With the 15th consecutive quarter without generating any revenues just gone by, Hyperdynamics
Net losses for the third quarter stood at $4.4 million, compared to a loss of $2.8 million for last year's third quarter. The reason, as stated in the company's quarterly filing, is that the estimated costs for drilling its first well off the shores of Guinea have been higher than what management had initially expected.
Hyperdynamics is currently involved in a two-well exploration program off the western coast of Guinea. What caught my attention was one of the reasons stated in the filing: "logistical delays resulting from limited port facilities in Guinea." Oh, really? What were they expecting there?
As a result, the drilling of the second well is now under review. With no operating cash flows at hand, management now requires substantial funds to keep the entire project afloat. That's definitely a cause of concern. The company raised $136 million in March and things had looked pretty in terms of liquidity. But now, things look dicey once again. The third quarter saw a $40 million decline in cash and cash equivalents, with a balance now of just over $39 million.
It's imperative that the fourth quarter witness some actual production, but that doesn't look too likely. Simply beefing up the balance sheet with cash from stock offerings won't help keep investor confidence up forever. It's not too surprising that the stock crashed 24% yesterday following the latest quarterly filing.
On the operations front, things were seemingly picking up, with oil-field services provider CGG Veritas
Management needs to be held responsible for some lousy decisions. Given the tight situation, it's downright laughable when insiders exercise their stock options before the company even generates a dollar in terms of revenues. The decision to exercise half a million dollars of stock options at this juncture, led by CEO Ray Leonard, looks ridiculous. So much for performance-based stock compensations.
The African discovery
Africa has, in general, been well-explored for oil and natural gas. Upstream giants led by Royal Dutch Shell
Back in February, I spoke about how the political situation in Guinea isn't something to be taken lightly. Things haven't been looking great since, despite the country's having its first-ever elected government since last year. The unpredictable situation prompted the U.S. to issue a travel warning against Guinea last week. This is again where things look dicey.
Foolish bottom line
This stock is for speculators. Period. It is definitely not for Fools who value fundamentally sound business models and sound investing principles.