John Robertson

Without the benefit of macro forces to attract investors, resource sector equity prices are showing a strong tendency to revert to historical levels or follow well-defined trading patterns. Long gestation offshore oil and gas project developers are especially vulnerable. Carnarvon Petroleum is showing how even relatively successful companies succumb in the absence of fresh sources of investor interest. The August 2014 share price tripling shown in the chart was precipitated by an oil discovery at the Phoenix South-1 well off the coast of Western Australia. Without a fast follow-up to confirm the initial results, a brief period of heightened interest has given way to a gradual loss of interest and enthusiasm. In this instance, a delay of almost 18 months before new drilling results is testing investor patience. The Carnarvon experience illustrates the most effective way in which to approach investment in the sector, namely, being positioned to take advantage of a drilling result but (irrespective of the result) being ready to move on quickly to avoid the high opportunity cost which accompanies 'buy and hold' strategies.



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