In spite of the fact that investor sentiments on PetroGas Co (OTCMKTS:PTCO) kept weakening, the recent stock volume is a bullish sign. The recent release of the last quarterly report and the acquired interests in oil and gas mineral rights in Texas have worked as a wake-up call. More than $0.6 million shares changed hands in a short period of time.
Check the following stock chart, especially 2 months chart, for PTCO, wherein the volume spike is more obvious:
Before we assess the recent beneficial announcements, we need to note the following. Stockholders should be really concerned about the stock performance of PTCO. They have the right. The company has lost more than 90% of its market capitalization in less than a year. The stock losses can be accepted since it is beyond the control of PTCO. However, it seems unfair that the company did not say what’s happening with the stock. In this article, we will try to figure out what’s going on.
PetroGas Company is headquartered in Houston, Texas. It is an oil and gas exploration and production company focused on the acquisition of properties in areas with significant oil reserves and drilling potential. The Company’s growth strategy includes the acquisition of oil fields from distressed third parties at a substantial discount to the value and the development of fields whose potential has not been fully maximized.
New interests in oil and gas mineral rights in Terry County, Texas.
Let’s begin with the beneficial news. In February, the company acquired interests in oil and gas mineral rights in Terry County, Texas. We don’t believe that the acquisition will be a game changer for the company, but it is a clear evidence of growth. The new interests consist of a minority stake in two large sections of three different surveys in the county totaling 1,600 acres. Terry County has over 3,600 drilled wells running and is meant to be a proven oil and gas production area, where many major production companies operate.
The optimism is high in PTCO, not only because of the recent acquisition but also because of the current oil and gas prices. Read the following comment:
“We’re delighted to have been able to close on this purchase during a time when oil and gas prices are hovering at 3-year highs. We believe that owning a stake in the largest petroleum-producing basin in the US is an achievement in itself and we plan to continue pursuing opportunities throughout the US as they become available to us,” said the CEO of PetroGas Company.
The company is rightly pointing out that the acquisition has been made amid an upward trend in the crude oil price. If PTCO is able to obtain production and sell at these oil prices, the sales margin should be large. Hence, this seems like a real market opportunity for market participants willing to follow this name closely. Keep in mind that the larger the production and the revenues, the larger will be the share price appreciation.
The market recently received the quarterly earnings results from the four months ended December 31, 2017. In our opinion, the results were mixed. While the company reported 432% increase in cash in hand as compared to March 31, 2017, the total amount of assets remained almost constant. Please take into account that the interest in Texas was not included in the new financial statements. On the side of the liabilities, approximately 53% decrease in the total amount of liabilities was remarkable. The reason behind this decrease was the payment of a large sum to note holders.
In the income statement, the shareholders received positive news. For the first time, the company was able to report positive royalty revenues. While the sum is still very small, we believe that it is a very good indication of internal changes in PTCO. We will be studying closely the next quarter since more growth could be used by longs to push up the share price.
For the shareholders always concerned about the number of shares outstanding, keep in mind that there are 30,099,230 common shares issued and outstanding as of February 14, 2018.
Are short sellers pushing down the share price?
This is a sharp question, and it was one of our first thesis. However, we don’t believe it anymore. It is true that shorts have been increasing their stakes on the stock. The increase in short positions has been equal to 432%. But, the short interest does seem so significant to cause such a decrease in the share price.
Currently trading with a market cap of $25 million, PTCO is an interesting story among small caps. It is difficult to determine what’s going on with the stock. The company is trying to react by selling assets like its Reklaw working oil and gas interests in Cherokee County, Texas, as well as acquiring others. The first revenues are being reported. However, nothing seems to be changing in the stock chart apart from the stock volume.
In our opinion, the company needs to stand out and review its recapitalization options. The market will listen more to its new business plans once the company shows a lot of cash in hand.
To sum up, check this name; it may surprise soon.
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Disclosure: We have no position in PTCO and have not been compensated for this article.
Image courtesy of Clinton Steeds via Flickr