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.