Ar­maged­don, now or later

Finweek English Edition - - COMPANIES & MARKETS - SHAUN HAR­RIS

AS FAR AS we can work out, this was the best per­form­ing share last year. A for­mer penny stock, SacOil gained al­most 867% over the year – rock­et­ing from 15c to 174c/ share at the time of writ­ing. And to­wards year-end 2010 it touched 196c/share. In­vestors are into very spec­u­la­tive ter­ri­tory here but we don’t want to be cyn­ics and write the share off. SacOil is small but it’s an es­tab­lished com­pany, founded in 1993 and listed on the JSE in 1994. But what it does is spec­u­la­tive: up­stream en­ergy, mainly ex­plo­ration for oil, in Nige­ria and the Congo. You can al­most hear Mar­lon Brando rum­bling about “the horror”.

Here’s the tricky choice for po­ten­tial in­vestors. What seems the chief driver be­hind the as­tro­nom­i­cal share price per­for­mance is an an­nounce­ment last year that, through a joint ven­ture with Eq­uity En­ergy Re­sources, the group­ing had con­cluded its “first near pro­duc­tion deal” in Nige­ria. De­tails are quite com­pli­cated, but ba­si­cally SacOil is buy­ing a 20% di­rect in­ter­est in the off-coast Nige­rian oil and gas field OPL 233. It says pro­duc­tion is “ex­pected” to com­mence around mid-2013 at a po­ten­tial rate of 10 000/bar­rels/oil/day.

There are too many ifs and maybes in this. At not far off US$100/bar­rel, oil is head­ing to­wards a record high. How­ever, it’s any­one’s guess where the price might be mid-2013. And this is Nige­ria. Though the coun­try is sta­ble and seems to value for­eign oil com­pa­nies work­ing within its bor­ders, there’s po­lit­i­cal risk. All might go well, but in­vestors have to ask whether a spec­u­la­tive buy is worth 174c/share?

On the other side, SacOil has a cau­tion­ary an­nounce­ment out say­ing it’s con­sid­er­ing “var­i­ous pro­pos­als and po­ten­tial trans­ac­tions”. If there’s some­thing solid here it should be good for the share price. It’s also in the process of un­bundling Pi­o­neer Coal, which has been go­ing on for a long time. But at some stage share­hold­ers should get a share dis­tri­bu­tion.

So there’s po­ten­tial blue sky but we can’t be­lieve the cur­rent share price jus­ti­fies it. In­ter­ested in­vestors should watch the share and come in when the price drops lower, as it surely must.

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