Derek Pain: Nighthawk shares may be scraping the barrel but don't flee the nest

No Pain, No Gain

David Bramhill's sudden departure from Nighthawk Energy came as a shock to many, although I was not entirely surprised. Shares of the US-focused oil and gas group have performed lamentably in the past year – falling from around 50p to the 20p ruling before he resigned.

I gather my article last month threatening to ditch Nighthawk from the No Pain, No Gain portfolio was one influence in the boardroom upheaval. Like most shareholders, I have become increasingly concerned about the group's declining shares. The portfolio paid 44p, and saw the price rise to 116p before the slump, frequently interrupted by rallies, set in.

During its life time Nighthawk has promised much. Surveys suggest riches lurk below its US land. They certainly do. The trouble is they are not easily reached and are terribly expensive to extract. The group has also, in my view, over-indulged in cash-raising private placings which often destabilise a share register.

Nighthawk and Mr Bramhill have been subjected to somevicious attacks on bulletin boards. In fact there has been a violent internet campaign often couched in questionable language. Nighthawk has said it will take action against the cyber crowd, although, with Mr Bramhill no longer at the helm, I would not be surprised if the company's initial response is discreetly abandoned. However, Mr Bramhill could be so incensed by his treatment that he could continue what he sees as a crusade against internet abuse.

It is not quite clear whether Mr Bramhill – and Joe O'Farrell, who also quit – jumped or were pushed. There was, it wouldappear, increasing boardroom tension. The fact no replacements have been announced suggests rather hasty action.

Mr Bramhill, as chief executive, has given way to the commercial director, Tim Heeley, a former City analyst. Mr O'Farrell, who founded the company with Mr Bramhill, was an executive. One reason being put forward for the departures is that the duo's strength is in creation and exploration, rather than managing. In view of their track record (and the simple fact that a US company, Running Foxes, is responsible for day-to-day site operations), such a claim seems unjustified.

The upheaval smashed the shares. In bruising and heavy trading they slumped 6p to a low of 14p in just three days. Turnover on AIM totalled 57.4 million shares with another 8.3 million changing hands on Plus. Normally turnover is one or two million a day.

So what now? Should the portfolio sweat it out – or sell? It is not an easy decision. Obviously I wish I had relegated the shares last month. Still, there is little doubt that Nighthawk is rich in assets; it is the cost factor that is worrying and the ability of the remaining managers to produce the goods.

Interestingly, just prior to the Bramhill bombshell, City stockbroker Matrix Corporate Capital assumed that, although Nighthawk had "many operational and financial hurdles" to overcome, "the potential for a very significant commercial development of perhaps two billion barrels oil-in-place can be seen".

The cash-hungry group is planning the sale of a stake in its star field, the Jolly Ranch in Colorado. According to various testimonies, there is no shortage of would-be buyers. Of course, the all-important consideration is price. And shareholders will not have forgotten the last attempted stake sale ended in humiliating failure.

Matrix argues that Nighthawk is worth 44p a share if it retains a 50 per cent interest in Jolly. The Jolly field is largely a shale oil project that is technically more difficult – and more expensive – than traditional gushers. An evaluation, due later this year, should indicate the extent of Jolly's riches. But positive past studies have left little lasting impression.

There has also been a deluge of favourable analytical assumptions. I have seen estimates that Nighthawk is worth more than 200p a share. Well, maybe such projections were over the top. But the group has potential. As I write the shares are 17p; they must be worth more. And there is always the possibility that Nighthawk is now a sitting duck for a bid. Perhaps predators are already circling. The portfolio is sticking with this particular bird – hanging on is risky but could be rewarding.