On 18 June I suggested there was an 80% chance of a minus 70% return from Tangiers Petroleum
On 18 June I suggested there was an 80% chance of a minus 70% return from Tangiers Petroleum. Its Moroccan drilling activity has come up dry and the share price has fallen 85%, only very slightly worse than my 70% estimate. The risk/return profile of low market value oil and gas plays betting on expensive offshore drilling results is too skewed against the ordinary investor. Companies with a stronger capital base would be able to reassess information from even a dry hole to improve the chances next time but this is not an option for those companies betting everything on the next hole being a winner. Neon Energy is another to have fallen into this category recently. The best way to play these situations is to sell into pre-result expectations of success or simply stay clear because the risks are too great.
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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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