Allied Energy (OTC US: AGYP) is in an interesting position right now.
The company is making strong strides toward a new way of potentially rapidly expanding production at a time when the broad supply/demand picture for oil is skewed in the company’s favor as investments in rekindling existing production and developing new production have been markedly constrained by investor concerns related to the pandemic and its scars over the past year.
During such a period, this company has been hard at work in picking up exposure that could work as a sweet-spot strategy.
Broadly speaking, AGYP specializes in the business of reworking and re-completing existing oil and gas wells located in the thousands of mature oil and gas producing fields across the United States, with the objective of mobilizing its expertise and technology to drive higher production volumes, longer well life, and more efficient recovery of proven and available oil and gas reserves in acquired wells.
In the first case, OTCshortreport.com shows AGYP shares to be overwhelmingly popular among active bears, with nearly 5 million shares of short-side transactions over the past few days making up almost 55% of all transactions in the stock over that period.
For a typical stock, that percentage is generally much closer to 5-10%. Overall, the percentage of short to long transactions is generally under 10% across the market as equities are asymmetric as an asset class (unlike commodities or currency pairs).
The fact that AGYP has been so heavily shorted is not immaterial to analyzing the future potential path for the stock because it implies an increased potential for a short squeeze dynamic to take place on further strength.
Short squeezes take place simply because the upside for any stock is “infinity”, at least in theory, so risk is unlimited for shorts. At the same time, it is defined and limited by a move to zero (except in commodities, as longs found out in crude oil last year) for longs. In other words, the lowest a stock can go is zero, but the highest it can go is infinity.
That dynamic is sharply exacerbated when a stock is “crowded” by simultaneous bets from different market participants all looking to profit from a move lower. That crowded dynamic introduces the potential for competitive bidding if it that bear trade starts to go wrong.
Imagine the last “Tickle Me Elmo” on Christmas Eve 25 years ago or toilet paper during the early months of the pandemic if regulators were not part of the picture.
Shares of a stock that are crowded on the short side with a multitude of different shorts sitting encamped and possibly leveraged up that start to rally can and frequently do set off a panic to buy to reduce exposure to potentially unlimited losses.
This is especially true at a time when faith has been weakened that there is a relationship between the price of a share of stock and the fundamentals of a company, such as we have seen with GameStop Corp (NYSE: GME), AMC Entertainment Holdings Inc (NYSE: AMC), and Fubotv Inc (NYSE: FUBO) earlier this year.
That backdrop highlights the importance of what Allied Energy (OTC US: AGYP) has been doing.
AGYP recently put out a comprehensive corporate update that explains its overall strategy, and that’s worth checking out. The strategy appears to be centered on diversification and selectivity in target wells.
The company recently announced that it has submitted and posted its bond for the P-4 and P-5 applications to the Texas Railroad Commission.
Allied is waiting on the Texas Railroad Commission to accept their bond and active the P5 operating permit.
According to the company’s release, Allied has secured Oil Cat Energy Services for the filing of the necessary Underground Injection Permit for saltwater injection for the Green lease.
Allied will reportedly use Oil Cat Energy Services as the go-to solution for surveying the plat for the precise injection well location, for securing the drilling permit for the injection well, for engineering services and consulting, and for workover engineering for new production well set-ups for increased fluid production rates.
Allied Energy Corporation CEO, George Montieth added: “We are extremely excited about our recent acquisition of the Palo Pinto wells and have a high confidence that these wells will become part of Allied Energy Corporation’s oil production numbers. These formerly producing wells are perfect candidates for modern reworking and recompleting technology that will give these old wells new life. In many cases, the most productive days are still ahead for some of these wells!”
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