My approach to shorting oil and gas

When oil and gas companies sell assets to each other in private transactions, they will often open a data room where the acquirer’s team of engineers can look at the data and perform their due diligence.  I find it strange that supposedly sophisticated institutional investors are comfortable with oil and gas stocks without being able to perform this level of due diligence.

Maybe I’m crazy but I think that institutional investors are making huge mistakes in the oil and gas sector.
Either they’re wrong or I’m wrong.  Time will tell.

I believe that there are currently very high levels of deceptive stock promotion and many opportunities for short selling.  The nice thing about the current situation is that institutional investors are involved and are lending out their shares.

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Oil trap or value trap?

The website “Oil On My Shoes” contains a short and excellent introduction to petroleum geology.  In particular, it explains how economic oil and gas reservoirs are often found in either structural or stratigraphic traps.  What I took away from the website is that petroleum geology is quite complex.  There are many factors that affect the exploration potential for a piece of land and therefore how much that land is worth.  Just because two parcels of land are close to each other (what I would call “closeology”) doesn’t necessarily mean that wells drilled on both parcels will have similar economics.

Many publicly traded companies avoid disclosing information about geology and would like investors to focus on closeology.  They want to trick investors into valuing acreage on the sale price of nearby land rather than the geologic potential of the land (or lack thereof).  Without knowing the geological details, it’s hard to say if closeology is a reasonable shortcut in valuing acreage. At the end of the day, I think that it is a red flag whenever an oil/gas company tries to steer investors towards closeology.  Usually it is an attempt to mislead.

Jury trials are bad for shareholders

I’m not a lawyer so please take what I say with a grain of salt.  But here’s what I understand about the US legal system.

(Altisource/Ocwen) Mortgage servicing rights overview

Lately, Ocwen has been receiving a lot of bad press due to its problems with regulators.  Both Ocwen and Altisource have seen their share prices tank.  I think that the selloffs are overdone.  If anything Ocwen should have sold off worse than Altisource.

Here’s my take on the situation.

Warren Buffett’s playbook and derivatives deals

Here’s a look at part of Warren Buffett’s ‘playbook’ of investment strategies that he has experimented with.

How would a sociopath fleece investors in oil and gas?

Nowadays when I look at a company I ask myself:

1. What would a good legitimate business look like?
2. What would fraud look like?

This post attempts to answer question #2.

Chinese stocks and ICP numbers

Chinese Internet users face restrictions as to the websites that they can and cannot visit as China censors the Internet.  It makes sense for Chinese companies to get an ICP number/license to ensure that its customers can easily visit its website without having to circumvent the ‘Great Firewall of China’.

When performing due diligence on Chinese stocks, I want to see that its website has an ICP number/license.  Chinese websites will typically display the number at the very bottom of its webpages.  Remember to check the Chinese version of a site as the English version may not show the ICP number.