Thursday

Oil and Gas

AED Oil Limited A Buffett Buy

TheInflationist picked up 2500 shares of AED at 85c today (half strength); with another order to buy 2500 at  79c. The 52-week low for AED is 83c. Market has overlooked this cashed up oil player with huge upside potential. The whipsawing movement of the markets make it very hard to pick a trade-able trend - we have been relatively light on our long positions and are hoping for further falls. We quietly feel that a rally is due for next week (some blogs have indicated that their indicators suggest a lower low below November lows, and the Dow Forward contracts certainly look bearish trading at 30-40 points discount to current levels). Taking a contrarion approach without being over-leveraged would be the best risk reward in our opinion. We also put a profit protect for our Australia 200 long position at 3500 (closed at 3509; touched a high of ~3558). We actually opened a short position at 3554 (we feel that a 2.3% move up for “better than expected” job numbers was a great opportunity) in our personal portfolio and closed it at 3510, but will exclude that in our public portfolio. 

Back to AED Oil. We like the story:

• Recent bad news: AED Oil generated no revenue in the last quarter as it delayed its shipment of oil due to logistical issues and prices being low. Unless the company is hiding something, we find nothing wrong with this move. Infact, we commend management for delaying offtake - why sell oil at these low prices just to add to the 300 mil cash sitting in the bank. Better move would be to store it somewhere for 12 months until prices recover! 
• Debt-free, cash of 300 mil AUD - Buffett tick
• Profitable
• 60% China-stake (although the China insurance policy have failed smaller companies with debt eg Albidon etc): the company timed their sale very well, netting $600 million for the 60% stake. 
• Puffin 11 have intersected 25m oil - this should be viewed as a lottery ticket. We doubt punters have put any value to this, but should speculators jump onboard to push the price up for the Puffin 11 story, that is the time to unload some of our holdings.
•  Near 52-week low.

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