Macro Tsimmis

intelligently hedged investment

SELL BPZ Resources (BZP)

Posted by intelledgement on Wed, 10 Sep 08

Another one we are sorry to see go, but today we are following the lead of the Intelledgement Macro Strategy Investment Portfolio (IMSIP) and dumping everything associated with energy in light of the developing financial crisis.

As we write, oil is selling for $102/BBLS, down from $145 on 30 June, while natural gas is going for $8/MMBtu, down from $13. BZP are developing fields that are tricky to drill and from which transporting the oil and especially the gas is neither cheap nor easy. While the economics here are not as attractive as they were two months ago, they work just fine…but the problem is that the demand for energy is highly likely to decline futher here. Admittedly we just saw all-time highs that most likely overshot the “true value” of crude (whatever the heck that might be LOL), but we foresee additional demand destruction ahead, and if the market behaves as it usually does, an excellent chance of an overshoot to the down side in the value of oil and natural gas…and, by extension, BZP.

For many reasons, we hope to be back here soon. That would mean that the developing crisis is resolved quickly and the world’s economy gets back on a healthy growth path. But be it sooner or later, given the way the wind is blowing, we expect to be back here at a lower price.

We actually hope it is not too much lower, as that would likely only result from a bigtime general downturn. But that risk is large enough to militate selling here.


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