North Sea Oil


dj

I think investments are on-topic here, as we need a nation of people providing for themselves and not relying on the state. I said earlier (http://libertarianalliance.wordpress.com/2010/09/16/another-masterpiece-by-richard-blake/) that Xcite, an oil company with a prospect in the North Sea, was a good punt.

That was on September 16th, when the price fluctuated between 80.3p a share and 92.5p, where it closed. On December 21st, they announced the result of their oil flow test, which proved the oil, 200 miles to the east of the Shetlands, to be commercial. The price fluctuated between 356p and 431.65p yesterday, closing at 384p. If you invested the day I mentioned it on the LA site – you would have quadrupled your money.

Tips in the newspapers are useless. The FTSE shares do not go up that much – you would get a 5% increase if you were lucky and think you had scored a hit. The AIM market shares are for developing companies and you can easily double your money in a year, even during a recession.

I am not a wealthy person, so I am not “bragging” of success here. My house is very small and cheap, and I may be living in a house that no one else on this blog or in the LA would contemplate living in. So I am not richer than you people here. But I am living cheaply and trying to invest. But I believe in trying to better yourself via investment and have been feeling my way this year.

First, always do your own research. Don’t rely on bulletin board comments or anyone’s recommendations. You need to fully understand the company and what it is doing.

Second, make sure you have a detailed knowledge of upcoming newsflow. You need to know if the company is announcing a drill result in the next week – and possibly consider buying in beforehand. On the other hand, if you invest in a company with good prospects, but no upcoming newsflow for several months, you will just see the stock dive and dive and dive, before eventually making good on your hopes for it.

Third, an investment mistake needs to be recognised immediately. Don’t sit for weeks on a plunging stock. Take the hit and find a better investment.

Fourth, don’t panic over fluctuations in the share price, especially very close to news results. The Xcite share rose to 330p and then plunged to 226p in the week before results, before rising on results to 431.65p (intraday high). You need to decide if the price is being manipulated and, if you still believe in the stock, hold, or sell with an aim of buying back cheaper, if you think it will be possible to do so (but you run the risk of not being able to buy back in).

Fifth, the AIM market is illiquid. You can’t just roll up with £1m and buy shares in Xcite. There are not enough shares being sold for that. You would need to buy in stages, or get a negotiated price with a market maker. You frequently find you can’t sell on a price spike. The price goes up, but the market makers are not accepting your sell offer. Don’t bank on being able to sell £100,000 of stock in one go.

Sixth, be careful how you time your purchases. If the Sunday newspapers tip a share, 8am on Monday is going to be the worst possible time to buy. A lot of people will ask their brokers to buy in on Monday morning, and the price will spike dramatically, before falling back. You will normally find 11am a more better time to buy in, although no hard and fast rules apply. You need to get up at 7am every day to check for news on your shares, as companies can issue Regulatory News Service (RNS) information bulletins from 7am in the morning, and often do so at 7.01am. Alternatively, you can get text messages sent to your mobile phone if one of your companies issues an RNS.

Seventh, try not to give the state money. If you open a SIPP, a self-invested pension, you get tax relief on investments, and any money you make is free of tax. You can’t access the money till you’re 55, when you can take 25% tax-free and draw the rest as a pension. There is a limit of £1.8m on how much you can build up in a SIPP, but you can ask the Inland Revenue for “enhanced protection”, whereby the limit is removed but you can’t put more money in. ISAs are tax-free too, but you can only put £10,100 in a year, although you can let the shares you invest it in build it up as high as you can go. Note: not all shares can be put in an ISA: I know libertarians will agree that the state should not try to tell you what to invest your money in. AIM stocks can’t normally be put in an ISA, unless they are dual-listed on a recognised exchange. In the case of Xcite (XEL:LN), it is listed on Toronto, and so can be put in an ISA.

Broker reports have upgraded their price target for Xcite to £6 a share (compared with the close of £3.84 today), and the company is expected to upgrade its oil in place estimate in Q1, and the target price could go up to £8. The Competent Persons’ Report on their oil reserves, which may double oil in place estimates, is expected to come by the end of January, or in the first quarter, and could see the price hit £6 or more. Xcite are starting production in late 2011, when the share price could (probably will) go into double figures – and that is if the company is not taken over by then. The company has a mechanism in place to prevent hostile takeovers, so any T/O would only be at a good price. Nothing is certain in life, but this share is a probable two-bagger, or three-bagger, in 2011. Note that some analysts, such as those who write the FT Alphaville blog, have egg all over their faces today. They poured scorn on Xcite, only to see the small private investors win here.

Other good prospects:

GKP: Gulf Keystone Petroleum – they have billions of barrels of oil in Kurdistan and only the murky Iraqi politics are holding this share back. The Iraqi government is on the verge of being formed, and this should lead to clarity and the eventual passing of an oil law ratifying the oil contracts given out by the Kurdistan Regional Government. Of course there is a theoretical risk they will expropriate, but the Kurdistan parties in the parliament are insisting on a resolution of the oil question as a price of joining the coalition. This share could treble in price in 2011, and go even higher in 2012.

CNR: Condor Resources – they have silver and gold investments in Nicaragua and El Salvador. If you believe that quantitative easing will boost precious metals, this would be a good punt. They are expected to issue an official upgrade of their reserves imminently, which could put the price in orbit. El Salvador has a moratorium on drilling in place: if that is lifted the orbit of CNR could go stratospheric. Some punters expect this price to treble or sextuple in 2011.

Another silver share that could double in 2011 is Arian Silver Corporation (AGL) – this is one of those that can be put in ISAs.

BLVN: Bowleven – an oil company exploring in Cameroon – a number of newsflow items expected imminently and throughout the first quarter should boost this price.

EO. : Encore Oil – have started a drill in the North Sea and the results are expected ca. January 7th. This company has a number of prospects and is a good long-term hold (but you still need to find a good entry point even into shares that have prospects). This share could be taken over early in 2011… which would be very positive for the share price.

NPE : Nautical Petroleum – also prospecting in the North Sea and expected to rise in 2011.

RKH: Rockhopper – expected to rise in 2011 as they drill more in the Falklands and prepare to start production from their Sealion prospect.

It is very much “caveat emptor”. DES (Desire Petroleum), drilling next to RKH, has caused a storm by announcing an oil discovery, only to say it was only water a couple of days later. A lot of investors lost their shirts on that (which is why spreading investments is a good idea). I personally would not touch DES with a bargepole after that stunt.

Too much buying in and selling out of shares, chasing spikes and the like, can be a waste of money and lose you a lot of money. I recommended Xcite to a friend when it was at 130p, saying it could treble in price. It has trebled in price, but she did not invest until it hit 259p, and kept selling when the price fell and getting back in when the price rose again. Suffice it to say she lost a lot of money, and is now blaming me, despite the fact that the price has trebled as I said I thought it would. Even good shares can lose you money if you play them with stupidity.

Finally, I have to say, if you lose your shirt, don’t complain. Be like the Englishman in Rudyard Kipling’s If, who lost everything on one game of pitch and toss and never breathed a word about his loss!

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15 responses to “North Sea Oil

  1. Good stuff, well done.

  2. This is excellent, thank you (if i lose any money following your recommendations i will take complete responsibility)

  3. As a general observation, there seems to be all the ingredients for a long term commodity boom. Weak paper currencies, expanding demand as the NIC’s rapidly develop and limited room for increased supply.

    A possible straw in the wind is the physical shortage of sugar in Portugal that has resulted in a sugar refinery closing, shops rationing sales and the government denouncing ‘hoarding’. http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html

    The price of zinc has not risen in the same manner as most metals. I think that this can only be a temporary reprieve, as such zinc mining stocks are worth careful consideration.

  4. I apologise for saying “more better” in this article. The problem with word processors is that you can constantly fiddle with the wording, leaving the detritus of earlier word choices in place…

  5. Check out http://thesharehub.com/ – this site is by a poster on Interactive Investor who has a good track record in tipping shares – and his Hotlist for 2011 is eagerly awaited by those who made money on his hotlist of shares for 2010…

  6. I see an American company is attempting to worm its way into Gulf Keystones oil field with a typically parastic American, abusive legal claim. (i really dislike the corrupt way the US legal system works).

    http://www.proactiveinvestors.co.uk/companies/news/24281/city-experts-shrug-off-excaliburs-gulf-keystone-claim-24281.html

  7. yes, Excalibur’s legal suit comes just as the share price was expected to rise as Iraqi politics sorts itself out. But Excalibur has only 2 or 3 employees and operates out of a hotel room in Baghdad… Apparently this lawsuit is a load of rubbish!

  8. It sounds like complete rubbish, but with the American legal system that may not be enough. Fortunately Gulf Keystone does have its assets in America otherwise it is very likely that as a British company political pressures would result in it losing the case as an American court ‘patriotically’ gave the assets to the Americans.

    I think the Americans are trying it on with a nuisance case hoping to be paid to go away. There is also the possiblity of American diplomatic pressure being exerted in Kurdistan to try and squeeze out the British company.

    Frankly, in commercial matters the Americans don’t treat their allies and friends very decently.

    (i also see that Desire is slumping again, this mught be the time to carefully look at some other Falkland explorers and buy on a dip?)

  9. correction – Fortunately Gulf Keystone does NOT have its assets in America

  10. Desire had a duster in its Jacinta prospect, and is now drilling deeper to investigate the Dawn prospect, with an 8% chance of success – yes, just 8%. It seems to have a very loyal base of diehard investors, supposedly including Falklands War veterans, but even they are tiring of it. A duster in the Dawn prospect, which could be announced soon, could see the share price fall to virtually naught. And Rockhopper – well, they found oil, but the 30% reduction in the oil in place estimate earlier this year is salutary, and it remains to be seen if it will be worth developing any reserves they have unless more can be found to create a new “oil province”. The other 3 companies, Argos, FOGL and Borders, have not found any oil yet. People want the Falklands to produce oil because of the patriotism factor, but the North Sea is still a better bet…

  11. I’ve got my doubts about oil off the Falklands, but the shares of the explorers there seem to rise and fall on sentiment with great regularity. As such i am treated to try buying on the dips and selling on the rises.

    However, i think on the whole i’ll stick to more likely prospects, i’d probably get the timings completely wrong. (incidentaliy, i really hope no one takes too much note of what is said on the LSE sharechat boards, the naked dishonest ramping of shares is ridiculous)

  12. Ingoldby, check out the 10 recommendations, and the 10 alternatives, for 2011 investment at http://thesharehub.com/?p=360

  13. C H Ingoldby

    Thanks, i like the general thrust of the picks, i’m a big commodities fan.

  14. Ingoldby, I think some of these could spike in value 8am tomorrow – as many hundreds of people have seen the share hub’s list (he is on Interactive Investor as “Hub” and many people follow his predictions). So I am not going to buy into any of those tomorrow… as it could be a New Year spike as people try to get in. But I wouldn’t want to influence someone else’s decision -= for some where news is expected imminently January 4th may be the last chance to get in…

  15. I’d rather miss a good buying opportunity than be rushed into making a decision. I’m going to carefully mull over the choices, if i pick a good company then even if i don’t buy at the best possible moment i’ll still have a good investment.

    And yes, i’ll keep a careful eye on the dates information is expected from each company, with mining and exploration stocks the calender is a very inportant tool.