Elk Petroleum has apparently lost its nerve

John Robertson


Elk Petroleum has apparently lost its nerve. It was going to sell its Wyoming oil and gas assets as a brave way of demonstrating value the equity markets were withholding. Now it says there is a possible corporate transaction with another ASX-listed company. Presumably, this will remove the possibility of the capital return that had been promised as part of the value enhancing package. Creating an expectation then finding cunning new ways to avoid the promised capital return needlessly adds investment risk. Elk is just one of the Australians to go to the US attracted by a ready market for oil and gas assets without the headache of long development timelines or absent infrastructure. Invariably, however, they seem to have underestimated how much capital is needed to sustain profits from short life wells. Target Energy is another that says it will close the value gap with an asset sale in early 2015 pointing to transactional values for its assets of up to seven times the company's market value.

John Robertson
John Robertson

John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...


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