Penny Oil Case Study: ECCE
As an investor in the penny stock oil game via TECO, I am always watching for other comparable firms to see how they are performing and how the market is treating them.
I came across ECCE a few months ago and have been watching it ever since. They have one well that has been producing, and a couple of more, one that is going to be reworked, and another I think that is still waiting to get funded. They didn't have any oil sales this year and their revenue of less than 3 grand came from some nat gas wells.
I was perplexed to see that their stock started to take off after their piss poor financials last month. The chart formation was good, but there was no reason I would think based on that it would move.
The stock ran from 10 cents in late September to a close yesterday of a buck ten. It has about a 40 million dollar market cap and it did it with under 3 grand in sales, and a well that is under 1,000 barrels of production this year.
http://finance.yahoo.com/news/eagle-ford-oil-...43377.html
Then on December 5th out came a Memorandum of Understanding
" The non-binding MOU is from an established provider of capital that will provide a total of $16.5 million. The capital will be used to fund phase one of a three part drilling program to drill through the Austin Chalk, Eagle Ford Shale and Buda Limestone formations on the leasehold and provide working capital to cover certain general and administrative costs. "
Granted, getting 16.5 mm in funding is good news but this is non binding, and it's not the closing of a deal, the spudding in of a well, and of course not the taking of oil to market. There wasn't even a PR about this being a possibility, it was as if somebody knew something ahead of time and was buying up the float in anticipation of news.
From what I've seen studying Teco and other oil companies, such optimism ahead of even breaking ground on a projects is likely to be short lived. Penny stock investors are largely short term and if there's anything I've learned through my involvement in Treaty it's that you better get ready for a multi year hold and some volatility.
On the one hand I look at this stock and say to myself, if this company can run 1,000% on nothing Treaty should be moving some factor of that because it's actually accomplished something this year. However, on the other hand I understand the hype and excitement on any new endeavor, the optimism that one feels at the start of the trip. It's all fun and games right now because they haven't drilled a dry hole or had equipment failures etc.
To be objective: The buying volume stinks on this stock. It's not like someone actually spent 40 million dollars to buy up the float. All that happened was sellers kept raising ask and buyers kept hitting it. The peak volume on this rally came at the end of November and it was maybe about 110,000 dollars actually exchanged. That was the peak and it's been considerably less volume afterwards, we're talking about 50,000 bucks a day or so. But let's say it did 100,000 a day from Nov 29th through today, that's still under a million dollars to bid this up. Talk about light volume.
In any event, watch for this thing to come back down. I don't short pennies but maybe I should start looking at overly optimistic penny stock oil companies rallying 1000% ahead of expectations of a financing agreement as a short opportunity.
[IMG]http://i.imgur.com/2uPOr.png[/IMG]
