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Oilman Jim - Markets, Oil Price, PET, AEX, PPC, CORO, ECHO, SOU, NOG, How It Works

There's been a strong recovery for both the oil price and the markets, with confidence returning and money flowing back into shares. Some news too in the first couple of days of the week:


Petrel Resources (PET) announced an update on their agreement with the Tamraz Group. Petrel still haven't received the money due and are cancelling the shares that were to be issued to Tamraz, whose remaining shares remain frozen since they still haven't bought back the shares they sold in breach of the lock-in agreement. Meanwhile, Petrel is progressing its existing projects, of which the most promotional would be their Iraq activities. I highlighted PET as a favourite several times last year around 1p and it's now over 3.5p, having been as high as 26.5p


Aminex (AEX) announced a farm-out update. It's received the Tax Clearance Certificate from the Tanzania Revenue Authority and with onward submission to the Tanzania Petroleum Development Corporation to be forwarded to the Ministry of Energy, Aminex has now accomplished all of the conditions within their control in order to complete the farm-out.


President Energy (PPC) announced the expected introduction of a $45 minimum oil price in Argentina, but they're being cautious. "The practical implications of the Decree, its implementation and effect upon President is being considered by the Company and further comment will be made once the effect on the ground becomes clear and demonstrative" they say. As I've mentioned recently, those in the industry are dubious as to its actual benefits. It looks like a good few got spiked on it yesterday. Paid commentators are pumping it hard.


Coro Energy (CORO) has been seeing a lot of social media promotion, including by the paid commentators too. The main story is that the market capitalisation is less than cash, but they conveniently forget the 20 odd million debt. It's another Parsons company, so be careful. The auditors make reference to a material uncertainty in relation to going concern within their audit report and the whole house of cards, including related companies Echo Energy (ECHO) (running the $45 Argentina story too) and Sound Energy (SOU), could collapse anytime.


Nostrum Oil & Gas (NOG) is another one which looks great if you ignore its debt. It announced EBITDA of $31.7 million in its RNS yesterday, but not its actual losses of over $25 million, which you have to dig to find out. People see their RNS numbers in contrast to a market cap of £16 million and are completely misled. Some do know about the billion dollars of debt, but ignore it because it spoils their investment thesis.


I've found myself engaged in a few discussions recently with people who, although knowledgeable in their own specialist areas, don't understand how small cap markets operate, yet still want to impose their views. They tend to be focussed entirely on fundamentals and theoretical valuations, believing firmly that the market capitalisation should and will reach these levels. They do not accept that these small cap markets in fact are driven by sentiment.


Regardless, there are usually good reasons why some companies appear to be bargains. Sometimes apparent, sometimes less so. One of the main things I think a lot of people don't understand is that asset value, even if genuine, doesn't necessarily flow through to the share price. How can a share trade at less than cash many people ask. Very simply if you have a situation where the company makes no money and the directors are just going to take that cash for themselves. It's actually a huge indictment, because basically the market is discounting the fact that the directors essentially will just waste the company's resources.


Moreover, are some of these fundamentals and valuations even real when so many of the companies are dodgy? Along with those chasing pumps, these "value investors" are the people who I see losing the largest amounts of money. They're too rigid in their thinking, applying the principles of their own occupations to something that in fact is very different from the real world businesses in which they work.


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The author may hold one or more investments in one or more of the companies mentioned so this post cannot be viewed as independent research. This post does not constitute investment advice or a recommendation to buy or sell and may be incorrect or outdated.

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