Frontera Energy: The Guessing Game Continues

seekingalpha03-22

Frontera Energy's business has been put on hold to focus on the potential in Guyana, causing the stock to trade on Guyana prospects.Management provided little information on the Guyana Project in the ...

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There was some scrambling by management about this specific question and some inconsistency about the information to be supplied later. This strongly implies a lack of experience in dealing with the situation. Now the latest conference call basically stated that the process has begun, and some presentations have been made. Then of course came the \"no further updates\" comment. For a potentially game-changing situation, in the words of management, the whole process has not been reassuring, to say the least. Suriname Input Both Exxon Mobil  and TotalEnergies  have discoveries in the Suriname area. Suriname is pressing both companies to combine their projects so that a reasonable level of resources is present to justify development. Evidently, the two companies have separate projects that so far do not show enough resources to justify production. 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Therefore, the stock continues to stay put.The strategic alternatives process for the Guyana project is highly speculative and unlikely to result in significant financial gains for the average investor.The latest conference call added no new information other than presentations have been made to interested parties.This is not a situation that follows industry practices. Therefore, the risk of excessive dilution is much too high for me. This is a very speculative (at best) idea.Jeremy Poland Frontera Energy (OTCPK:FECCF) is a company with a solid business. But that business has effectively been \"put on hold\" so that the company can take advantage of its situation in Guyana. Therefore, the stock is likely to trade on Guyana prospects rather than the business that already produces revenue and cash flow. Since management had really nothing to add in the latest conference call and earnings report, the stock will likely continue right where it is until there is an announcement. Even then, the stock is unlikely to go anywhere short of a major financial coup from the current \"strategic alternatives\" process that management has begun for the Guyana project. That makes the future here highly speculative and very much not for the average investor. Reviewing Guyana The Situation Some key points from the last article need to be brought up again and then updated. In the third quarter conference call, the following question elicited a somewhat confused and inconsistent answer:  Sara Konstantine Okay. Yes, so the first question, I think, everyone is asking at the moment is what happened in terms of the Santonian assessment between the June press release, when you were saying there were 210 feet of hydrocarbon-bearing sands in the Santonian, now we're seeing 40 in Wei? So that's the first question.  There was some scrambling by management about this specific question and some inconsistency about the information to be supplied later. This strongly implies a lack of experience in dealing with the situation. Now the latest conference call basically stated that the process has begun, and some presentations have been made. Then of course came the \"no further updates\" comment. For a potentially game-changing situation, in the words of management, the whole process has not been reassuring, to say the least. Suriname Input Both Exxon Mobil (XOM) and TotalEnergies (TTE) have discoveries in the Suriname area. Suriname is pressing both companies to combine their projects so that a reasonable level of resources is present to justify development. Evidently, the two companies have separate projects that so far do not show enough resources to justify production. Frontera is in a similar situation in that it has done very minimal drilling that has resulted in a discovery. Compare To The Exxon Mobil Partnership Exxon Mobil, as the operator of its partnership with Hess (HES), had a whole lot more wells that resulted in discoveries before the company ever suggested spending the money for the first platform. Hess Corporation Overview Of Guyana Partnership (Hess Corporation Presentation September 7, 2023) As shown above, it takes a fair amount of activity to justify development when there is no supporting infrastructure nearby. The first oil produced happened back in 2019 when about half the discoveries listed above were on the slide. But that is far more money than Frontera has. Frontera has a whole 2 successful wells. That is not enough to justify the billions needed to produce oil. Guyana Conclusion Whenever a small player like this gets involved with the \"big boys\", the big boys tend to play hardball. That is going to have an effect on the company stock price until the company can demonstrate that it beat the odds. The other consideration is that I reported that John Hess, CEO repeatedly asked (through the years) why the market had not responded to those discoveries. The answer was always the same. No one was interested until the cash flow began. Now, of course, Hess has an offer to be acquired by Chevron (CVX). But that offer did not arrive until more than one platform was operating with several more in various stages of development. In simple terms, Hess could now point to a lot of cash inflow in the immediate future. Frontera is so far away from the Hess situation that the risk of extreme dilution is huge. That situation may actually not be a game changer for some years to come because actual oil production is likely to be several years away if it happens at all. Management only has two successful wells and really has not stated a backup plan if the current process does not work to their satisfaction. This is a very small company doing business in an area where costs are sky-high. Those platforms that the Exxon Mobil partnership uses to produce oil cost more than $10 billion currently. A single well on the leases typically runs very roughly $30 million. A company the size of Frontera does not have the resources for that kind of project. Hess was considered a small player that kept roughly $2 billion in cash on the balance sheet for a few years \"just in case\". Now that several FPSOs are finally producing, Hess is reducing the credit lines. But Frontera does not have access to that kind of credit because of its size. The bidders know that. That makes this company a very risky proposition. The company also controls CGX Energy (OTCPK:CGXEF) which has no income and hence no way to finance this project either. Neither stock is likely to do well until the future is much better defined. CGX Energy shareholders are in even worse shape in this situation because the company has no income. Other Business Management issued a report of the rest of the business and that was reasonable. The problem is that the market is not paying attention to it because management has the market's attention focused on the Guyana situation. Stock Price Action Until something definitive happens with the \"game-changing\" Guyana situation, this stock price is going nowhere. Owning the stock and waiting for that \"game-changing\" news in a positive direction is going against the odds. But that does not mean it could not happen. What it does mean is that management with little to no experience in the oil and gas industry is \"learning on the fly\". Therefore, any investment here has to be regarded as a lottery ticket with a very strong possibility of a loss of principal. Frontera Energy Corporation Common Stock Price History And Key Valuation Measures (Seeking Alpha Website March 21, 2024) As shown above, the stock price has not done well at all since the third quarter announcement of \"strategic alternatives\" for the Guyana leases. The last article was a \"sell\" article. I still do not see a reason to put money into this idea. How in the world could one predict the future of the stock price when management appears to be learning as this project progresses is anyone's guess. That means this is not investing. I frankly do not know what it is. For me, this is a classic situation to avoid. At best it is meant for coffee money only, and do not count on getting your money back either. I follow other companies that are very good at reducing offshore risk. Even though Hess is being acquired, there are plenty of others remaining. This one I would watch from the sidelines and get out the popcorn. I wish management the best as they are going to need a fair amount of luck.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2421789224"}