Bargain Issue Oil Junior - IPL

He could've used some cheap gasoline

Right, here's one I've been looking at for a while, but which recently hit my "limit buy" order - Indago Petroleum (IPL.LSE), a junior oil and gas explorer listed on AIM. They currently have an interest in three exploration wells in Oman - see their website for details.

What's interesting about IPL? Well, for a start, you must have noticed how the oil price has been absolutely slaughtered by the post-Lehman crash, taking the energy juniors with it. It seems likely to me that this correction went too far, and (like any hard asset) oil should at least recover against increasingly debased currencies such as sterling or the US dollar. There's also the whole Peak Oil argument, which I find quite convincing, but this is very much strategic background.

To be more specific, IPL is an oil explorer which hasn't found any oil (yet). In fact, looking at their last interim report, what they have encountered is a series of problems, including a blow-out at their Al Jariya well in February 2008.

So, what's worth buying about this company? I refer you to their announcement of 23rd February 2009, which indicates that a settlement has been reached with their insurers regarding compensation for the above blow-out, viz.:

Once the Company has received its share of the Settlement, it is projected to have cash balances in the region of $38 million. It is anticipated that all the Settlement monies will have been received by the end of March 2009.

Source: Investegate.co.uk

Now, this is where it gets interesting. If you deduct all of their liabilities from the above cash figure (about $10M, in the last interim report), that leaves net cash of $28M, or around£19.23M in sterling. Divided by the 53.36M shares in issue, and you have a net cash per share figure of around 36p.

Those of you familiar with Benjamin Graham's classic The Intelligent Investor will see where I am coming from. Graham's definition of a "bargain issue" was a company trading at a significant discount to its net current asset figure. I managed to pick up some IPL the other day at 25p; they're 28p now as I type, which is still a 22% discount to cash.

Is IPL a sure thing? Of course not - all that cash could easily be frittered away on further failed exploration effort. But, oil and gas exploration is essentially a throw of the dice; just because IPL have been unlucky up until now, does not mean their next effort will also draw a blank. And, generally rising oil and gas prices would also help the share price.

When all is said and done, though, this is just a small speculation, not something to bet the farm on.

Don't fight the Fed

Firstly, further apologies for the lightness of blogging this month - there's just been too much Real Life getting in the way.

If you've been following my methods, you'll be unsurpised to learn that I have once more exited The Big Trade , following the Fed's announcement to quantitatively ease their way up the yield curve. I got out at $44.77 (£31.01), about a 9% sterling loss, which is unwelcome but not catastrophic.

Is this still a trade worth watching? The fundamentals argue in favour, and, indeed, long-dated T-bonds have declined markedly since December (TLT, the 20+ T-Bond ETF, was over $122 in December, versus only $104 on Friday). I have just found it impossible (so far) to make worthwhile profits from the decline through the TBT Ultrashort vehicle. Maybe that is just bad luck (similar trades using Ultrashort ETF's have worked well, notably the SRS real estate short).

At any event, I'm out for now, although I certainly won't be buying T-bonds any time soon.

Canadian Bonds and a Short Goodbye

Alright, he's really Australian, but it's the closest you'll get (rumours that William Shatner was originally slated to replace Sean are completely unfounded)

A bit more trading today. Firstly, and with some reluctance, I said goodbye to my EFA short, the Proshares Short MSCI EAFE ETF (EFZ). This was, if you recall, a play on collapsing European shares, as a result of the east European economic implosion.

I still think this is on the cards, but having been very oversold for a couple of days (14-day RSI below 14), I think that the EFA index could rally quite a bit. So, I have sold EFZ at $109.47 (£77.55), which is about a 10% profit. Nothing too exciting, but at least it's in the right direction.

I have also replaced my Yen holdings with an ETF which holds short-dated Canadian government bonds - the Claymore 1-5 year Laddered Government Bond ETF, which trades in Toronto under the symbol CLF.TO (see here for details). I bought a big stack at C$21.09 (about £11.65).

CLF is mainly a play on the Canadian dollar, which I suspect could do well if commodities such as oil manage to recover at all. At the same time, CLF is a much less risky proposition than a commodity ETF or share, as it should also benefit from renewed deflationary pressure. That's my theory, anyway, although I'm not alone.

Quick updates - FXY & TBT

Too much real life recently for blogging, but just a quick update to note a couple of trades:

• I have dumped my CurrencyShares Japanese Yen ETF (FXY) at $102.15 (about £72.66) - a loss of about 7%. I just couldn't stay enthused about the Yen's prospects.
  
• The Big Trade's back on! I have bought TBT again at $47.26 / £2.92.