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Insight: The Wrong AIM!

Thursday, October 31, 2013

Is it possible to spot AIM oil & gas companies that are never, ever, going to get anywhere?

Just recently my friends at Richmond Energy Partners (REP) mentioned to me that they had observed that, since 2008, only 1 in 12 AIM oil & gas companies hade 'made it' which REP defined as reaching the sunny uplands of a market cap North of £500m.

This prompted me to think about how much effort everybody puts in to trying to pick these "winners" in advance and then, encouraged by the work of Nassim Nicholas Taleb (Antifragile) and anecdotes from Steve Jobs, I thought it might be easier to spot the approximately ten times more numerous "losers".

Now heaven forfend that I actually name any companies..........but it struck me that investors might want to avoid companies that display certain characteristics.

Here are a couple just for starters:

No Strategy in Sight:

  • no geological focus, so any rocks that come through the door are 'good rocks'
  • no geographic focus, so "an asset in every continent"
  • "me too!", so showing up in an ocean, basin or play late (but of course with a USP, an insight nobody else has etc etc!)

The Executive takes the upside, the shareholders get the downside:

  • excessive cash remuneration for the Executives
  • Executives have 'no skin in the game' (none of their own money at risk) but
  • Executives have plenty of 'cheap' options.

All this of course, in my humble opinion!

Author: David Bamford
Company: New Eyes Exploration Ltd

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