Far East Energy: Seeing the Light

Investors in Far East Energy Corporation (FEEC) have been highly disappointed by the stock performance in the past ten or so months. The stock has lost roughly two thirds of its value from its April 3rd 2006 high.

However, there is evidence that the stock has bottomed out.

On February 2nd, the stock closed above the upper Bollinger Band for the first time in ten months. And this was also only the second time since last August the stock closed above its 50 day EMA.

The breakout followed a tightened band and was followed by two days of consolidation on light volume. This is a typical example of downtrend losing steam after a bottom is found.

Meanwhile on the weekly chart, the lower Bollinger Band has indicated a bottom formation for the past two months or so, with last week closing above the central 13-week EMA line also for the first time in 10 months. The intermediate term MACD is beginning to show a positive crossover since the carnage began in last April.

Is this light at the end of the tunnel? Quite possible. Barring major good news, however, do not expect to see a fast and violent reversal to the upside. For a damage that sheds stock value by two thirds, it will take quite some time for the wound to heal. Expect to see price oscillation in the range $0.75 to $1.20 for sometime to come. History often repeats itself. If you look to the left side of the chart, after the 2004 carnage hit bottom it took roughly 10 months to stage a full force reversal. If the cycle repeats itself this time the huge upside would start at the turn of the year. For those who believe in market as an anticipative mechanism of something fundamental, this could be prognosis that the company begins to generate revenue, achieve cost reduction, increase operational efficiency, or things alike. When that happens, the stock will never revisit the current level.

Out of absence of major exciting news, allow me to mention that board members Donald Juckett and Thomas Williams together bought 25,600 shares at $0.82/$0.83 per share on December 27th. Then the five non-employee board members were granted 360,000 shares (4,000 shares each member, plus 160,000 extra shares for new director C.P. Chiang) of option at $0.765/share on January 25th. Both events can be interpreted as the board's belief that the stock has significant upside potential. And as frustrated as we all are, it is unfair to leave out the progresses across all three PSCs (two new vertical wells in Yunnan, one new horizontal well in Shouyang and the preparation in Qinnan that will lead to one horizontal well or equivalent). These could all be the initial fundamental triggers underlying this possible bottom formation.

For the frustrated investor, at this junction I would advise you to be patient. At least the management has taken steps to better shareholder communication, the upcoming 2/14 webcast with investor Q&A being an example. The exploration period extension has its own positives, see my other post. The fact that they can work out the two-year extension also proved they are capable of working constructively with CUCBM. And I can assure you that McElwrath has a deep understanding of China, from energy policy to the Chinese way of doing business. The only concern I have is that he could be too much used to the comfort of a slow-paced government post. He and his gang really need to have a road map and be able to execute with 21st century China speed.

Disclosure: Author is long FEEC.

Comments

[Bhakta:]

This is the first news on FEEC I've seen in ages. I lost my shirt and socks on this company; bying in at $3+ and selling out for a buck or so after writing and calling and trying to find any pertinent information without success. The company's front office never replied to my letters or emails, so I dumped their shares.

A company that refuses to answer letters from their own shareholders is not worth owning IMHO.

2007 Feb 08 08:36 PM

[Cabeza Howe:]

Sorry to hear about that. That was quite unfortunate. I agree with you on "a company that refuses to answer letters from their own shareholders is not worth owning." However, I'm also careful to draw a distinction between a particular arrogant employee and a company. Within FEEC, there is certain person who ignores inquiries even as of now. The company should not have put such a person on IR role in the first place. Obviously this person does not understand that responding to investors (large or small) is his job. So he obviously does not qualify for the job. At this point allow me not to release his name. But he ought to remember what gets him paid, and understand that in Internet age bad news really travel on wings!

However, I have had good experience with other employees. Catherine Gay addressed investor inquiries quite well. She answered my emails and passed on my questions to the management. CFO Bruce Huff answered my questions over the phone. A few weeks back, I emailed Bruce in which I suggested webcasting the upcoming operations update. He replied to my email, though without consenting on the webcast. And then in about a week they announced webcasting it on 2/14. I do not know if their decision had anything to do with my suggestion at all. But that is not my point. What really matters to me is that they do not just ignore you.

In selecting FEEC, we are investing in China's energy future. So I put more emphasis on FEEC's vast recoverable CBM interest than anything else. Of course, the PSCs are not worth much without a decent management team. But I'm focusing on the positives and progresses, not on the past.

Happy investing.

2007 Feb 08 11:59 PM

[Cabeza Howe:]

Regarding the option grant mentioned, it was <strong>40,000&l... (not 4,000) shares per board member. So correct statement should be:

"Then the five non-employee board members were granted 360,000 shares (40,000 shares each member, plus 160,000 extra shares for new director C.P. Chiang) of option at $0.765/share on January 25th."

This and certain other updates can be found <strong>here<...

2007 Feb 09 12:10 AM

[User 54042:]

whatever happened to this company, depite the recent volatility, it is trading at the lowest levels of the past 6 years

2008 May 26 08:12 AM