Phoenix Global Drops 16% On Fracking The Dead Cow News

Trade Phoenix Global Shares Your Capital Is At Risk
Tim Worstall
Updated: 4 Mar 2022

Key points:

  • Phoenix Global is a fracking play in the Vaca Muerta of Argentina
  • We know there is oil there the question is how much can be extracted?
  • Phoenix shares fell 16% on their drilling release
  • Oil Trading Guide – How To Trade Oil

Phoenix Global (LON: PGR) shares could be thought to be in the right place at the right time. It’s well known that there is shale gas and oil in the Vaca Muerta (aka “Dead Cow”) area of Argentina. Global gas prices are up through the roof, we’d perhaps expect someone prospecting for natural gas to be rising.

new-recommended-broker-banner

This isn’t what is happening and Phoenix Global and it’s worth working out why. One part of this is that this is in Argentina, a risky place to be doing business. There has, after all, been something of a history of politicians eyeing up anyone making money and asking for an ever-larger share of that cash.

It’s also true that Argentina doesn’t have – and unless any Vaca Murta finds are truly humongous, possibly won’t have – the LNG plants to be able to export fracked gas. So the global price isn’t of huge relevance to a company which, even if successful, is going to be selling into the domestic market.

Also Read: The Best Oil Stocks to Buy Right Now

But the really big thing is, of course, as with any prospector for any natural resource or mineral. It’s all very well knowing that there’s gas there in that shale. What needs to be found out is that it’s both possible and profitable to get it out. Is there sufficient volume that is extractable to make it worth doing that is?

Phoenix Global shares have fallen this morning on the latest information release to the market. It’s a fairly standard sort of release. We’ve drilled these wells, the results from them are and so on. The interesting information is what is not said rather than what is.

What isn’t being said is that they’re extracting vast volumes of oil and or gas. Which is what all would prefer them to be saying of course. As ever, reading stock market releases is a matter of working out what they’ve not said, rather than what they have.

Then again, with fracking one doesn’t expect a gusher anyway. One particular well, at Rio Atuel, is producing and the big question there is what is the drop off rate? Fracking wells tend to have a bolus of production then fade off. The profitability of the well depends upon how long that fade lasts and how low the production rate falls as it does. It’s the tail of the production that provides the profit that is – so, it’s necessary to wait and see what the tail is before deciding that it’s a profitable well.

That not all the wells drilled are producing isn’t a death blow to Phoenix Global, even as it is a disappointment. This stage of exploration is about finding where a well drilled will produce. Once that’s worked out then drill more in that place. Fracking is about layers of geology, not finding the one specific reservoir after all.

The next interesting information release is likely to be at the end of this month, March, when evaluations of the fade rate at that producing well might be known. That’s likely the next news that will move Phoenix shares.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .