Posts from the ‘Coastal Energy (CEN)’ Category

Apr 1

Selling: Coastal Energy, after the mistake of buying back

Two weeks ago I looked pretty smart when I sold 2/3 of my position in Coastal Energy at a little over $18. Last week I looked shrewd when I bought back that position at $16.50. This week I looked stupid as the stock tanked and I sold.

Its quite possible that I sold at what will prove to be the bottom in the stock. That would be unfortunate. But while the timing of my transaction may have sucked, I believe the spirit and intent was right on the ball.

I sold out of Coastal on Thursday after they announced their end of year results. They had also announced disappointing results at Bua Ban South on the same day (actually the night before) but that had nothing to do with why I sold. I sold because the year end results showed a disturbing decline in production offshore. The company did not address this decline very clearly in the news release.

Here is what the company said:

“2012 has also begun extremely well. We have drilled and tied in a handful of additional wells at Bua Ban North which have further boosted production. These wells were tied in during the month of February and brought average offshore production for the entire first quarter up to 21,100 bbl/d. Our current offshore production is 22,500 bopd.

The company had previously announced a little over a month ago that they had 26,000 boe/d of production offshore.

The Company has two more wells to bring online at Bua Ban North. Current offshore production is averaging 26,000 bopd, bringing total company production to 28,000 boepd. The rig is now being mobilized to Bua Ban South and is expected to spud the first well there by the end of February.

Now I may have gotten worked up over nothing, and I know of a few players smarter than I that used the dip as a buying opportunity. $15 is a reasonable price for the production that Coastal has, and there is the opportunity that they will find much more.

Nevertheless, it was what I didn’t hear as what I did hear that made me sell. I have been in too many situations that followed this script. And more often than not, the reason that the reasons aren’t stated is because they are something to worry about.

Is that the case here? I have no idea. Maybe its operational, mechanical, one-time, short term, or some other adjective that can be dismissed and forgotten. But the company didn’t say that, when they could have said that, and instead they didn’t say much at all. So I took the approach that I will ask questions later.

Coastal has been a great stock for me. Even though I sold out for good after a 25% decline (from $20 to $15) I still pulled off almost a 4-bagger. It was probably my history with the stock that kept me in it as long as I was.

So of course I wish I would have sold it 3 weeks ago. But I have learned that decisions need to be made based on current circumstances. If you do not do what you believe is right today because of a mistake you made in the past and if you hope instead for a return to those past conditions to correct the mistake, you will get killed more often then not.

When I couple the uncertainty of the news release with the opportunity I see to redeploy that capital somewhere else where I believe the opportunity is greater (see my recently finished post on Mortgage Servicing Rights and my post from last week’s portfolio update where I stepped through the breakouts of numerous regional banks), it seemed to me the right thing to do. Perhaps in a couple more weeks it will look stupid for having sold it when I did. Be that as it may, you can’t forsee the future, you only have the past as a guide.

Feb 26

Atna Resources, Coastal Energy and the 80-20 rule

I do not know if an 80-20 rule has ever been expressly stated for a portfolio. However I do feel that such a rule exists. Anecdotally, I am pretty sure my portfolio follows an 80-20 rule of sorts. 20% of the stocks I own are responsible for 80% of the gains. Or thereabouts anyways.

If you take a look at the gains in my current online portfolio you will notice the following:

Atna and Coastal make up a massive amount of my current gains.

Albeit this is far from scientific but it is not the first time that I have noticed that I make all my outperformance from a couple of stocks. In 2010, I’m pretty sure that most of my gains were due to Tembec, Mercer and Avion Gold, all of which tripled or better. In 2009, it was Western Canadian Coal, Grande Cache Coal Mirasol Resources and Teck Resources (call options), all of which rather insanely increased some 5x to 10x during the year. 2007 and the first half of 2008 was all Potash and Agrium (in the second half of 2008 nothing went up but puts and the dollar).

A couple of points come to mind:

1. Do more of what’s working

First of all, you have to know when you’ve got a winner and when you have a winner you have to add to it. I have done this of late with Atna. I bought more Atna this week at $1.30 after having bought more at $1.15 after having bought more at $1 after having bought more at 90 cents. I have bought it all the way up. I did the same thing with Coastal (though that acccumulation was unfortunately interrupted by the European fiasco) during the first half of last year, as it ran from $4 to $10.

Of course the obvious question is: Why not just buy more of the position at the start? It’s a great idea if you know the winners in advance. Unfortunately you don’t. At least I don’t.

I come up with lots of ideas. Some turn out to be really good ideas. Some turn out to be so-so. I’ve gotten better at it over the years, so less turn out to be full-on stinkers. Yet I still get a majority of so-so ideas that do nothing, and a couple winners that go to the moon. And I generally have very little idea at the beginning which one an idea is going to be.

Take for example PHH right now. This one feels to me like it could be the next big winner. It’s worked out so far. I have been adding some on the way up. But do I know whether the stock is going to be $25 or $12 6 months from now? Nope. It could go either way. Nevertheless when it hits $16 I will add more. And when it hits $18 I will add more again. If then, it gets to $25 it will be a big winner and I will be talking about PHH like I am talking about Atna and Coastal. On the other hand, if PHH goes back to $12, I will likely carry a much reduced position in the stock, if I am not out entirely.

2. Don’t give stock tips

This leads me to my second point. Giving advice on an individual stock, such sharing a stock pick with a friend or relative, or putting the name up on an investment board, is dangerous when taken out of the context of the portfolio as a whole. My portfolio has had between 12 and 20 stocks in it over the last 8 months. Unless I know which two or three are going to be the big winners (I don’t) then trying to give someone a tip is a losers game. There is an 80% chance (give or take a few percent) that I am going to give them a loser (or at least not the big winner)

Jan 14

2 Comments

2011 Recap

Below are the results for 2011 for each of my portfolios. RBC does a good job of providing performance analysis of your portfolios. These are for actual accounts, no the practice account I display weekly here. The results provided by the service only go back to 2009 unfortunately.

2009 was obviously an easy year to put up a big number. There were stocks in March 2009 trading at one 10th of the value they would trade at 9 months later. I was lucky enough to pick a few of these trash bin turkey’s that turned around when the great depression did not quite happen. Teck Resources, Western Canadian Coal, and Mirasol Resources were all big wins.

2010 was still easy, but not quite as much. The big moves off the lows had been done, but I was in the right place at the right time with a number of Cardium stocks (Midway, Bellatrix, Result and West Energy before they were bought out). 2010 was also the year of the pulp stocks, and while I lost more than a few nights sleep worrying about the debt on Mercer’s balance sheet or the state of the NBSK market, it turned out to be a good call in the end.

2011 was a tougher year that the last couple. The last 6 months have been a struggle to keep my head above water, let alone actually turn a significant profit. Nevertheless I did outperform the benchmarks by a clean margin.

My margin account outperformed my RSP for one reason and one reason only. Shorts. That you can’t short in an RSP account is a travesty in my opinion. The fact that you have to tie the fortunes of your retirement to a long only bet on the economy is unfortunate.

Portfolio Composition by Month

One interesting analysis that I peformed was to look at the stocks I held at the end of each month this year.

You can see how when the European crisis hit I quickly consolidated my holdings to a few key names. Another point, which I will touch on more below, is that there were a lot of stocks that I started the year off with that I did not end the year with. The only three stocks that I held positions in for the entire year were Arcan Resources, Coastal Energy and Lydian International.

Trying to learn something from the past

Buy and hold is dead.

Taking a look at last years statements, one thing that is interesting is just how poorly I would have done had I just sat on the stocks I held in December 2010. Here are a few of the names I owned on January 1st 2011: Tembec, Mercer, Geologic, OceanaGold, Mirasol Resources, Canfor Pulp, PennWest Energy, Cline Mining (which was $4 at the time!!!), Avion Gold and International Forest Products. Honestly, if I had held onto these stocks through the year I would be down 30%+ right now.

More is not better

Another point to be made is how it was really just a few stocks that made me my gains in 2011. I had a large position in Coastal Energy on January 1st 2011. The stock was at $6.06. It was nearly a 3 bagger in the year. I haven’t done the math but I suspect that stock alone makes up a good chunk of the gains for the year. A second big winner was Cameco. I feel a bit slimy saying it, but when the earthquake hit Japan it was clear to me quite quickly that Cameco was going down hard. I picked up 50% before cashing out.

Swing trading

A final observation is that I made a lot of my money this year on swing trading. Now I do not consider myself a swing trader. I don’t buy a stock with the intention of taking a quick gain and getting out. But last year lent itself to such a strategy and maybe somewhat unconciously I did exactly that. OceanaGold is one example I have already mentioned on a few occasions. i bought and sold OGC 3 times over the last year. Buys between $2 and $2.20. Sells between $2.50 and $2.70. Earlier in the year I did the same thing with Mercer before it became clear that the bottom was slipping away from the pulp market. Lydian still is a clear buy at $2 and an equally clear sell at $3.

These are all good lessons for the upcoming year. At the moment at least, I don’t see a big up move coming in stocks. It makes me think i should take the gains when I have them (meaning take some right now perhaps), and don’t spread yourself too thin (something I am concerned I am in the process of doing right now). And let’s hope that 3 year trend line I see above gets broken to the upside.

Dec 27

Letter 25: Tax Loss Buying

I am on vacation with limited computer access so this is going to be a short letter.

There was some good news for the oil stocks in my portfolio this week.

News that should help Equal

Equal Energy has not performed very well lately. I don’t expect much from the stock until something is announced with the companies Mississippian lands in Oklahoma. While we wait, Sandridge, the biggest landholder in the Mississippian, jv’d 363,000 acres of their land to Repsol this week for $1B. That works out to $2,754/acre.

SandRidge will sell an approximate 25% non-operated working interest, or 250,000 net acres, in the Extension Mississippian play located in Western Kansas and an approximate 16% non-operated working interest, or 113,636 net acres, in its Original Mississippian play. The 363,636 net acres in total will be sold to Repsol for an aggregate transaction value of $1 Billion. Repsol will pay $250 million in cash at closing and the remainder in the form of a drilling carry. In addition to paying for its working interest share of development costs, Repsol will pay an amount equal to 200% of its working interest to fund a portion of SandRidge’s cost of development until the additional $750 million drilling carry obligation is satisfied.

Admittedly, this is a little on the low side compared to some of the earlier deals. That is because this deal included 250,000 acres of the second Mississippian play that Sandridge is involved in. The second play is newer and riskier.

The fact that Sandridge was able to get $2,750 per acre while only including 113,000 acres of the prime land (in Oklahoma the heart of the Mississippian is Grant, Alfalfa and Woods) provides another positive data point for Equal.

Equal has 20,000 acres of land in the heart of the Mississippian. This is another deal that suggests that the land is worth around $70M. At $4.50, the stock trades at an enterprise value of $300M and with a market capitalization of $150M. It is clear that that the Mississippian land is not priced into the stock.

I bought some more Equal on Thursday at $4.50. I believe the recent decline in the share price is simply tax loss selling. I believe that the stock would be undervalued at $7/share. At $4.50, its a little ridiculous.

Coastal Energy News

Coastal Energy has been the best performing stock for me over the last few months. They have hit on well after well after well. The string of success continued with the B-09 well news released on Tuesday.

“The Bua Ban North B-09 well encountered the largest pay zone we have seen to date in this field. We are particularly excited that we have encountered oil across five Miocene zones. This confirms the lateral extent of the deeper pay zones below our main producing reservoir. Following this successful result in the deeper zones, we plan to drill further appraisal wells to continue testing the 63.0 mmbbl of prospective resources defined in the RPS report ofNovember 15, 2011, which are incremental to the 67.0 mmbbl of 2P volumes defined in the report.”

What is most important about the result is that it begins to prove up the lower miocene sands. First Energy noted the following:

The Bua Ban North B-09 well discovered 3-4 mmbbl in deeper Micocene sands which could open a new play for Coastal with an overall prize of 63 mmbbl prospective resources.

The Miocene sands that Coastal is drilling into are actually a number of layered sands as shown in the illustration below. Up until the B-09 well, Coastal had been focusing on the upper two layers. The B-09 explored the lower layers. The RPS report distinguished between reserves and prospective resource in the Miocene. While the news release did not say so specifically the above snippit implies that most if not all of the prospective resource is in the deeper sands.

There is an excellent summary of the Micoene sands that Coastal is drilling into that was posted by Oiljack on the Investorsvillage Coastal board.

Midway gets us Excited and then…

The moment I noticed that Midway Energy was halted I went out and bought shares in Second Wave. I thought for sure that the halt was due to a takeover bid and that there would be a subsequent boost to the other Swan Hills players (Arcan and Second Wave). Unfortunately, while a takeover bid may indeed be in the works, the clarification by Midway left the waters muddied.

Midway Energy Ltd. (“Midway” or the “Company”) announced today that it has become aware that information may have entered the market with respect to certain potential transactions. The Company has not entered into any definitive agreement with respect to these transactions and will issue a press release when and if a successful transaction has been negotiated.

Nothing like clarity. Nevertheless the stock popped when it opened and Second Wave popped along with it.

I think I will hold onto Second Wave for a while; their latest update was mildly disappointing with a few of the recent wells producing at far less than the earlier more prolific Crescent Point JV wells. However according to an Acumen Capital report, the lower production rates can be attributed to a failure of the packer equipment during the frac operations, while the 100% WI well drilled to the south (08-23-062-10W5) was limited to 100bbl/d by the surface pumping equipment. I’m not sure I understand that second one entirely, I mean why would the company install insufficient surface pumping, but nevertheless I hold out some hope that the going forward results for SCS will improve on these numbers. Meanwhile SCS does not appear to be as encumbered with infrastructure requirements as Arcan is in the short term, so capital is going to be spent drilling wells.

Unfortunately, as seems to happen from time to time, the practice account I post here had my SCS order rejected because of a lack of margin, something that clearly isn’t the case (I don’t think RBC spends much time updating and debugging the practice accounts functionality). I am reluctant to try to re-buy the stock now after the pop so for the moment I will not have my SCS position reflected unless it falls back to the $2.45 range that I bought it at in my actual accounts.

Gold Stocks

I am not sure if it was a smart thing to do but I added positions in a couple of gold stocks this week. These should not be considered long term positions; they are simply me trying to take advantage of what I see as the severe underperformance of the stocks when compared to the bullion. I added a position in Semafo at $6.40. Semafo is a mid-tier producer that has generally held up well in the market but that got taken down to new lows of late. I also added a position in Canaco. Canaco has had a rather spectacular decline from over $5 a share to a low of a $1. That is where I bought it. The company has what looks to be a decent deposit in Tanzania. Moreover, at $1 they have a market capitalization of $200M and with cash on hand of $115M.