A look at the future of AIPN? (Disclaimer: i do NOT own AIPN stock or that of the company in the article. This is just one of the things that could happen to AIPN. i cut parts of the article to avoid breaking copyright laws)
Despite TransTexas Gas Find, Market Stays Cold on Its Stock
By E.S. BROWNING and TERZAH EWING
Staff Reporters of THE WALL STREET JOURNAL
Jack Stanley isn't happy with his company's stock price.
On Jan. 8, he and billionaire investor Marvin Davis announced that their
joint-venture exploration project had hit a natural-gas gusher in the shallow
waters of Galveston Bay, off the Texas coast.
TransTexas Gas, which is controlled by Mr. Stanley and owns 75% of the
project, chartered a yacht to take employees and investment bankers to
the well. Amid champagne toasts, everyone talked about how, back on
Wall Street, the stock would climb.
But after hitting 20 7/8 during the day, nearly six points above its
day-earlier close, TransTexas fell back to close at 18 in New York Stock
Exchange composite trading. In the next few days, it continued south.
Even after bouncing Friday, it finished last week at 16 9/16. (U.S. markets
were closed Monday for Martin Luther King Jr. Day.)
Mr. Stanley, who calls the gas find "a huge event" and "the biggest
discovery of my career," says he was "disappointed that my stock was
only up $2." His company, TransTexas, says that initial results suggest
reserves easily could exceed one trillion cubic feet of natural-gas
equivalent. That would be enormous....
...Public-relations people have been calling around offering interviews with
Mr. Stanley and Mr. Davis, whose closely held Davis Petroleum owns the
other 25% of the gas find. Jefferies & Co., Mr. Stanley's investment
banker, offered to put reporters in touch with its analyst, who, Jefferies
said, was "pounding the table" in favor of the declining stock....
...But another problem lies with the track record of Mr. Stanley, a
59-year-old multimillionaire who twice has sought Chapter 11
bankruptcy-law protection for other companies, which were successfully
reorganized. His determination to complete a once-troubled refinery
project in Louisiana, his knack for getting involved in contentious lawsuits
and his aggressive publicizing of his projects have left him with one of
Houston's more colorful reputations.
...But some say that active publicizing of the Galveston Bay well actually may
have hurt the stock.
"We certainly see a lot of press releases from them announcing prolific
wells," says analyst Robert Gillon of oil-and-gas research firm John S.
Herold Inc. in Stamford, Conn. "Until you have many months of
production history, it seems highly premature to suggest the reserves will
be a trillion cubic feet."
Adds Michael Spohn, head of equity research at Petroleum Research
Group Inc. in Rye, N.Y., "A discovery -- so what? One or two wells
doesn't necessarily delineate a great discovery."
Admirers and critics of Mr. Stanley in the investment community have
been trading rumors and speculation about how sustainable the find really
is. One rumor circulated that another oil-and-gas company, Meridian
Resource, had drilled a much weaker well near the area where
TransTexas is drilling. Skeptics say that suggests that the TransTexas find
could prove disappointing.... ...Analysts value oil-exploration companies on their assets, mainly their
reserves, and on projected cash flow, rather than on past earnings.... ...So the real issue is how much additional value TransTexas deserves based
on its other, unproven reserves, in Galveston Bay and a variety of other
locations.... ..."The market in general is going to be cautious," adds Mr. Stanley. "As you
drill more development wells, it'll become more comfortable" with the
company's estimates.
Perhaps. But for now, the skepticism remains pretty thick.
For one thing, TransTexas is expected to raise money later by selling more
stock. And some analysts worry about Mr. Stanley's continuing pursuit of
the separate, closely held refinery project that landed him in bankruptcy
court once. To guarantee the debt of the refinery's parent, Mr. Stanley has
pledged most of the 80% of TransTexas stock that his companies control.
He says he expects the refinery's first phase to be up and running in March
or April and that he has a letter of intent from a Venezuelan oil company to
process heavy crude at the refinery....
...But some investors and analysts fear that the refinery could face more
trouble. If so, some or all of the TransTexas stock might have to be sold to
cover the loan.
Mr. Spohn says that worries about the refinery could be holding back the
gas stock. "The refinery business has been abysmal," he says. And though
it has been improving in the past six months, "there's a Shell Oil refinery
right across the street. They're putting up a grass-roots refinery across
from Shell in the most competitive market in the country [the Gulf Coast].
It doesn't make sense." |
