There is no worse lie than a truth misunderstood
The complete quotation is actually as follows: “There is no worse lie than a truth misunderstood by those who hear it.”
It’s a quote from William James, American psychologist and philosopher, who wrote pioneering books on “(then) young American science of psychology, educational psychology, psychology of religious experience and mysticism, and on the philosophy of pragmatism that influenced great thinkers like Bertrand Russell, John Dewey, Edmund Husserl, and Ludwig Wittgenstein, Horatio Alger Jr., Mark Twain, Henri Bergson and Sigmund Freud.”
It is also an expression that captures what I believe is the whole story behind the stock play in the oil sector, especially locally listed issues involved in the up-and-coming drilling activity in the Sampaguita gas discovery project at Service Contract (SC) 72, also known as Recto Bank. These are Atok-Big Wedge Co. Inc. (AB) and Philex Petroleum Corp. (PXP).
Because of their supposed participating interest in the said drilling program, the market got fired up on their potential earnings that their share prices experienced spectacular advances, by as much as 85 percent, in a matter of days last week.
As a result, the focus of the market was changed. It favored more transactions on the lower-priced and high-risk (speculative) stocks than the higher-priced and low-risk (blue chip) stocks that trading volume doubled to 20.10 billion shares on a total value turnover of P32.86 billion, compared to 9.95 billion shares on value turnover of P41.81 billion the week before.
In the process, the market was able to reach new session highs and establish another record high. The benchmark Philippine Stock Exchange index, or PSEi, hit a session high of 5,226.54 on Wednesday and 5,247.14 on Thursday before it closed lower for the day, but still on an all-time high of 5,218.92.
There is nothing wrong in the shift of the market volume and nature of transaction. I’m only aghast with how the market is again throwing away or forgetting the norms of wise investing, and going for strategies bordering on pure gambling in the hope of striking it big in the current stock plays.
Ownership interest examined
Apparently, the market has been all fired up with the news that the above mentioned companies are part of the oil consortium that has substantial interest in Service Contract (SC) 72, the oil and gas prospect in the Recto (Reed) Bank Basin, said to have reserves bigger than Malampaya, the biggest gas field in the Philippines at present. An area within the 200-nautical-mile EEZ based on Republic Act 9522, or the Philippine Archipelagic Baselines Law signed on March 10, 2009.
Directly involved in the SC72 drilling program is UK-based oil and gas production firm Forum Energy Plc (FEP), which is 64.45 percent owned by Philex Petroleum Corp. (PXP) and FEC Resources Inc. (FEC) of Canada, an independent firm listed on the Over-the-Counter Bulletin Board (OTCBB) in the US under the ticker symbol “FECOF.”
Of the 64.45-percent interest in FEP, PXP owns 38.82 percent and FEC owns 25.63 percent.
PXP is a subsidiary of Philex Mining Corp. (PX), while FEC is a 51-percent owned affiliate of PX.
The balance of 25.92 percent interest in FEP is owned by Hong Kong-based Tidemark Holdings Ltd., which is “beneficially owned by Atok-Big Wedge Co. Inc.” (AB) since October 2011.
In turn, FEP owns 70 percent of the equity in SC72, while 30 percent is owned by Monte Oro Resources and Energy Inc. (MORE), owned by the group of companies led by port and gaming tycoon Enrique K. Razon Jr.
MORE is a private company engaged in metals mining, exploration services and gas and oil production. It is also into infrastructure investments and real estate development. It has an approved authorized capital of P5 billion, of which Sureste Properties Inc., owned largely by International Container Terminal Services Inc. (ICT), holds control.
Other shareholders of MORE include Wealth Securities of Wilson Sy (10.86 percent), Campos Lanuza (5.1 percent) and publicly listed A. Brown Co., or BRN (18.40 percent; this explains why BRN also waltzed last week).
MORE controls Monte Oro Grid Resources Corp., which owns 30 percent of National Grid Corp. of the Philippines, the consortium that won the 25-year concession to run the power grid of National Transmission Corp.
Bottom-line spin
My oil exploration consultant, expert “Old Leggs,” is also terribly disturbed with the way the local parties are playing up the “projections” from experts commissioned to assess the gas find. He is particularly fearful that this may overexcite the investing public, citing the way prices of related oil stocks moved last week.
To him, it may be true that the Sampaguita gas field at the Recto Bank may have as much as “16.612 trillion cubic feet (TCF) of natural gas and 416 million barrels of oil that may easily overshadow the Malampaya gas discovery, which has proven reserves of only 2.7 trillion cubic feet of natural gas. It’s a world-class discovery (as they claim) but the truth of the matter is these pre-drill estimates of resources are based on certain assumptions.”
“Estimates go on the high side to please the party that commissioned the third-party assessment. More often than not, the drilling results are negative. That is why, he said, quoting the qualifications of the third-party evaluator, “there can be no assurance that these assumptions or estimates will prove to be accurate as future technical evaluations and results, including drilling results, could lead to variations or differ from those included in the report.”
“Remember West Linapacan?” he added. “It was supposed to have billions of barrels of oil in place, with at least 100 million barrels recoverable. It produced less than nine million barrels, and then went on water.”
“More recently, Gindara-1 well of Nido Petroleum. It was drummed up to be bigger than Malampaya. It came out as dry as Metro Manila today. And the list goes on.”
He ended his warnings with this chilling statement: “I doubt if there will be any drilling in the Reed (Recto) Bank. It is part of the nine-dash line (claim) of China (which) starts south of Taiwan-west Luzon Palawan, west of Malaysia Borneo, south and east of Vietnam, and south of Hainan.”
(The author is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)
