Macro Tsimmis

intelligently hedged investment

Transmeridian (TMY) update #8

Posted by intelledgement on Fri, 10 Aug 07

The beat(ing) goes on…Transmeridian (TMY) management must be so depressed by their present situation—production from their South Alibek field, spotty at the best of times, indefinitely shut down by the Kazakhstani government over a gas flaring issue—that they did not bother to issue a press release announcing their 2Q07 results, nor hold a conference call for analysts and investors. They did post the information on the SEC’s EDGAR system yesterday (as required for a public company), and the numbers were not cheering. Production, while up y-o-y from 2Q06’s 1450 bpd to 2450 bpd in 2Q07 marked a steep decline from 1Q07 (3500 bpd). and so the company fell far short of the minimum target of 4000 bpd needed to break even on pumping operations, to say nothing of the 6500-to-8000 bpd needed to fund the debt service and continued drilling operations.

The one piece of good news is that revenue was up sharply in 2Q07 due to a record $51.27 average price per barrel; the company benefited both from higher world market prices and from delivering oil via pipeline and thus ducking the cost of truck/train transport which previously was deducted from the price of each barrel. Alas, the production curtailment which was announced 29 June has extended far beyond the company’s original estimate of two weeks. Management believe they have reached an agreement in principle but the process for getting the agreement approved by the right Kazakhstani government officials remains murky and in the meantime, there is no production.

As speculated here previously, could be the government intends to grease the skids here for Transmeridian. At this point, we believe that management will be forced to sell out to a better-capitalized buyer who can afford to invest in the infrastructure needed to obtain economic levels of output from the South Alibek field. We continue to believe that oil is present there, and expect that a buyer will pay more than the depressed $1.84/share the stock is going for now. So we are stubbornly holding on here.

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