Derek Pain: Nighthawk oil punt that left me in the dark

No Pain, No Gain

Derek Pain
Saturday 23 February 2013 01:00

Many experts agree that shale gas and oil could revolutionise the world economy. If they are right – and, of course, there is no guarantee that they are – countries such as Britain, that are reliant on energy imports, could enjoy the luxury of self sufficiency and emerge as major exporters.

The United States has led the shale drive, at least on the gas front. It now has so much gas that prices have plummeted and it has moved from importer to exporter. It is no slouch when it comes to oil with some operators turning off gas to concentrate on the so-called black gold.

Britain is getting into the act. According to a recent report by Pricewaterhousecoopers the nation has significant shale gas resources to indicate a potential for oil. The government has given the green light to fracking, the controversial system that is used for creating shale products. The accountants believe that global shale oil output, which could force world prices much lower, could boost the British economy quite dramatically.

The sudden prominence of shale oil should come as no surprise to followers of the no pain, no gain portfolio. A former constituent, Nighthawk Energy, ranks as one of my more unhappy experiences. It has been in the shale game for some time; unfortunately with only the merest modicum of success. The portfolio arrived on the shares at 44p, watched them hit 107p and then suffered the humiliation of unloading at a mere 14p. Since then they have been around 2p and are, as I write, 4.1p.

When floated, at 25p in 2007, Nighthawk was a more traditional US-focused oil group with an exploration area called Cisco Springs its main occupation. But it has since got involved with the Jolly Ranch field, a vast stretch of often barren land in Colorado. Dreams of producing thousands of barrels of oil equivalent a day have evaporated. In January production was just 280 barrels a day. And shale production can be exceedingly expensive.

Still, with new management and a capital injection Nighthawk could still come good. There are signs that output could increase significantly but whether it will ever achieve past expectations must be doubtful. Even if the group does get its oil flow running at something like earlier hopes, the shares' disastrous history will long torment the stock market. My oil anxieties have not been helped by another constituent, Northern Petroleum, which is below the portfolio's buying price.

I have always nursed doubts about resource stocks. Many are too risky. The portfolio's lamentable experience has done nothing to offer reassurance. Still oil shares are not alone in letting the side down. SnackTime, a vending machines group, slumped to 6.5p following a dismal update. I had expected some signs of a recovery but trading has fallen "significantly short" of expectations. There is the possibility of an £800,000 convertible loan stock being issued. Stockbroker Westhouse is looking for an adjusted loss of £1.5m this year and £600,000 next. I am ashamed that the portfolio paid 119p. At one time the price approached 200p.

Other constituents making waves include G4S, the security giant, that has settled its Olympics fiasco at a cost of £88m and the much smaller Brightside insurance broker that has acquired a new major shareholder, Markerstudy, a Gibraltar insurance group that owns 9.3 per cent of its capital. G4S shares have experienced a bumpy ride since they arrived in the portfolio in the summer of 2010. They slumped when the ambitious £5.2bn acquisition of ISS, a Danish catering and security group, was blocked. Subsequently they rallied, only for the Olympics calamity to again clobber them. But, no doubt helped by the stock market's strength, the price has reached 283p with some observers looking for 320p. The portfolio paid 264p. Brightside is residing at 25.75p against an 18.5p enlistment.

And Spirit, the pubs chain, continues to enjoy stockbroking support. Two firms, Numis and Panmure Gordon, have target prices of 85p and 75p. The shares are around 67.5p against the 42p the portfolio paid in August 2011.

After my oil and vending machine experiences its nice to report on three winners.

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