Buy Bankers Petroleum? Not Yet - Keep Your Money In The Bank

| About: Bankers Petroleum (BNKJF)
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Summary

Bankers Petroleum doubled from early 2013 through the summer of 2014.

Growing production and robust oil prices fueled that gain.

Oil prices have since fallen sharply and may fall further.

I am going to wait for oil prices to show signs of stability before buying Bankers Petroleum shares.

In April 2013, I issued an article setting out the "pure play" on oil price nature of an investment in Bankers Petroleum (OTCPK:BNKJF). The stock was about $3.00 a share at the time and oil prices were over $100. Bankers was producing a bit less than 17,000 Barrels of oil per day and had reserves of 226 million barrels. The Brent oil price at that time was $113 per barrel and Bankers first quarter 2013 report showed it receiving just under $89 a barrel for the oil it produces from its fields in Albania.

I wrote bullish follow on articles in December 2013 and March 2014. Banker's stock did just fine in the 15 months following my first article, reaching over $6.50 per share by the middle of 2014. It did just what a "pure play" on oil prices and growing production should do and investors with the courage to buy in April 2013 more than doubled their money by the summer of 2014.

During the period, Bankers' production expanded to over 22,000 barrels per day and reserves grew marginally to 232 million barrels.

Then oil prices tumbled. A "pure play" on the way up is also a "pure play" on the way down and Bankers' stock today trades for about $2.70 a share. Does that make Bankers Petroleum a good buy today?

The answer is no, at least not yet.

After almost two years of investment, Bankers has barely added to its reserves and all of its cash flows from production have been retained or reinvested. Now it is shipping its oil for a lot less than $89 a barrel. While the balance sheet remains virtually debt free, with cash approximately offsetting debt, Bankers does not have much to show for 2 years of drilling. Increasing reserves from 226 million to 232 million barrels is really "treading water" and the higher production rate seems likely to simply deplete reserves with capital spending almost certain to fall in the wake of lower cash generation. Fortunately, management has had the good sense to keep spending within its internally generated cash and to keep the balance sheet solid.

Bankers will be a good trade again but the time to put on a long position in the stock is when there is plenty of evidence that oil prices have stabilized and begun to improve. That may be a few quarters away.

I have no current position in Bankers Petroleum.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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