show there were five times that we have seen the VIX at this high a level since 1997, it’s been followed by a settling down and better prices.
Needless to say, we hope he’s right with his thoughts for the next two to four months.
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