Armageddon, now or later
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.