Macro Tsimmis

intelligently hedged investment

SELL Transmeridian Exploration (TMY)

Posted by intelledgement on Wed, 10 Sep 08

We have been reluctant to give up on TMY despite the manifest incompetence of management, near insolvency of the company, and intractability of the their South Alibek concession in Kazakhstan because we have always believed that the underlying value of the oil (at least 67 million BBLS) would eventually justify the extraordinary efforts required to get it out of the ground, given that demand was rising and supply…well they ain’t makin’ any new dinosaurs these days, so what we got is what we got.

Problem is, in light of the developing financial meltdown, we see demand for energy in general—and oil in particular—taking a powder here, for at least two or three quarters and possibly two or three years. Consequently, the underlying value of South Alibek is going to be discounted here and most likely the shaky financing deal with UEG—which values TMY stock at $1.23—won’t be consummated as presently constituted. (We say “shaky” as there have already been problems doing prerequisite preferred stock transactions and note retirements, the deadlines for which have been extended a half dozen times already, most recently Monday.) Without additional financing, there is no way to increase production from the current 1800 or so BBLS/day to the 4000 BBLS/day needed to sustain ongoing operations and service the debt from past misadventures.

This has been a terribly educational investment, in that the ROI is terrible and the lesson very valuable: the best “story”—and TMY had a great story—can be undone by human error and bad luck. TMY is a poster child for the “investing in individual stocks is inherently risky” campaign. We are sorry, on that account at least, to see it go, but there is just no remaining shred of an excuse to hang on here.

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One Response to “SELL Transmeridian Exploration (TMY)”

  1. Transmeridian declared bankruptcy last week and is now in Chapter 11:

    http://biz.yahoo.com/e/090323/tmye.pk8-k.html

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