In Brazil - Down 31% for the Week Ugh! This was not the week I hoped for.
As we approached last weekend, the longs had a sense of anticipation coming off the Campos Basin Polvo pending acquisition. On the announcement, I anticipated HRT would add additional wells to the 10 existing wells along with secondary recovery on the existing wells. After the conference call, we know four things about Polvo: (1) HRT will Payoff the Polvo debt with what I recall was a roughly 24-month payback, (2) more and better exploration at Polvo, (3) secondary recovery at Polvo, and (4) more wells. This is great news! If we had one-sixth the number of outstanding shares, we would all be happy campers.
We also learned something about the two pending wells - HRT 11 and Wingat-1. However, to be quite honest, the presentation reminded me more of my grandfather’s description of his anticipating and watching the great fan dancer, Sally Rand, in Chicago circa 1930s. When Sally danced “bare,” there was great expectation, but frankly, she was so good with those darn fans that there was very little viewing opportunity. I feel the same away after listening to and reviewing the conference call.
I am thankful that no one said “dry hole.” I did hear a strong "go deeper," and I believe we all got a little peak at "source rock." After the show, I am left wondering if the next release will include a little more skin.
Once again, we reminded that we suffer from a companywide failure to manage expectations. For those of us foolish enough to own Chariot as well, we knew that well evaluation would follow drilling completion. Frankly, even an offshore Spindletop would not include a gusher of oil jetting from the Atlantic seabed to the shores of Namibia, but instead, there would many days, weeks, or months of teasing precisely what levels of oil, liquid hydrocarbons and gas was present on this test well. You may remember that investors killed Chariot when its then president failed to say in a clear manner, “I have good news and bad news. The good news is that we found oil in productive qualifies. The bad news, we would have to be in South Texas to afford to produce it.” The same could be true for us.
As I have considered the informed discussions here and elsewhere along with the actual words used by HRT management, I believe we got a passing grade in “Gas” but an incomplete in “Oil.” Since the market will continue to punish HRT until it has a solution to monetize its gas discoveries, Brazil was down over 30% for the week, and those of us in the US and Canada were accordingly slapped silly. Honestly, the market is correct. If I had brought home an “A” in math with an “incomplete” in English, I would have met my dad’s belt, and rightly so.
Therefore, we are left to wait through an agonizing period in hope that one of the six “oil prone” wells drilled in 2013 will actually strike commercial oil.
GLTA