Why Are Shares In President Energy PLC Sinking Today?

Today’s update from President Energy (LSE: PPC) could provide the company and its investors with further encouragement with regard to its future potential, despite shares falling by more than 20% in early trade.

That’s because, having previously announced that a light oil/condensate discovery has been made at its Lapacho well prospect in Chaco Region, Paraguay, President Energy has now drilled the upper section of the Santa Rosa formation and considers it to be a series of gas/condensate sands. While the company has stated that it is too soon to announce that a discovery has been made prior to a full evaluation, evidence points to the potential for this to be the case.

Indeed, today’s update includes information that provides encouragement in this regard, including constant background gas ranging from 3% to over 12% in the circulated drilling mud to surface throughout the drilling of the hole. As a result, drilling will continue to a depth of 4,600 metres (from the current 4,490 metres) in order to fully evaluate the target section.

Share Price Movements

Despite the encouraging update, shares in President Energy have fallen by 19% at the time of writing. A potential reason for this is profit-taking, since shares in the company have risen by a whopping 69% over the last month — a figure that includes a 19% fall today. So, it’s of little surprise for many traders to apparently be selling on the upbeat news flow released, with the potential for a further discovery still being relatively uncertain.

Looking Ahead

Having already made an initial discovery at the Lapacho well in Paraguay (which was the major reason for such strong share price performance over the last month), President Energy seems to be making excellent progress with regard to meeting market expectations of profitability in FY 2016. Certainly, today’s update could mean that it reaches its target a little sooner, but it remains a potential discovery as opposed to an actual discovery, so it could be beneficial to remain pragmatic regarding the company’s future prospects in this space.

Still, with production in Louisiana also making encouraging progress and President Energy engaging in M&A activity through the purchase of the remaining half of its Argentine subsidiary, Puesto Guardian, the company is putting itself in a strong position to meet market expectations. Clearly, further positive news flow from the Lapacho well could send shares higher in the short term, with President Energy’s future being a little brighter thanks to today’s upbeat update.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.