A mistake in forecasting Petrowest
This blog,in 2014, forecasted that Petrowest which was trading around $1.00 per share would move up towards the $1.80 range.This proved to be very inaccurate;as the price moved steadily down to it's present price of $.21 per share.How could this blog be so wrong?Shortly after this prediction PRW bought three small infrastructure companies in the northern British Columbia area using an excellently priced equity issue.But why did it fall so fast to it's present price range?
Diversified Risks
Petrowest was a small niche player in the oil and natural gas service field.This area looked like it would grow forever but they realized that they were too specialized.So they astutuely bought three other infrastructure companies.But nobody saw the extent of the drying up of contracts that would eventually come to all infrastructure companies in the Canadian oil patch and especially in the natural gas patch.Petrowest has more natural gas business than it does for oil.Natural gas was trading at $6.50 per thousand cubic feet in January 2014 and $3.25 in January 2015 and now about $2.65.This drop is greater than for even oil and this is what exacerbated it's fall.Now both commodities are moving up in price somewhat.But this blog believes that Petrowest has been oversold at these prices.The problem is that there has been no catalyst to make it move back closer to old levels.
Adjustments
All oil patch service companies have to do things to adjust to this environment.It bought extra equipment just before the fall in prices and took on some extra debt.Now it has auctioned off 68 pieces of equipment for $2.5 million.The Construction division has been most greatly hit by the fall in natural gas prices but the Civil and Transportation divisions are not as sensitive.These divisions have picked up new contracts and helped to buoy revenues.Also it has closed it's second office in Fort Mcmurray.But investors have not reacted to $33 million in new contract awards.One thing that might help is getting whole contracts instead of just getting sub contracts from larger companies.However the last blog on Blogdaleupsome pointed out that the third quarter would be important to the price moving up and this was a good forecast.But a good target price for Petrowest is now $.80 not $1.80 and that will not be before the first quarter of 2016.
Diversified Risks
Petrowest was a small niche player in the oil and natural gas service field.This area looked like it would grow forever but they realized that they were too specialized.So they astutuely bought three other infrastructure companies.But nobody saw the extent of the drying up of contracts that would eventually come to all infrastructure companies in the Canadian oil patch and especially in the natural gas patch.Petrowest has more natural gas business than it does for oil.Natural gas was trading at $6.50 per thousand cubic feet in January 2014 and $3.25 in January 2015 and now about $2.65.This drop is greater than for even oil and this is what exacerbated it's fall.Now both commodities are moving up in price somewhat.But this blog believes that Petrowest has been oversold at these prices.The problem is that there has been no catalyst to make it move back closer to old levels.
Adjustments
All oil patch service companies have to do things to adjust to this environment.It bought extra equipment just before the fall in prices and took on some extra debt.Now it has auctioned off 68 pieces of equipment for $2.5 million.The Construction division has been most greatly hit by the fall in natural gas prices but the Civil and Transportation divisions are not as sensitive.These divisions have picked up new contracts and helped to buoy revenues.Also it has closed it's second office in Fort Mcmurray.But investors have not reacted to $33 million in new contract awards.One thing that might help is getting whole contracts instead of just getting sub contracts from larger companies.However the last blog on Blogdaleupsome pointed out that the third quarter would be important to the price moving up and this was a good forecast.But a good target price for Petrowest is now $.80 not $1.80 and that will not be before the first quarter of 2016.
Comments
Post a Comment