PetroTal Corporation (LON: PTAL) is up 17% on the news that the dispute at the company’s operations in Peru has been, for the moment, resolved. The lesson here is how with a small company, a small operation, seemingly small events can have an outsized impact.
PetroTal is an oil and gas exploration and production company focused on developing assets in Peru. The geography of the area is such that production doesn’t run through the Andes and to the Pacific, rather into Brazil and then to market that way. This makes access to market dependent upon river docks and pipelines.
There have been protests blocking that river access meaning that PetroTal could not ship production. This brought the share price down from the recent 25 and 24 pence levels in mid-to-late- November. There has now been a partial resolution of those protests against PetroTal’s shipping operations and the loading of barges has been able to start. Thus the price rise up from the depressed 17 pence of last week to this morning’s 20.8 pence.
There are two major points to take from this situation.
The first is that when investing in, or trading, small companies then it’s the small things that matter. The share price of an oil giant is going to be moved near purely by the macroeconomic forces of the global oil market and its price. For a smaller, and in mainly one location producer that global price is not the only influence. Indigenous protests about the use of the local landscape, as here, can also be a major influence. When you're small then small things matter.
The second is that there’s a trading opportunity here. PetroTal has only partially solved these protest problems. There’s what might be called a ceasefire in place, not a surrender or victory at least as yet. The next meeting with the protestors is on 10 December and dependent upon how that goes, the price could swing either way. Up to those previous levels of weeks back or down again to that of last week.
PetroTal does go on to warn that if a full resolution isn’t found within 30 days then it will have to curtail production. That’s a full and proper loss to the company in a way that inability to transport isn’t. For there is local storage available and that can be filled while negotiations over the use of and access to river port facilities are dealt with. But once that available storage is full and barges cannot be loaded then production must be curbed. That’s not just a delay in delivery to the market, that’s oil that simply isn’t produced and revenue not earned.
We can expect continued volatility in the share price at PetroTal. That volatility will be driven by opinions on the likely resolution, or not, of these protests over river and pipeline transit. Volatility is the traders’ friend, it’s which side of the trade to take that matters.
PetroTal shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are PTAL shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies
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Tim Worstall is a freelance writer specialising in economics and the financial markets.