After the recent increases in the oil price, the profitability of oil & gas operators seems to be back. The production cuts that OPEC, with the help of Russia and other non-OPEC members, agreed in the meeting held in December 2017, have shown to be finally working.
Saudis, who are leading this international organization, should be proud because the Brent price was pushed up from the lows of $40 to hit $70, as supply and production were diminished.
There is even more; some developments that we could not predict.
Things turned even sweeter at the end of December for oil markets, as the OPEC released that the group had agreed to extend output cuts until the end of 2018. The party seems to continue in 2018.
Check the following chart:
Brent Rally Source: https://www.bloomberg.com/news/articles/2017-12-20/oil-prices-in-2018-once-again-it-s-all-about-u-s-shale-output
What now?
The brent price achieved a 52-week record in January. This is quite good for market participants who directly put their money into futures or oil & gas ETFs. However, companies should not be profiting yet from these highs, since the projects, which are profitable at these prices, have not started yet. Business owners need the volatility to calm down to commence putting money into reserves that were not profitable at $50-$60 but will be at $65. Also, hiring engineers and geologists and drilling again take time.
We believe that this is an opportunity.
We need to identify technologies and companies that have their break-even at around $60-$90, and also techniques that allow non-economic reserves to be profitable.
If you appreciate this rationale, then you will like our next ticker, Falconridge Oil Technologies Corp (OTCMKTS:FROT), which, using its Terra Slicing Technology, focuses on extracting new resources from wells that have been assessed as uneconomical. We believe that the upward trend in the oil price will benefit this company.
Check FROT's stock chart and try to figure out what happened on January 25, 2017. We will provide the answer in this new piece. Only one hint, the increase in the oil price is the reason behind the share price spike:
1-month chart for FROT
Brief History and Technology
The company was founded in 2015 and is headquartered in Toronto, Canada, but also has offices in California and Denver USA.
The business objective is identifying and accessing additional petroleum reserves that are usually left in the ground. The company's Terra Slicing Technology is the key to this business. It helps oil engineers in revitalizing the pre-existing well and establishing a flow rate with a significant percentage of its initial production.
On the top of it, the TST offers a lower-cost alternative to drilling a new well, as the operators can access hydrocarbons currently in the ground within existing low or non-producing wells.
FROT is interested in the following type of assets:
- Producing well assets- Dead wells- Non-performing well assets- Low yield assets
Why are we interested in this company?
In our opinion, its activity is quite impressive, as FROT will recover those wells that may not be profitable for the oil price at $50, but can be at $65. We believe that there are many wells in this particular situation in North America, and the company will not have difficulties in finding them.
Have a look at the following video produced by FROT:
https://youtu.be/5ECQ-y59hLc
Source
The new catalyst for the stock: The Blockchain technology
On January 25, 2017, the company released that FROT had begun to seek Blockchain Technology. The management noted that the new technology could improve operations and boost productivity. We agree and believe that entering this sector at this particular time is a great step.
Other operators in the oil&gas industry are also interested in FROT. Shell, for example, acquired a minority share in Gartner-listed startup Applied Blockchain. Furthermore, Shell, BP, and Statoil are already working on the development of a blockchain-based energy commodity trading platform.
Naturally, the market celebrated that the company will be entering the exciting new industry and pushed up the share price on January 25, 2017. We believe that the upward may not be over if the information about such activities keeps coming out. As per our experience, this is an excellent name to monitor if the Blockchain technology evolves in the year 2018.
Short sellers
We need to remark that the amount of short sellers on the stock is quite high. The last statistics that we could access are quite old, but we still need to show them. Please have a look at the massive amount of short interest that was accumulated in 2017. From 57,672, it increased to 1,668,095 in less than a year:
DateShort Interest% ChangeAvg. Daily Share VolumeDays to CoverSplitNew IssueJul 31, 20171,668,0957,125.268,377,7711.00NoNoJul 14, 201723,087100.002,672,2181.00NoNoApr 28, 2017487,000100.001,361,8251.00NoNoFeb 28, 20170-100.00981,7870.00NoNoFeb 15, 20178,000100.001,516,8561.00NoNoOct 31, 20160-100.004,520,9000.00NoNoOct 15, 201657,672612.0017,675,9981.00NoNo
We believe that if oil continues its upward trend and the company develops its new blockchain technology, the share price could increase. As a result, short sellers could be forced to close their positions rapidly, and a short squeeze could occur. It would be excellent news for the longs, who will profit from it.
Conclusion
Currently trading with a market cap of $0.5 million, FROT is an exciting story among small caps. We believe that the company has a lot of potential. In our opinion, the company needs to upload its most recent financial statements if it wants more market participants to look at its new plans in the Blockchain sector. We hope that the company will do it. It will be very positive for the stock price as well as the credibility of the company.
Regarding the total amount of shares outstanding, there are 622 million shares outstanding, and only a float of 19 million shares. This means that the market will be expecting quite a bit of volatility. Thus, volatility players have a new name to monitor closely.
We will be updating our subscribers as soon as we know more. For the latest updates on FROT, sign up below!
Disclosure: We have no position in FROT and have not been compensated for this article.Image courtesy of MyEyeSees via Flickr
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