Borislav Tonev

GulfSlope Energy Inc (OTCMKTS:GSPE) Finds Bottom at $0.20

by Borislav Tonev August 12, 2014

On April 24, just three and a half months ago, GulfSlope Energy Inc (OTCMKTS:GSPE, GSPE message board)'s stock hit a 52-week high of $4.95 per share. By July 11, it had dropped down to $0.50 and yesterday, it hit a low of $0.19 per share. Hardly the most impressive performance, but should investors be too terrified by it?

As far as press releases are concerned, the company appears to be moving forward. In June, GSPE announced that it has been awarded twenty-one offshore lease blocks by the Bureau of Ocean Energy Management. This means that the company is currently in control of nearly 90 thousand acres which cover 17 prospects in the Gulf of Mexico. John Seitz, GSPE's CEO, announced that he is happy with the portfolio and said that he expects drilling to commence in 2015.

More recently, GSPE hired John Malanga as their new CFO. He took over the duties related to sorting out the company's financials from Mr. Seitz and his resume suggests that he has plenty of experience. Some investors even speculate that Mr. Malanga's appointment could bring GSPE's stock closer to one of the national exchanges.

It's not just the press releases that are impressive. While GSPE's latest 10-Q is far from perfect, the company does appear to have quite a lot of cash on hand which is not something you see every day, especially when you are looking through the filings of oil and gas penny stocks. Couple this with the fact that some of the officers recently bought shares on the open market and you'll see that there should be no shortage of people who are optimistic about the company's future. And that brings us onto an interesting question: “Why is the stock sinking like a stone?”.

We're pretty sure that dilution has played its part. In October 2013, GSPE completed a private placement during which the company sold more than 68 million shares for total proceeds of $8.2 million ($0.12 per share). Despite the horrific drop from the last few months, the people who took part in the placement can still make some money in case they decide to part with their holdings and, thanks to a Registration Statement filed on May 12, they are free to do so.

If you rewind the tape further back and scroll down to Page 10 of the latest 10-Q, you'll see that some more discounted stock saw the light of day in 2013. Note 5 – Common Stock/Paid in Capital, tells us that during February and March 2013, GSPE issued 47 million shares for cash proceeds of $470 thousand ($0.01 per share). Countless more shares were issued for all sorts of reasons and none of them were valued above $0.12 a piece.

If GSPE's stock printing continues, the ticker will be put under enormous pressure and the management team might have their work cut out for them convincing investors that the business operations can offset the dilutive activities. This, we reckon, is a good enough reason to weigh all the risks and perform a lot of due diligence before putting any money on the line.

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