Monday, December 12, 2005
Aussie rules force Dana to show hand
Dana is not alone in pursuing oil and gas offshore Mauritania. Several Australian companies are partnering Dana in the ongoing Faucon well, Hardman, Woodside and ROC Oil. Under Australian stock exchange rules, a company currently drilling must make weekly status reports to the stock exchange. This is a level of disclosure I appreciate. It's a shame London's listed oil companies aren't subject to this level of declaration.
Oil exploration is typically a binary exercise. The company either finds oil in commercial quantities or it fails. This makes appraisal especially difficult during drilling. Last week's news, that hydrocarbons have been found at Faucon provides useful information to the valuation process. The chances of a commercial find in Dana's acreage were substantially increased. Let's say, the probability has increased from somwhere between 10% and 75%, to 25% and 80%. Without the Australian weekly reporting requirement, the whole market would still be playing a much larger guessing game, resulting in greater share price volatility. Such volatility would be a bad thing in a company drilling for oil. It creates a misleading market. If the price is rising, speculators could assume oil has been found and race to buy, assuming good news has leaked. The reverse can occur if the shares dive ahead of an announcement.
Tomorrow, Dana's Australian partners will have to submit a status report to the Sydney stock exchange. To save British investors operating at a data disadvantage to their Australian cousins, Dana is also expected to make a statement at 7 a.m. tomorrow. I'll be making certain I'm out of bed for this time and depending on the news, I may even delay my journey to work, should I wish to trade my largest and most rewarding shareholding.
Wish me luck!
The Artful Dodger
Oil exploration is typically a binary exercise. The company either finds oil in commercial quantities or it fails. This makes appraisal especially difficult during drilling. Last week's news, that hydrocarbons have been found at Faucon provides useful information to the valuation process. The chances of a commercial find in Dana's acreage were substantially increased. Let's say, the probability has increased from somwhere between 10% and 75%, to 25% and 80%. Without the Australian weekly reporting requirement, the whole market would still be playing a much larger guessing game, resulting in greater share price volatility. Such volatility would be a bad thing in a company drilling for oil. It creates a misleading market. If the price is rising, speculators could assume oil has been found and race to buy, assuming good news has leaked. The reverse can occur if the shares dive ahead of an announcement.
Tomorrow, Dana's Australian partners will have to submit a status report to the Sydney stock exchange. To save British investors operating at a data disadvantage to their Australian cousins, Dana is also expected to make a statement at 7 a.m. tomorrow. I'll be making certain I'm out of bed for this time and depending on the news, I may even delay my journey to work, should I wish to trade my largest and most rewarding shareholding.
Wish me luck!
The Artful Dodger
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