Special Feature
4
Small cap oil exploration sector.
It seems that the small cap oil explorers’ sphere is every punter’s favourite hunting ground in the hope of making lottery type returns; certainly judging by the volume of readers we get to our blogs in relation to oil sector posts, and also which bulletin boards are the most popular.
Gulf Keystone and Rockhhopper are just 2 stocks in recent years that have delivered mind-boggling returns when striking the black stuff from their wildcat activities in frontier regions. GKP, of course, ran from 6p to over 400p — a near 70 fold return in just under 3 years! Investors continually dream of catching the next successful oil explorer and of course, in recent years, the Falkland Islands have seen fevered speculation in many of the stocks that operate there.
Rockhopper chart
The trick in this area is to diversify yourself amongst at least 5 stocks as the actual strike success rate for exploration wells is less than 20% - thus if you have 5 stocks and one hits the veritable ‘pay dirt’, then you at least have a chance of negating the inevitable losses on the others.
12 | www.financial-spread-betting.com | July 2012
The other tip is to invest only in well-funded explorers so that a capital raising doesn’t catch you out (hence avoid Desire Petroleum), and try to take advantage of depressed sentiment to buy as close to, or as much below, cash value as possible - this way you are not paying for any ‘speculative’ premium - you are in fact looking to ride that.