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Having called both Falklands Oil & Gas (LSE:FOGL) and Borders & Southern (LSE:BOR) pretty brilliantly as oil junior shorts my pal the bear raider Evil Knievil and I had a good chat about which of the 90 or so juniors out there are the best shorts now. The odd thing is that despite a series of disasters across the sector, private investors still seem to be in love with a raft of pretty ordinary juniors. The astute commentator Was Shakoor summed it up the other day on twitter “why is it that across a string of wells where there is said to be a 15% chance of success only 5% seem to be successful?”
It seems as if the market as a whole is failing to appropriately risk weight success on the exploration side. And investors are thus overpaying almost across the board. As it happens I am an oil price bull but if you are not actually producing commercial quantities of the stuff it does not make much difference whether Brent trades at $60 or $160.
The check list for a slam dunk short in this sector is pretty clear:
- Running out of cash or not being able to fund all capital needs
- A management team that has failed to deliver historically ( you make your own luck)
- A devoted Bulletin Board fan base and slick IR operation promoting the stock on the most spurious of grounds – mentioning IR in RNS releases so a clear obsession with promoting the share price
- Bloated PLC costs
- Any mention of “hype” words such as shale or fraccing or Falklands
- A management team that is involved in a raft of different enterprises – this is an indication of a lifestyle attitude to management rather than a focus on delivery.
- A Darwin or Yorkville death spiral in place – this ensures large scale dilution as the cash runs out.
- A valuation of anything more than £10 million per 1000 bopd production one year out ( if a producer)
- Clear evidence that RNS releases in the past have not been delivered upon i.e. saying something will deliver x in cashflow when in fact it has delivered less than 10% of x or nothing. Or occasionally just telling outright lies.
Finding a company that scores 9 out of 9 is hard although there is of course one on AIM that almost manages that. I have written about four of the six companies I flag up as slam dunk shorts fairly extensively in the past and so for them I will just point you to the relevant articles. For the two “new” entrants in this portfolio I offer up some basic analysis and will provide more detail in the coming weeks. And so here is the table with check list successes.
| Company | Cash | Management | IR/BB ramp | PLC Costs | Hype words | Lifestyle | Death Spiral | Valuation | RNS issues |
| Sefton (LSE:SER) | x | x | x | x | X | X | X | ||
| Borders & Southern (LSE:BOR) | x | x | x | x | X | ||||
| Leni Oil & Gas (LSE:LGO) | x | x | x | x | x | X | |||
| Parkmead (LSE:PMG) | x | X | |||||||
| Vialogy (LSE:VIY) | X | x | x | x | x | x | X | ||
| US Oil & Gas(USOP) | X | x | x | x | x | x |
And so in terms of the biggest winners in these stocks to short the scores on the doors in descending order are
Vialogy 7/9
Sefton Resources 7/9
Leni Oil & Gas 6/9
US Oil & Gas 6/9
Borders & Southern 5/9
Parkmead 2/9
Vialogy is clearly a joke company and is rapidly running out of cash, a pre placing ramp is clearly underway and that is an ideal chance to go short as I explain here
Sefton has to be the biggest joke on AIM. It should be out of cash by Easter and is utterly worthless – my most recent explanation is HERE and a detailed analysis of the countdown to wipeout is here
US Oil & Gas is traded on some joke Danish market where the share price is easily manipulated and is essentially meaningless (it is being ramped today) but the company is essentially worthless as I explain HERE
Borders & Southern should ( like Falklands) be trading at a small discount to cash. Having halved since I first advised shorting it should halve again. Evil is now looking at this one. I explain why it is a slam dunk short HERE
That brings us to Leni Gas & Oil (LGO). At 1.34p it is capitalised at £25 million. The man behind this business David Lenigas is a loveable fellow and has his fingers in all sorts of pies. But the track record of value creation for shareholders is, er…mixed. The company has been a perennial issuer of shares but unless it can flog some low grade Spanish assets it is basically out of cash. That sale keeps being delayed and might just net Leni Gas £4 million but that (and more) will be needed to develop his assets in Trinidad which are currently producing just 100 bopd and to fund a (bloated) corporate overhead. Comrade Lenigas is a great promoter of stock but the current valuation is only justified if everything the man drills in Trinidad comes off. There is no risk weighting in there. There should be.
And that leaves Parkmead which is actually a good company and is run by Tom Cross who had a cracking record at Dana. But the valuation is insane. Evil is not short now. He was but a devoted private investor fan club saw him retire with singed paws. At 14p the company is valued at £106 million. My guess is that cash and listed shares for resale are now just under £10 million. The company generates cash from operations but not (yet) enough to cover a) its PLC costs and b) its aggressive drilling programme. My guess is that it would like to raise a few quid. But valuing the business at ex-cash £94 million seems a tad generous for a company with reserves of 25 million barrels of oil equivalent and which achieved production of 250 boepd in 2012. I accept that the latter figure will ramp up in the coming years but the market valuation and stock price right now discounts rather than risk weights further exploration success.
Parkmead is simply grossly overvalued. It is one only for brave bears to short. The rest of this distinctly unmagnificent six tick all the right boxes for bears to really feast on, For what it is worth, Evil is short of only one AIM oil stock: Range Resources (LSE:RRL).
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Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings (except for that free share tip) follow him on twitter at @tomwinnifrith
Why mention stocks which can’t be shorted?
Or is there a way to short US Oil & Gas?
Btw, that’s a mighty restrained list. My list would beat your list up any day.
You Sir are a juvenile imbecile of the highest order…
Your history has been widely published across the web, need I say more!!!
Stick to Pizza business you clown.
Slightly confused as to why EK saying LGO a short at 1.34 when he bought 6m at circa 1.30 yesterday!
Jonathon
I pick 6 – I could pick a lot more. Indeed you are correct
TP – Thank you, you are debating the issues raised in the piece in an adult manner and I salute you for this. My guess is that you are long of some of this rubbish where ( as it happens, I seem to have called the stocks in question & FOGL) rather well.
Tywalia – These are my shorts not EKs. EK is long of LGO although he trells me he has dumped most of his shares. I think he should dump tyhe rest that is his call. We were just discussing the sector in general
Tom
were do you see the FOGL share price going from here?
My cousin Simon said I should short USOP. Please can you tell me how?
SEC Charges Hedge Fund Adviser and Two Executives with Fraud
The SEC’s complaint charges Yorkville with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. Yorkville also is charged with violating Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Angelo is charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1), (2) and (4) of the Advisers Act and Rule 206(4)-8. He also is charged with aiding and abetting Yorkville’s violations of the Exchange Act and Advisers Act. Schinik is charged with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5, and with aiding and abetting Yorkville’s violations of the Exchange Act and Advisers Act. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay civil penalties.