Macro Tsimmis

intelligently hedged investment

BUY Oilsands Quest (BQI)—yep, again…conditionally

Posted by intelledgement on Thu, 24 Jan 08

Despite today’s positive news about Oilsands Quest obtaining exploratory permits for another 45,000 acres, BQI’s stock price closed down again today, and is now $3.39, only four cents higher than our purchase price last July. We suppose The Street is worried [a] that the coming economic slowdown will reduce demand for oil, [b] that costs for in situ processing of oil sands are rising, and [c] a combination of local and global environmental concerns will make it increasingly hard to fund oil sands projects.

We agree that there could be a temporary slowdown in the demand for oil due to  an economic setback, but we still think the odds are that won’t happen before we have an opportunity to cash out here. We agree that in situ costs are rising, but in the long run, the demand will keep oil prices high enough to make it economical to produce. And Saskatchewan regulators are not disposed to let local environmental issues derail development…as for global concerns, we expect some Big Energy player or other to snap up BQI and cash us out long before it becomes clear (if it ever does) that there is no way for humanity to process oil sands and use the resulting oil without endangering the ecosystem.

In short, we loved BQI six months ago at $3.35/share and would love it even more today at a lower price. Therefore, we are entering a good-till-canceled order to buy another tranche here at $3.02/share—ten percent lower than were we bought it in July—if the price dips that low.

This would be our second “double down” (in the wake of our two purchases of GSS). We really want to use this portfolio to pursue a wide variety of speculative plays and tying up double portions of money for two stocks is not consistent with this objective. Having said that, however, we did not see a more compelling opportunity than that second tranche of GSS at $3.08 and if we can get more BQI at $3.02, it would fall into the same category.

We are treating these double dips as short term plays. We will sell the second tranche of GSS at $4.50 and sell the BQI (if we get it for $3.02) at $6…or sell either or both sooner if a better target-of-opportunity presents itself and we need cash.

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