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Jonathan Yates is the founder of EarnedMediaUnlimited. He has had thousands of articles appear under his byline in websites and periodicals such Seeking Alpha, The Washington Post, AOL Daily Finance, Foreign Policy, and The Motley Fool, among many others. The views expressed are his own. In his... More
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  • More Than 205 Million Reasons Why Octagon 88 Is Worth More Than Zero 0 comments
    Sep 18, 2013 4:13 PM

    When your father works in the securities industry for over five decades, one of the first things you learn is, "Never fight the tape."

    This could be costly lesson for those following a recent article on Seeking Alpha, "Octagon 88: A Zero in Any Book." Clicking on the stock symbol of Octagon 88 (OTCBB: OCTX) takes you to the Seeking Alpha site that shows the company has a market capitalization of more than $205 million. At its 52-week high, the company had a market capitalization of about one-third of a billion US dollars.

    Since mid-August, the share price has risen about 50%.

    That is to be expected as oil company stocks are up due to tension in the Middle East. There was also a recent report by the US Energy Administration projecting a 56% jump in global energy usage by 2040, which also took oil stocks higher, too. There are also increasing signs of economic recovery in Europe and Asia.

    As an operating oil exploration company, Octagon 88 naturally rose along with others in the sector. In a previous piece of mine of Seeking Alpha, I also pointed out the superior features of energy firms with assets in Canada. This was buttressed by a recent Wall Street Journal article reporting that Repsol (OTCQX:REPYY), the Spanish oil giant, is looking to spend up to $10 billion on North American aquisitions. With its holdings in Canada, Octagon 88 certainly falls into that category.

    Specifically for Octagon 88, which has concentrated its efforts in the oil-rich parts of the Alberta Province of Canada, a major factor for the rise was the release of dynamic simulation results by Schlumberger, the oil and gas services giant based in Texas. This report utilized core sample from the Elkton Erosional Edge, the center of Octagon 88's programs.

    A recent press release reports that:

    During March 2013 CEC North Star started exploration work in the Manning Area and drilled two wells targeting heavy oil in the Elkton Member (CEC North Star Deadwood 11-4-92-23W5) and the Bluesky Formation (CEC North Star Deadwood 8-12-91-22W5). Both wells resulted in good to excellent reservoir quality (i.e., porosity and permeability) with very good oil quality in the Elkton and higher oil viscosity in the Bluesky formation based on laboratory analysis.

    More public information from the company on any financial website:

    First Project : Elkton Erosional Edge

    · Eight-hundred plus (800+) million barrels PIIP (Third-Party Estimate)

    · 870 million barrels using feasibility study (posted in 8k)

    · Primary recovery (cold flow) 8% to 14 %

    · Infill drilling followed by subsequent pressure maintenance with an additional 8% recovery rate for a cumulative (200+) million plus recoverable barrels Enabled company to make this internal report

    · Followed later by Enhanced Oil Recovery (EOR) exploitation targeting an additional 10% to 20% recovery using proven EOR technologies AGAT laboratories

    As the release about the Schlumberger report stated, "The successful third party validations of the core drilling program with the primary production and infill drilling development possibilities substantially advances the project to the first production wells, targeting initial oil sales to commence in the first quarter of 2014 from the Elkton Erosional Edge Project. "

    Based on that, the Technical Team has provided a Plan of Development (POD) targeting thirty-thousand plus (30,000+) barrels a day. For potential investors and others, an Executive Summary of the POD is being prepared for release soon in the company's filings with regulators.

    For existing shareholders in Octagon 88, a return of more than 90% has been provided in the stock price over the last year.

    Despite that performance, in mid-June, another article appeared on Seeking Alpha with the title, "Octagon 88: It's Worth Zero." From that time and the publication of the second article on August 19 until now, the share price of Octagon 88 has more than doubled, from about $3.72 in late June to almost $8.00 now. That is an increase in the market capitalization of Octagon 88 of more than $100 million.

    That there is bearish sentiment for Octagon 88 is of little surprise.

    There will always be those thinking negatively about any stock: that is what makes a market. As an example, even with Warren Buffett as a major shareholder and oil stocks at a premium with Repsol looking to spend billions on North American energy assets, there is still a short ratio of 2.20 for Suncor Energy.

    Specifically, for Octagon 88, the writers admit to having short positions. They are obviously "talking their book." Nothing wrong with that as I am considering the purchase of Octagon 88 shares, as fully disclosed.

    Those articles were also written before the bullish reports came out in early September. An update provided third party validation for 400 PIIP, well after publication. The final approval from the Canadian Government to file for a drilling license for the Elkton Erosional Ridge was announced on September 16, months after the first article and weeks after the second.

    From worth "zero" in late June to worth more than $205 million now: there's a story worthy of a headline. For those "fighting the tape," it has a very sad, and costly, ending, though when bullish reports are released!

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCQB:OCTX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Long position for OCTX will be initiated based on how well OCTX holds its recent gains.

    Themes: long-ideas
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