Hi Lou,

What do you think about PDP, the price dramatically plunged to $0.9 from $21 within two years, please advise.

Thanks, Hassan.

Hi Hassan,

Petrolifera Petroleum Ltd. (PDP-T0.90-0.02-2.17%) had a great ride on its successes in Argentina but the bloom has come off that rose and there is a valuable lesson to be learned in examining the case.

The first lesson is that you don’t have to ride the stock right to the ground. When the airplane has lost its lift and is in free fall, it is your obligation to put on that parachute and jump off!

The three year chart says it all. There were so many opportunities to preserve capital and look for better opportunities.

The fundamental problem with PDP has been falling production in Argentina where the company has all their reserves and from which they generate all of their cash flow. Falling volume and prices for the commodity will usually lead to a falling stock price.

The sell off in July of 2009 was triggered on the announcement that the La Pinta #1 well in Columbia was being suspended because of problems with the casing. Columbia is where PDP anticipates results from high impact drilling on prime targets. As an aside please don’t translate high impact as low risk.

The three month chart shows the current state of affairs at PDP. The RSI signaled an oversold situation mid August to mid September which led to a lift that met resistance on the 50 day moving average.

The company reported Q3 results on November 06, 2009 which showed revenue down 46% and production down 44%.

PDP has been able to raise $58.5M to advance their opportunities primarily in Columbia.

Petrolifera is now an all or nothing play on exploration. If they can drive production on discoveries in Columbia and Peru while shoring up their production decline in Argentina you could see an upside. But there are a lot of ifs that need to break the right way to generate a profit on the trade.

Happy Capitalism!

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Best Wishes; Scott