Shadow Stocks - Investing, with a focus on small stocks

BPT versus OIL over the last six months

I’ve owned the royalty trust BP Prudhoe Bay (NYSE: BPT) for a few years. Back when oil hit $147 per barrel, BPT hit an all-time high of about $106 per share. Today it closed at $97.88 with oil at about $82 per barrel. Yahoo! Finance shows a forward dividend yield of 15% on BPT, but that looks too high. Based on the distribution estimates by ‘RoundRobinJack’, a Yahoo! Finance message board commenter whose analysis I have come to respect, BPT’s forward yield might be closer to 8.7% at the current unit price. I bought a few of the $85 strike, SEP 10 puts on BPT today for $3.50 each.

With the S&P 500 touching a 52-week high today, I checked Portfolio Armor to see how much it would cost to hedge a position in the S&P 500 tracking ETF SPY against a greater-than-20% loss for six months. It would cost about 1.3% of the position value. I’ll be interested to see how that cost fluctuates; particularly, how much it goes up after the next correction. It will be the subject of occasional updates here.

A couple of years ago on the old blog, I posted about how cheap Venezuela’s stock market was. Back then, it had an average P/E of 2. Checking the FT’s Yield & P/E by Country (PDF) today, the average P/E is now 0.4 (though the average dividend yield has dropped from ~20% to ~15%). As I mentioned in the old post, the obvious explanation for the low valuation is the fear of nationalization or expropriation by the Chavez government. Thinking about this some more though, I wonder if it would be possible to pick a small basket of Venezuelan companies unlikely to be nationalized or have their assets expropriated. Offhand, I would think the best candidates for this would be relatively small, niche, companies that serve business customers, particularly ones that require enough skilled labor that the workforce couldn’t easily be replaced. Might be worth doing some research on this.

One year chart for USEG

U.S. Energy Corp. (Nasdaq Capital Market: USEG) issues its annual report. Here’s the full filing, via the SEC’s website, and here are the company’s highlights via its press release. Nothing too surprising here; the investment thesis remains on track since I last blogged about this company. These were the highlights the company listed in its press release:

Selected Highlights for 2009 and Period Subsequent to December 31, 2009

* Entered into a Drilling Participation Agreement (“DPA”) with Brigham Exploration Company (Nasdaq:BEXP – News) (“Brigham”) to earn working interests in up to fifteen 1,280 acre spacing units in Brigham’s Rough Rider project area located in Williams and McKenzie Counties of North Dakota; USE has elected in to participate in all 15 initial wells;
* Successfully drilled and completed the first six wells under the DPA with Brigham;
* Produced approximately 1,000 net BOE/D in fourth quarter 2009 and exited 2009 with an average rate of 1,400 net BOE/D for the month of December 2009;
* As of March 12, 2010, daily net production from all of wells was approximately 1,175 barrels of oil and 1,780 Mcf of natural gas (1,470 BOE/D);
* Increased revenue $7.34 million over prior year, primarily due to increased oil and gas revenue in the fourth quarter 2009;
* Increased proved reserves by 453% or 889,738 BOE over prior year (1,086,203 BOE net proved reserves as of 12-31-09);
* Retired $16.8 million construction loan on the Remington Village project in Gillette, Wyoming;
* Received the $1 million annual option payments for 2009 and 2010 from Thompson Creek Metals Company Inc. in 2009 pursuant to the terms of the Exploration, Development and Mine Operating Agreement signed in August 2008;
* Raised $24.3 million after offering costs in underwritten public offering of 5,000,000 shares of common stock at a price of $5.25 per share;
* Increased line of credit from $5 million to $10 million;
* Ended year in position of strength with approximately $55 million in cash, cash equivalents and treasuries with nominal debt on the balance sheet.

The company’s conference call is scheduled for next Tuesday. Last year this time, there was exactly one question on the call, and I remember noting that it was one of the shortest conference calls I’d ever listened to. The company was trading for less than its net cash back then.

Incidentally, USEG now has options traded on it. This must have started fairly recently. Checking Portfolio Armor, put protection on USEG is extremely expensive though — I had to set my threshold (the maximum decline in the value of the position I indicated I was willing to risk) to 31% before I was presented with any optimal put options (Portfolio Armor will not present a solution if the cost of protection is greater than the loss you are looking to protect against¹). Not too surprising, I suppose, given the stock’s volatility in recent months, and the paucity and iliquidity of its put options.

¹To do otherwise would be analogous to presenting a quote for collision insurance with a $500 premium to someone whose car had a book value of less than $500.

The Short Screen bear on the hunt.

Effective as soon as my developers implement the changes (most likely, within the next day or two), the premium membership fee on Short Screen is going up from $14 per month to $30 per month for new members. Current members will be grandfathered and continue paying their current membership fee.

It’s worth checking out the comments about technical analysis in this thread on GuruFocus by a poster going by the name “Eboro”.

On Steam Catapult today, revisiting the idea of a crowd-sourced due dilly trip to Perth to check up on Alloy Steel International (OTC BB: AYSI.OB) via a new crowd-sourcing site: Rocket Hub.