Austin Exploration Drops on Cancellation of St. Gabriel 1 Project


MELBOURNE AUSTRALIA (Daily Reckoning): It isn’t in our nature to gloat, so we won’t.  However, when we see certain occurrences in the market which make us think, “Oh dear, this doesn’t sound good,” then we think it worth pointing it.

And so has been the case with our good friend Scooter.  You may recall a few months ago our mentioning a severe ear-bashing that your correspondent was receiving from the little fella.  Almost every phone call, every email, every meeting was prefaced with the phrase, “Have you seen AKK?”

Seeing as we didn’t own stock in Austin Exploration (ASX: AKK) our usual standard response was “No, Yawn what’s it doing?”

We were then regaled with stories about how he bought it at twenty cents, how it was now thirty cents… then forty, fifty and sixty cents… then, well, all hell broke loose when it went to $1, quickly followed to a high of $1.10 back in January.

It can be perhaps no coincidence that the warning bells started to sound.  Not because of anything the company had said because it had remained pretty quiet up until the 3rd January at which point the company told investors, “The St. Gabriel 1 prospect has a potential recoverable resource range from a low case of 1.82 million barrels of oil and 13.6 billion cubic feet of gas to a high case of 5 million barrels of oil and 36 billion cubic feet of gas.”

But that wasn’t the warning bell.  That sounds good.  That is enough to get even the most skeptical of skeptics excited.  Not your correspondent though, because no sooner had the company released the news than we were treated to this excited comment from Scooter.  We paraphrase, but you get the gist, “This could go to $10, that’s my retirement sorted out.”

On the plus side he did admit to selling bits of his holding along the way, but it was the “$10” statement that signaled perhaps all wouldn’t be fine for AKK shareholders.  After reaching the giddy heights of $1.10 from as little as twenty cents just six months earlier, it was questionable whether it could hold, fall back even quick than it had risen, or “do a Cudeco” and reach $10.

We should all know what happened next.  It must be one of the oldest indicators around that as soon as a shareholder starts truly believing everything the company has to say, and then adds their own interpretation it has to mean that the share price has hit its apex.  Once it does that the only way is down.

We wonder if anyone has considered creating a technical indicator to record the instances of over-exuberance, over-confidence or over-belief in company announcements by shareholders.  It would surely be a winner.

As it would in the case of Austin Exploration.  Now, for all we know AKK may still have very, very good prospects, but based on the announcement to the stock exchange on Monday, it is certainly curtains for one of their projects, the above mentioned St. Gabriel 1.

The company announced that in effect, although there was millions of oil and billions of gas, they “encountered abnormally high pressure formations before reaching our target depth” which made it “unfeasible and imprudent to continue drilling.”

What a difference a couple of months make.  At the close of trade yesterday AKK was at 36.5 cents, a long way from its high but at least there must still be quite a few shareholders in positive territory.  Scooter is one of them – just!

Kris Sayce
for The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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