Wednesday 25 December 2013

No XMas present for Hibiscus shareholders

Hibiscus Petroleum announced yesterday its findings regarding the first oil well:
  • Mud losses in two carbonate sections of the well prevented Masirah Oil Limited from reaching its planned target depth.
  • Data analysis indicated presence of non-commercial hydrocarbons.
In other words: bad news for Hibiscus shareholders.

I have written in the past in cautious terms about SPACs and Hibiscus, I think many investors who rushed to buy its shares went over their head in expectations. The oil & gas industry is a hit and miss industry, with much more "misses" than "hits". Fortunes have been made, but also been lost, many well known entrepreneurs have tried it and failed.

The above drilling result does not mean the end for Hibiscus, but it does put things in perspective. Expectations were high, very high, probably too high, also partly fuelled by the company itself:

"The prospect MNN #1, which is about 1,000 metres in depth, was selected for drilling after in-depth technical evaluation and verification using the proprietary Rex Virtual Drilling technology, in addition to confirmations provided via conventional methodologies."

And before the company wrote this about their Rex technology:
  • "significantly increases the chances of success in drilling for oil and gas"
  • "repeatedly and accurately predicted the presence or absence of oil without physically drilling a well"
  • "in eight 'blind' tests .... the technology was successful in all cases". 


"MalaysiaFinance" wrote about the possibility of insider trading, which does indeed look worrisome, hopefully the authorities will investigate in depth.


I would like to draw the attention of the readers to the rather peculiar timing of the events, announcing the results during the holidays, when most likely authorities and fund managers etc. are on holiday.

We saw the same happening to Protasco's Puzzling Purchase which was announced during the Christmas break. It is one of the strangest corporate proposals in Malaysia in the last ten years that somehow or the other was done just before the year end. Despite expectations raised by the company that the deal would be wrapped up in a short time, now, one whole year later, minority shareholders are still left in the dark.

Returning to Hibiscus, the company has booked operational losses so far in its history, which in itself is not such a surprise, given its short existence and the long lead time to earn real revenue.

It was able to book a paper profit due to the following corporate exercise:


Hibiscus Petroleum Bhd said a corporate investor, Palladium Fund Management Inc has acquired a 15% stake in its joint venture company Hirex Petroleum Sdn Bhd via a US$10 million (RM31.5 million) investment.
 
"The subscription is expected to provide Hirex with sufficient working capital to fund its other operational costs for the next two years,'' it said in a filing with Bursa Malaysia yesterday.
 
Palladium's entry is expected to result in an increase in the proforma earnings of Hibiscus for the financial year ending March 31, 2014 by RM12.6 million, or 4.2 sen a share.
 
"The increase earnings is mainly derived from the one-off gain arising from the dilution in Hibiscus' equity interest in Hirex from 48.24% to 41%,'' Hibiscus said.

The strange thing is that searches on "Triax Ventures Corp" and "Palladium Fund Management" do not reveal any information at all about these companies. Which is rather speculiar for a company engaged in fund management in the age of the internet.

6 comments:

  1. I thought your story should focus on inside trading with high volume and sharp decrease in Hibiscus lin ast few days before trading suspension instead of highlighting whether the company found oil or not.

    Oil exploration is high risk and high gain business, i guess most investors aware. But inside trading before suspension should be highlighted for proper corporate governance and minority interests

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  2. I agree, but since MalaysiFinance already wrote about it, I just linked to it. I do like to copy the interesting comment posted there by "unknown", which I copy here:

    Memang Terlampau!

    Those with Connections in the Industry and especially having contacts with the Partners involved in the Project will be able to monitor Drilling Progress and will be aware of the outcome well before the public statement. The Malaysian Public who are clueless on the significance of BETTING on an exploration well will definitely get burned to a crisp.

    Hibiscus has been playing up their konon nya Magic Tool which those geophysicists and geologists knows is more of a PR tool to push up their share price.

    The Days of Reckoning are now due and Hibiscus will end up in the Heap with the rest of other Dream Merchants Calling Themselves Exploration Companies. WAKE UP SC!!

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  3. Did you read the article in the star? "Malaysia's Hibiscus finds oil in Oman"

    While not technically wrong, isn't the poorly worded headline just add to the spin?

    I hope this is just poor journalism and not something more sinister.

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  4. Yes, I noticed the article, and yes, the heading is very poorly chosen. However, the picture, sub header and content were good, so I didn't stress the point. Headers are often chosen by other people then who write the article, that is why sometimes they don't cover the content, as, in this case.

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  5. This brings to mind a similar incident on the previously listed RANHILL. They had a subsidiary doing O&G of the shores of Bali when RANHILL'S share price was merely 60-70cts before the sub prime crisis. They flew in business journalists, research analysts etc to Bali for recreational activities before taking them off to their offshore O&G platform.

    The "Invited Guests' were shown Geologists reports of a high potential % presence of hydrocarbons in the soli samples extracted from below the sea bed at their O&G offshore platform. Such regular visits took place over a period of 9 months till the share price went to dizzying heights.

    Subsequently, RANHILL release a final report which stated that another Independent Geologist Report indicated that the % of Hydrocarbons in the said soil samples MAY NOT BE as high as previously reported. The share price fell. But, as the timing coincided with the subprime crisis, it was overshadowed and not looked into strenuously. To me, it wasn't a case of Insider Trading per se. It was more like a case of Market Manipulation i.e :Pump and Dump"

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  6. Thanks for the interesting comment.

    ReplyDelete