Pacific Rubiales, Colombia’s biggest private-sector oil company, reported its earnings for the quarter last week. They were pretty “meh.” Sales rose to a record, but the company reported a net loss, mainly on some wrong-way bets on oil prices. The company said it had gotten up to 225,000 barrels a day of operated production, in May. They left out the part about how that was the goal for Dec. 31 — a goal they still stood by as late as November. Basically, it’s an oil company, it’s producing oil, but nothing to cause the stock to recover to the frenzied highs of a few months ago. Well heck, don’t take my word for it, look at how the market responded:
Now with full respect, I don’t mean to pick on PRE.to. They faced up to their bad news this quarter much better than the prior quarter. I have some quibbles with them — like that they continue to lie in their corporate presentation, saying that they “produced over 25% of oil in Colombia in 2010,” when they actually produced something like 16.5% (by my math, 129,289 barrels a day of oil output, in a country that produced 785,401 barrels a day on the year).
But it’s nothing like the stuff I wrote a few months ago. The point here isn’t to once again look at the company, but rather to look for a second at El Tiempo, the biggest newspaper in Colombia.
On Saturday, El Tiempo redefined “puff piece” with this truly crappy bit of reporting (my translation).
Good “climate” for Pacific Rubiales Energy shares
Despite the volatility in the oil market in recent months, specialized international anaysts took in the first quarter 2011 financial and operational results of Pacific Rubiales Energy in a positive manner.
Through various reports, they released concepts of growth and solidity of the company, despite factors like the [heavy rains].
Mackie Reseca, of Capital Corporation, foresees that Pacific Rubiales Energy will continue to benefit from one of the highest oil prices, and hopes that between 2011 and 2012, the budget can be financed entirely by cash flow.
Another report, this one from Frederick Kozakc of Canaccord, even recommends buying the shares…
To this international chorus is added: David Beddies and Will Hares of Cormark Securities Inc., who also recomend buying shares…
On the other side, stock analyst Rafi Khouri, a specialist in oil and gas, goes beyond and puts out a recommendation to buy agressively the securities of Pacific Rubiales Energy. Moreover, he indicates that the company will have an advantageous second quarter, given that it’s expected to have a production greater than the first quarter average, a situation that demonstrates the ability of the company to grow…
Finally, Fraser Mackenzie of Equity Research affirmed that the company maintained a good level despite external factors that affected sales and cash flow…
So, where do you start. Is it cheap to point out that this “Mackie Reseca” person is actually a company called “Mackie Research,” Frederick Kozakc is actually Kozak, David Beddies should be Beddis, and this “Fraser Mackenzie” guy is actually a company, Fraser Mackenzie Equity Research? Yes, it’s cheap, but this is some impressive typo-ing. Four of the six analysts’ names in the story are either spelled wrong or aren’t even humans, but mis-edited company names. Just to remind you here, this isn’t some small-fry paper, this is Colombia’s most influential daily. The article was also posted to Portafolio.co, the country’s most important business news website, and there’s a link to it on the website of El Mercurio, the major Chilean newspaper.
But getting to the meat of it, this article indicates that all international analysts are saying buy-buy-buy to this stock. It’s true that no major analysts have “sell” recommendations against Pacific Rubiales, but it’s also true that a third of them have “hold,” according to Thomson/First Call figures available from that expensive, hard-to-find data source, Yahoo Finance. And in the grade inflation world of stock analysis, Hold is often the lowest ranking you can get without being truly dreadful. So, while analysts are positive, it’s just not the case that they are uniquely rah-rah for Pacific Rubiales.
This article is so bad that I think it should be considered journalistic malpractice. Anyone taking this article seriously is risking his or her wallet. And go figure — yesterday, with the Bogota exchange open and the more active Toronto exchange closed (for
the first real shorts weather in 8 months Victoria Day), Pacific Rubiales shares rose for the first trading session in four. Of course one can’t attribute this 0.4% rise to the article, but you do have to wonder if this hype affected people’s purchases. I mean, is it too much to expect a newspaper to report the news, rather than trying to sell readers shares of one particular oil company? And unfortunately, this is pretty typical of the Colombian press reporting on the country’s oil boom.
This is dangerous, and not just for the individual investors. At some point, a lot of middle-class Colombians are going to be left holding bags full of oil company stocks that have declined in value, because that’s one of the things stocks do. They go up and they go down. We’ll see how people react. They may blame themselves and take it in stride like good Junior Capitalists. Or they may react as they did the last time that an overhyped investment with no risk warnings turned out badly. Now, this isn’t an exact comparison, because the last one was almost entirely a scam, while oil companies at least have a possibility of success — and some, like Pacific Rubiales, are really pumping oil and everything. I am comparing the hype, not the companies, understand?
But to get to the point, here is what they did when the investment pools in southern Colombia went sour. They freaked out. As the BBC said at the time:
Thousands of Colombians have taken part in violent protests in several cities to demand the return of money invested in disreputable financial schemes.
Police used batons and tear gas to control angry investors and curfews were declared in several cities.
In Popayan in the south-western department of Cauca, 2,000 depositors stormed an investment firm’s offices.
In Pereira, in Risaralda, police caught two men hurrying out the back door of a scheme’s office with suitcases of cash.
They offered one of the cases to the police to let them go.
The BBC’s Jeremy McDermott in Medellin says they are now in custody and that is the safest place for them, as conned investors have threatened to lynch them.