AOK (ASX) Saudi Goes to War

Originally posted by Dis ↑

I sold out of AOK on Friday / Today at 14c. After being in the stock for longer than I care to admit, its very disappointing. As an investor, ultimately the blame stops with me and in my case I (a) totally underestimated the size of the POO crash and (b) expected AOK to come out swinging regarding its new debt facility and the production rates post infrastructure build.

AOKs announcements have been more like getting hit with a wet lettuce leaf. The debt facility did not provide a platform for any inspiring plans. The production rates for Oct and Nov were very uninspiring given things have been choked back for 6 months. If only these issues had not been hung up with delays, they would have been announced before the POO crash, and people could have made an informed choice whether to hold or sell. Unfortunately in waiting for the expected "big" news, we have all been mugged by the oil price crash. Overall I'm complimentary of AOK management - far better to be cautious than reckless. In retrospect, however, they failed to be aggressive enough when the sun shone ($100 oil). Debt facility and accelerated production were delayed far too long.

As I said, though, the buck stops with me. At least I'm walking away with break even / lost opportunity cost. Lots of poor souls in O&G stocks looking at 50% losses.

So I really don't see much inspiring news from AOK over the next several months. IMHO all the risk is on the down side. I feel Saudi has effectively declared war on Shale and other high cost producers. That action was strengthed by events over last 2 weeks. First no cuts at Vienna. Then a statement that they expect oil to stabilize around $60. That puts WTI in the $50's and things will likely overshoot before they become stable (WTI in the 40's?). For shale oilers there are no good outcomes from this. Only bad or worse.

Worse is they are broken / bankrupted.

Bad is that they are profitable but the profits are low. The question will be asked by many whether it is worthwhile drilling new wells to sell oil at cheap rates and high risk. Better to conserve the resource for a better market - AOK has already stated this. With 80% of EUR being produced in the first 3 years of well production, there is very little point is sinking capital into new drilling at $55 WTI. It may be profitable but its not smart.

I think Saudi will hold prices for 12 + months to kill the sector / reduce oversupply. Profits, production, and reserves are likely to shrink. I don't know what AOK share price will do so I make no predictions. What I do know is that in the absence of likely good news, the risk reward equation just isn't there for me anymore.

Sorry for the grim tidings but I always call it as I see it.

I may trade but not hold from now on. Best of luck to those still holding.

Expand

Sorry to hear Dis. Excellent post...love the wet lettuce leaf comment.
Personally i am an eternal optimist.
The poo will go up again.
The Sp will correspondingly go up again...and more.
its just a matter of patience...you dont loose until you sell.
hope you back in here again dis your posts have been valuable.
Fox

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Last 0.3¢		Change 0.000(0.00%)		Mkt cap ! $2.833M

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Sorry to hear Dis. Excellent post...love the wet lettuce leaf...

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Sorry to hear Dis. Excellent post...love the wet lettuce leaf...

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