MELBOURNE AUSTRALIA 29 November 2006 – One of our acquaintances has been pestering your correspondent for the last couple of months with his tales of glory of his investment in an exploration company which has tripled.
For the most part we have intentionally or subconsciously ignored the gloating of the rather envious position that he has found himself in. The company in question is Austin Exploration (ASX: AKK), and yesterday the share price fell by 9% to sixty cents per share.
According to the company’s website, Austin Exploration was established “pursuant to a strategic alliance between Assam Company (BOM: 500024) and DMS Exploration.” Its main assets are two prospects in the USA and two in Australia with the intention to “locate and develop oil and gas prospects as well as experience to initiate and complete mergers and acquisitions in the oil and gas industry.”
What has caused the share price to triple in recent times since it listed on the Australian Stock Exchange in July? The most recent information we have to go on is the “Activities Report for the Financial Quarter Ending 30 September 2006.”
In the said report it tells us that “the 2006/7 financial year has been an exciting and busy time marked by a number of key events.
Most of these are by appearance reasonably happy events for the company, such as the successful initial public offering of the stock, successful drilling at their prospects and the receipt of revenues from gas already sold in Texas.
Perhaps one point of contention – and we by no means disagree with their assumption, yet at this moment it looks optimistic. Don’t get us wrong, we remain bullish on the oil price, but as we have written before it isn’t going to advance in an orderly, linear fashion. It will have its peaks and troughs, and maybe at the moment this is one of those troughs for the oil price.
But Austin Exploration will not be budged. Once they make an assumption, they stick to it. In this case they decided to take the obviously top end price for oil of USD$80 per barrel. In terms of forecasting they have probably broken every rule in the book.
Or course, Crude Oil has achieved near to those giddy heights over the last year or so. However, it would need to take a pretty self assured individual to predict the average price of crude people for 2007 whould approach USD$80, especially when on the two previous times it has got enough back lacked the stamina to remain there.
As of today, crude oil stands at USD$60 per barrel and it would take a rapid rise for it to reach anywhere near Austin’s forecast price range. Since the company made this statement to the ASX, the price of Austin Exp., has nearly doubled.
Maybe somebody somewhere knows something that we don’t know, helping to support the price despite the over-enthusiasm with the oil price.
Wobble, wobble! Yesterday the Australian and US markets both succumbed to heavy selling. The reasons? Well, we could delve deep into the vault of micro and macro economic analysis. We could study company earnings reports and bond yields and draw our conclusions. We could take a top down, or perhaps a bottom up approach.
Or, as an acquaintance of your correspondent who has been in the markets for nearly forty years always answers the question: Why did the market fall? He answers, “because there were more sellers than buyers!”
Occasionally – or often – there is the tendency for those close to the market to over analyse everything. That is always the case with Federal Reserve statements where every word, every syllable and letter is dissected for any hint of a potential hidden meaning or guidance.
So, we shall see over the next couple of days whether the economic data from early in the week is miraculously discarded in favour of newer data that points the market in the opposite direction.