Far East Energy Corp (OTCMKTS:FEEC) Starts the Week Strong
A lot has been going on around Far East Energy Corp (OTCMKTS:FEEC) over the last couple of months. At the end of October they updated their shareholders on the production at their properties in China and a couple of weeks later, they issued another press release in which they said that everything is going according to plan. Then, on December 12, they reported some increased production at their wells and said that the exploration period has been extended until 2016 while yesterday, FEEC announced that they will sell the gas at a much higher price in 2014. It’s clear that investors were happy with the news. After six and a half hours of trading, FEEC was standing around 9% above Friday’s close while the dollar volume for the day stands in at nearly $400 thousand.
As you might have guessed by now, when compared to a large portion of the mineral exploration penny stocks (Tiger Oil and Energy, Inc. (OTCMKTS:TGRO) is a prime example), FEEC seems like a much more solid venture. Their latest 10-Q isn’t perfect but it does show some strengths and with the increased revenues coming from the higher gas prices, it should look even better in the future. Here’s FEEC‘s financial situation as of September 30:
- cash: $26 million
- current assets: $29 million
- current liabilities: $60 million
- quarterly revenue: $400 thousand
- quarterly net loss: $8.4 million
Some of you will probably point at the revenues section which reveals that there has been a year-over-year decrease in sales of around 20%, but when you take a closer look at the 10-Q, you’ll see that this is due to some factors that are beyond the company’s control. What’s more, sales volume has increased by a staggering 48% when compared to the second quarter of 2013. This means that revenue generation isn’t really that much of a problem.
The biggest problem is, in fact, the losses. You can see that, at $400 thousand, the quarterly revenues don’t look so bad for a mineral exploration penny stock. Even so, the operating expenses for the same period amount to a mind-boggling $5.5 million. A positive bottom line is still a mirage and we can’t even be sure if the higher gas prices will help them achieve it. If they don’t, the stock performance which, as you can see from the chart at the beginning of the article is shaky at best, could be adversely affected.
The continuous losses is definitely the biggest problem, but it’s not the only one you need to consider while making your decision. In order to fund their operations, FEEC needed to borrow quite a lot of money. They established a financing facility back in January 2013 according to which they gave some institutional investors around 56 million warrants, exercisable at a price of $0.085 per warrant.
If the aforementioned investors decide to turn the warrants into common stock, this could cause some significant dilution which will put additional pressure on the price. At FEEC‘s current levels, the profit opportunity is also significant.
We’ve seen some coverage from the promoters as well. Back in May, Best Damn Penny Picks, for example, started talking about FEEC and even now, seven months later, the ticker is still quoted as their “latest pick“. Future pressure from the pumpers could also affect the erratic chart movement which is why, considering all the risks carefully is absolutely crucial despite the fact that FEEC looks like a relatively solid enterprise.
