FEC Resources Inc. (OTC: FECOF) is an oil and gas exploration company that operates in the Philippines and is owned by PXP Energy. As a subsidiary of PXP, FECOF owns a stake in Forum Energy. Through this, the company owns an interest in SC-72 in the Philippines which has massive gas reserves. Recently, FECOF has risen 63% despite an announcement of a Force Majeure event which has apparently halted its planned operations. This unexplained increase could be a sign that FECOF is one of the energy penny stocks to watch for news of a possible resolution to this disruption.
FECOF Stock News
The energy industry has been thriving lately following Russia’s invasion of Ukraine. The escalating conflict has limited the worldwide oil supply leading to oil reaching its highest since 2008. Considering the uncertainty the market is currently witnessing, many oil companies including FECOF are in a prime position to capitalize on the ongoing situation.
As a subsidiary of PXP, FECOF’s primary asset is a 6.8% stake in another PXP subsidiary Forum Energy Plc. (FEL) – an upstream oil and gas company which has interests in eleven oil and gas blocks in the Philippines. PXP appears to own a 67.19% controlling interest in Forum Energy Plc. of which 18.43% is held indirectly through FEC Resources, Inc. While FECOF values its investment in FEL at almost $2 million, many believe that it could be undervalued given the projects it is working on.
It is worth noting that 20% of FEL is owned by ATOK Big Wedge – a reputable mining company with a focus on oil and gas exploration. ATOK values its holding at $2.5 billion which could be significant for FECOF since it owns a roughly 7% share.
What makes its stake potentially valuable, is FEL’s 70% interest in service contract 72 – located near Palawan island with a massive area of over 10,000 square kilometers. SC-72 contains the Sampaguita gas discovery which has expected gas of 3.4 trillion cubic feet with a potential to reach 20 trillion cubic feet. Some investors are speculating that FEL’s interest in SC-72 could be worth about $17.5 billion. As a result, FECOF could have over $1 billion worth of oil and gas on hand given its stake in FEL.
Recently, FEL’s operation plans for 2022 have been approved by the Philippine Government – including the drilling of two wells in SC-72 and it was approved to conduct a 3D seismic survey in SC-74. This could be huge for FEL since the Malampaya field is expected to dry up by mid 2020s and the Philippines could be searching for a new supply of natural gas. Given the mounting interest in FECOF and its sudden 340% spike – FECOF could be one of the energy penny stocks to watch this week.
As is, the company has a market cap of $12.9 million and a float of 186 million shares although this number could be outdated. Due to FECOF’s unique situation, the FEL financial statement package for 2021 is not expected to be available until Q3 of 2022.
*Updated April 6th
Delivering on its plans to drill two wells in SC-72, FEL submitted an additional funding request to its large shareholders including FECOF to continue its preparations for the drilling of these wells by June. In light of this, FECOF has to provide EFL with $198 thousand as a non-interest bearing loan. To facilitate this, FECOF will receive loans from PXP with interest at libor in addition to 3.5%.
On that note, the SC-72 is located in the gas-rich Recto Bank in northwest Palawan and holds the Sampaguita gas discovery. Considering SC-72’s proximity to the Malampaya project, there are ongoing plans to connect it to Malampaya when it develops into an oil field. Given that SC-72 is estimated to have 17 trillion cubic feet of natural gas, it could be more profitable than Malampaya which has only 2.9 trillion cubic feet of natural gas. In light of this, FECOF has the potential to generate millions in revenues if these estimates are correct.
Considering the rising demand for gas, FECOF is in a prime position to capitalize on this demand given the gas reserves it owns in SC-72 from its stake in FEL. With drilling set to commence in June, FECOF could be on track to report significant revenues in 2022 if drilling in SC-72 is successful.
Recently, FECOF filed a Form 3 with the SEC to add John Arnhold to its majority shareholders. A savvy businessman, Arnhold has experience running First Eagle Investments which has over $110 billion in assets under management. With this in mind, many investors are bullish on Arnhold’s presence in FECOF as an insider due to his extensive experience. Given his history of managing hedge funds, FECOF could be set for major growth due to Arnhold’s investment.
As is, FECOF reports a 186 million float but many investors are bullish on the stock after the company declared that over 95% of the company’s OS is directly held by insiders. As a result, investors believe that FECOF’s current float could be significantly lower than the disclosed number. With drilling meetings set to begin in April, FECOF could be one of the best energy penny stocks to watch for developments this year.
*Updated April 22nd
In an unusual turn of events, FECOF informed shareholders and the Philippine stock exchange that as the operator under Service Contract No. 72, it received a directive from the Department of Energy on April 6th to “put all on hold all exploration activities for SC 75 and SC 72 until such time that the [Security, Justice and Peace Coordinating Cluster (“SJPCC”)] has issued the necessary clearance to proceed.”
As this was the first time FECOF had been made aware of these specific requirements, FECOF was forced to declare a Force Majeure and terminated all the supply and services agreements it had put in place to carry out its work obligations under the DOE.
Overall, this appears to be part of a larger geopolitical situation causing Manila to suspend all oil and gas exploration in the South China Sea while it discusses a deal with Beijing for a joint energy project. The disputed areas in the West Philippine Sea caused the state to suspend all activities despite the Philippine energy department arguing that “a geophysical survey is a perfectly legitimate activity in any disputed area”.
The trigger for this disruption potentially was a Chinese coast guard vessel which reportedly shadowed Philippine survey vessels at one of the projects. Due to what appears to be an indefinite suspension of its activities, FECOF appears to be in limbo with regards to SC 75 and SC 72. Yet FECOF stock has risen 63% over the last three trading days.
Media Sentiment
@SC72oilproject points out that the disruption of FECOF’s oil exploration activities illustrates how important this project could be for the Phillipines.
Technical Analysis
After climbing 60% over the last few days, FECOF is currently trading at $.0071. A steep sell off occurred due to the Force Majeure news causing the stock to fall to its support at .0044 while its resistance remains near .0119. Accumulation dropped on the news but is holding at current levels. Meanwhile, the RSI is climbing back from overselling and is currently holding at 48. The MACD is currently bullish.
Given investors’ uncertainty following this announcement, its interesting that FECOF stock is seeing any activity. While this could be a sign of more news to come, the stock is likely a risky investment given the company’s current situation.
FECOF Stock Forecast
Considering the natural gas reserves in SC-72, many investors were bullish on FECOF’s long-term potential. However, the current geopolitical situation between the PRC and the Philippines throws FECOF’s viability into doubt. If the two countries were to come to a resolution then FECOF could be in a prime position to capitalize on SC 75 and SC 72 but until that time FECOF stock presents considerable risk compared to other energy penny stocks.
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