The Oil & Gas Losers That Keep Sinking… Is There Any Hope for Them?

Oil prices keep going up, as do corporate profits throughout most of the oil and gas industry. Let's see why these three oil and gas companies may not benefit from it.

Bonanza Oil & Gas, Inc. (OTCBB: BGOI)

Previously known as National Filing Agents, Inc., the company acquired a 100% interest in a privately-held limited liability company, which in turn, was formed to acquire a partial ownership interest (22.5%) in 8 inactive wells located in Gonzales County Texas. The company changed its name to Bonanza Oil & Gas, Inc. on January 10, 2008, presumably because they expect a bonanza to suddenly gush forth from these inactive wells. Bonanza engages in the production and development of oil and gas properties in the United States; however according to their recent 1O-KSB filing, they do not currently have any oil and gas operations. The company's principal assets consist of oil and gas leases, proved and unproved oil and gas properties and oil and gas production-related equipment, all of which was valued at approximately $1.7 million, net of accumulated depletion, depreciation and amortization, as of December 31, 2007.

With a negative net working capital of approximately $100,000, the company has very limited liquidity with which to develop these properties, and absent an influx of significant debt or equity capital to fund operations, it is our opinion that the likelihood of shareholders receiving a bonanza from Bonanza is highly doubtful.

The company has recently implemented a forward 2.1 for 1 stock split with the result that total outstanding shares of the company were approximately 26 million as of December 31, 2007.

The company's stock has plummeted recently ($0.30 at close on May 7, 2008) after moving sideways for some time. The market cap of OTCBB: BGOI is approximately $7.8 million for a company that admits that it needs to raise $10 million in capital in order to continue operations. The company received a "going concern" opinion from its auditors for 2007, and has not yet announced any news concerning ongoing business. Since they are virtually out of money, we will probably see the stock hitting new lows in the near future. Investors might be better off watching re-runs of Bonanza on television instead of investing in Bonanza Oil & Gas, Inc.

United Fuel & Energy Corporation (OTCBB: UFEN)

United Fuel & Energy Corporation, a distributor of fuel and lubricant products in the United States, appears to have good potential for growth. The company's revenue has been steadily increasing with a significant 137% increase in quarterly revenue to $186 million in the fourth quarter of 2007 as compared to the fourth quarter of 2006. What keeps the company from profitability however, is their low profit margins and huge Operating and G&A expenses, which have increased each quarter.

The company's share price has been headed down for the last half a year and currently hovers slightly above $1.00, just above its 52 week low of $0.81. Although the downtrend appears to have stopped for the time being there are currently no indications that the stock will go up. Another problem is the stock's volatility relating to the poor trading volume.

On April 18, 2008, the company announced that they entered into an unsecured promissory note agreement with the Greinke Personal Living Trust, Frank P. Greinke, Trustee, and Chairman of the Board of OTCBB: UFEN. This will enable United Fuel to borrow up to $5,000,000 from the Trust from time to time for short term working capital needs. This might keep them going for awhile; however the company needs to gain better control of their Operating and G&A expenses and keep them in line with revenue growth, if they want to return to profitability. United Fuel might be on the right track though, as on March 30, 2008, they appointed a new COO and Vice President - Joseph Juliano; time will tell if he can make a difference.

Osage Exploration and Development, Inc. (OTCBB: OEDV)

Osage Exploration and Development, Inc. is a company whose stock price has been slowly declining since mid-2007, and at $0.45 (May 7, 2008) is way off of its 52 week high of $2.55. Osage is a natural gas and oil production company, but unlike Bonanza, it has proved reserves and existing production, albeit small. Historically, it has operated only in the USA but with some recent initiatives in South America, as well as the USA, it seems to be trying to reverse the situation with its stock price.

As reported in their recent Form 10-KSB filing with the SEC, Osage entered into a letter of intent in February 2008 to acquire a minority position in certain producing oil and gas assets in Colombia, South America. In April 2008, the company announced several new developments with respect to exploration and development in Colombia. And in 2007, the company completed joint ventures with Gold Oil, plc (GOO:LSE), and Pacific Rubiales Energy (PEG:TSE). If these initiatives turn out to be successful, the company just might be able to gain momentum with increased revenues, because at present, its USA operations, while profitable, do not generate sufficient cash flow to completely fund their overhead.

On February 27, 2008 the company was approved for the trading on the OTCBB, which gives them higher credibility and greater exposure.

According to their latest SEC filing the company had $1.6 million in net working capital, which appears to be adequate to sustain operations for 2008. The company should be given credit for their efforts to change the business. This might be the only one of the three companies covered in this article that has the potential for share price appreciation down the road.