Strata Oil & Gas Inc. (OTC:SOIGF) added over 40% on Tuesday after the company released a resource reclassification report on the Cadotte Project in the Peace River Oil Sands area.The stock price exploded up on a more than sixfold volume in reaction to the news.
The property was announced to hold carbonate pilot, which was unavailable in previous studies. This allowed to classify the resource estimates for the area as “Contingent”.
Although it’s a step forward, the business still needs additional funds to start any operations. The exploration stage company doesn’t look very promising:[BANNER]
- Lacking cash to cover expenses even for one quarter
- No recorded revenues up to date
- Business relying on borrowed capital
- Outstanding convertibles posing threat of 23% dilution to shareholders
The stock price is inflated at the moment – only less than half of the $20 million market cap can be justified through assets retained by the company. This is an issue, because the business currently doesn’t pertain a proven method of increasing the value for shareholders.
The share price was on a strong downtrend for most of 2010, thus major correction to the current rally can be expected. The appreciation will meet strong resistance at around 35 cents. If that level is passed, it could rise up to 50 cents, but this doesn’t protect it from rapidly falling back down.
