“George Bush’s Secret Retirement Legacy”

Sniffing out Dan Ferris' "King Shale" teaser pick for the 12% Letter

By Travis Johnson, Stock Gumshoe, April 3, 2012

We haven’t covered the 12% Letter in these pages for a few months, if memory serves, so I was pleased to get several questions from readers about their latest teaser for the “secret retirement legacy” that’s apparently been offered up by George Bush (the dumber one, not the older one).

Did I just type that out loud. Geez, sorry. He can call me a dummy too, if he wants — he wouldn’t be the first.

But anyway, Dan Ferris, is teasing us about a special secret from the former President, one that will get you income from a company that he calls “King Shale.” If you don’t know any of the background of this one, Ferris took over the 12% Letter a couple years ago and generally focuses on value investments and, at least in this letter (he also edits the more “aggressive” value-focused letter Extreme Value), on solid dividend growth stocks that can compound your interest and offer an (eventually) high rate of return with relatively conservative “World Dominator” companies.

Not the kind of thing that generally lends itself to sexy teaser stories, but probably the sort of thing most of us should be doing with our money — and in the hands of the right copywriter, with a touch of secret intrigue and a hallucinatory vision of mailboxes filling up with checks, even a stolid dividend growth stock can be enticing.

So what’s he teasing here?

Well, as you can probably guess from the “King Shale” reference, he’s teasing shale gas — which isn’t anything new to the great galloping hordes of Gumshoedom or to anyone else in the United States. The Bush reference is that he simplified matters for shale drillers during his time in office, and helped the industry with some regulations near the end of his term that helped them avoid stringent oversight and pay unusually small royalties for drilling on federal land. I don’t know how much of this is true or important to the argument, but certainly you can make a convincing argument that the Cheney-led White House was as informed on the desires of energy companies as any in history.

Here’s how Ferris describes it in his teaser ad:

“The details of the deal quietly became public when Bush took over for a second term in 2005.

“In short: Bush, Cheney, and their contacts at select energy firms helped craft key legislation to exempt the fracking process from certain rules and regulations.

“For example…

** They made sure these energy firms didn’t have to get certain cumbersome permits for their production facilities from federal authorities.

** They also made sure these firms didn’t have to pay the government to drill gas wells.

** Most importantly, they passed a law exempting important aspects of the shale fracking process from federal oversight.

“In other words, energy firms got a free pass to use this new technology… Without excessive government scrutiny.

“It was a ‘push to make oil-shale research and development as attractive as possible in the face of high costs and uncertain payoffs,’ the L.A. Times later reported.

“Of course, the whole deal was hardly surprising considering energy firms contributed more than $20 million to Republican political campaigns during the 2004 election cycle, according to Opensecrets.org.

“But what’s more… Just days before leaving office, Bush inked a few more deals with energy firms. This time, he set lucrative royalty rates on federally-owned shale fields.

“Essentially, Bush gave these firms the right to keep 95% of whatever money they make from federal shale.

“In other words, the government gets just 5% of production revenue. According to critics, this rate is ‘well below the federal average for oil and gas royalties.'”

So that’s the backdrop, these “secret” deals lead to more profits for shale producers. What does one do with that idea if they want to make money?

Here’s what Ferris says:

“Quite simply, I believe the best way to collect steady income checks right now is to get in on the ‘IBM’ of shale gas. This company could see its profits soar more than others as cheap natural gas replaces other energy sources over the next few decades.

“The interesting thing is: This business offers a unique income program that could pay you 10 to 20 times more income – over the long term – than traditional investments.

“Once you sign up for this program, you could forget about your investment for the next decade.”

And yes, this “IBM of Shale Gas” is also what Ferris refers to as “King Shale.” Here’s how he teases the specific investment:

“‘Today, it’s the undisputed king of undeveloped natural gas,’ says one geologist… Which is why, for the purposes of this presentation, I’m going to call this company ‘King Shale.’

“Because King Shale operates in almost all the richest shale plays in North America… almost no other independent natural gas firm can match its production in terms of volume.

“The company employs what it calls the ‘gas factory’ technique to maximize production.

“Remember the breakthrough technique called horizontal drilling that Bush gave energy firms a free pass to use? Well, King Shale has been using it to drill 8 TIMES as much gas from a single location, compared to traditional drillers.

“And because it operates across so many locations, it has developed economies of scale. In other words, King Shale can drill more locations at lower costs.”

Well, I imagine the “undisputed king of undeveloped natural gas” is a moniker that was applied to the stock by one of Ferris’ colleagues, Stansberry’s geology guy Matt Badiali, who runs a couple newsletters and has focused quite a bit over the years on companies that are “hoarding” natural resources … and the company that’s being teased here is, despite the George Bush teasing, a Canadian firm, Encana (ECA in both NY and Toronto).

And Encana is indeed a big ol’ natural gas company — though like pretty much all the natural gas companies, they are focused on upping their exposure to natural gas liquids (NGLs) and oil as well, given the weak pricing for gas. The company had been built up into a diversified oil and gas exploration and production firm as of several years ago, but split into two companies a few years back when Cenovus was spun off to be their separate oil-focused firm.

And ECA is a good yielder, like many energy stocks but unlike most natural gas producers — and a pretty conservative company as far as I can tell. They definitely have seen a very weak share price in recent years, but it’s been because they’re in a lousy business, not because they’re necessarily doing anything wrong.

Part of Ferris’ argument is that natural gas is getting so cheap that it’s going to reshape the way America does business, much like the cheap oil from Spindletop did as it weaned us off of expensive whale oil 110 years ago and paved the way for automobiles and the American Century. And contrary to the popular understanding that cheap gas is bad for gas companies, Ferris intimates that cheap gas will popularize gas, make it more critical, and lead to massive profits for the gas owners and the best gas developers. Of which Encana is probably one, and it’s the one that I’d probably be most comfortable with when compared to other nat gas majors like Chesapeake (CHK), which tend to play with fire a bit more than the relatively staid ECA.

And the special way that you can participate and get extra-big payouts over the next dozen years? I’d wager that Ferris is simply again teasing the idea of direct investment and dividend reinvestment — every now and then the 12% letter pitches the idea of Dividend ReInvestment Plans (DRIPs) as a special way to bypass Wall Street and let your money build by buying direct from the company. DRIPs that are administered through the company’s own transfer agents (meaning, you buy direct with a separate plan for each stock) are becoming a bit of an anachronism in the days of discount brokerages, free dividend reinvestment by those brokerages, and easy odd-lot trading that make most of the advantages of direct investing disappear, but there is still an argument to be made for buying direct for some folks (especially in those cases, and they’re quite rare, where you get a discount from the company for using their DRIP plan — usually a discount that materializes as reinvesting that dividend at a 5% or similar break to the current share price).

So there you have it — George Bush’s “secret legacy” was a boon to early shale drillers, and the “King Shale” company that Ferris is touting is Encana, and the secret way to boost your income from Encana is to … reinvest those dividends for a decade or more and watch them rise in value, with the compounding and the general tendency of ECA to lift its dividend over time both working in your favor (ECA’s current yield is 4%, so that’s nothing to sneeze at, either, and they haven’t cut it yet even with low gas prices).

Will that work out for you? It’s hard to say — ECA is pretty cheap even for their sector, trading at a reasonable multiple of book value and with a huge footprint that does indeed touch on most of the key shale gas areas in North America, and they are probably in better shape for low gas prices than are the riskier players in the space, and a large enough size that they do have some economies of scale (including that “natural gas factory” strategy that basically tries to bring a manufacturing focus on costs to the drilling and production process) … but you do still probably have to believe that natural gas pricing will become more solid in the years to come if you’re going to argue that ECA will be an outperformer over the next few years. They are, after all, very sensitive to nat gas prices, to the extent that they’ve already said they’ll hold back on some production in an attempt to boost pricing this year. So whaddya think? Ready to pile on for some ECA and make a contrarian bet on nat gas, or do the predictions of gas dropping under $2 and staying there have you scared off? let us know with a comment below.

P.S. If you’re looking for one of those secondary teases he made in that same letter, the “Toronto Income Secret,” that looks like it must be a rehash of a teaser he sent out last year — you can see my original article about that one here (and no, that one has almost nothing to do with natural gas … or oil, for that matter).


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43 Comments on "“George Bush’s Secret Retirement Legacy”"

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Stu
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Stu
April 3, 2012 3:26 pm
As an alternative, hows about T.SPB Superior Propane @ $7.50 up from $6 and change a couple of months ago and with a .60 dividend. They have made a few changes recently to shore up their share price. Open 7.44 Previous Close 7.47 High 7.63 Low 7.43 Bid 7.50 x10 Ask 7.52 x20 Volume 148,777 52-week High 11.85 05/26 52-week Low 5.21 11/30 Beta 1.203 Market Cap 827.68M EPS -2.75 P/E n/a Forward P/E 10.83 PEG n/a Annual Dividend 0.60 Yield 8.00 Encana T.ECA is trading at $19.84 with a div of .79. Open 19.84 Previous Close 19.60 High 19.84… Read more »
Ventureshadow
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Ventureshadow
April 3, 2012 3:26 pm
George Dubya Bush’s legacy is DEBT and a plethora of it. He made the federal government the astronomical BLACK HOLE of DEBT. It sucks in financial value and destroys it in darkness, never to be seen again. It pulls in everything outside itself and compresses it into nothingness. As far as Encana goes, you will have to hold your breath a long time, until nat gas prices rise. They are likely to fall before they rise. Sure, no one knows when they will start to rise, and the rise might be abrupt, but we do know it will not happen… Read more »
JackQuigley
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JackQuigley
April 3, 2012 3:29 pm

Nat gas someday! Probably yes. Not soon enough for current investment, unless your shorting to the “dollar” price point range.

Gaetan Roy
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Gaetan Roy
April 3, 2012 3:48 pm

Anything coming from Bush should be taken with a grain of salt. This guy has literally completed the destruction of the USA started under Reagan. A black hole, that is exact. So, I will pass.

Republican
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Republican
April 3, 2012 4:24 pm

Spoken like a true Democrat. Who is responsible for our current debt fiasco? I guess you are still blaming George “W” Bush.

aoibhneas
Member
0
April 3, 2012 5:15 pm
Indubitably, the evil idiot George Bush is resposnible for all of society’s ills and the tea party SCOTUS dares consider ruling the most wonderful Obamacare unconstitutional, because of evil rethuglican judicial activism. Of course Bwaney Fwank, Chris Dodd and Sen. Urkel Obama tried to rein in Ginny Mae and Freddy Mac by taking large sums in donations from them. The Nancy Pelosi controlled Congress from ’06 on was totally blameless in spending large sums of money. At least now since we have not had any budget since Obama has been in office, we realize that Obama stimulus and kickbacks and… Read more »
Mike
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Mike
April 3, 2012 9:58 pm

Well said ! EOM.

Barbara
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Barbara
April 4, 2012 1:15 am

Kenneth and Mike: You would not know up from down. Debt
is debt. I do care who says I am too stupid to know how to
spend it. The idea of paying more taxes just to give it to an
individual who can’t manage their money is plain WRONG.
China’s GDP has surpassed ours already and that was not
supposed to happen until 2016. We are up to our eyeballs
in debt to the Chinese. Yeah, who is your daddy now!

ed
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ed
April 7, 2012 7:53 pm
What a load-seriously-while Geoge Bush definately did not help matters, Clinton started this by allowing foriegn investors to get involved in the US mortgage business and writing buttlods of home loans that no one else would have touched but had to or go out of business. Next Obama while being a Constitutional lawyer and professor (supposedly) must have missed the part where the government (not a quote for you smart butts out there) shall not be allowed to require its citizens to purchase goods or services. You want the govenment to provide you with condoms, birth control, food, shelter and… Read more »
Besnik
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Besnik
April 13, 2012 10:37 am

Obama took over a ship which was already sinking and is pluging the holes to save it.
IGNORANCE IS BLISS

rondack
Irregular
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rondack
April 3, 2012 4:35 pm

Testing..

sameck
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sameck
April 3, 2012 4:42 pm

Hey Stu,

Take you pump and dump ideas somewhere else. Last year at this time the turkey you just recommended traded for nearly $12. And since Roger Conrad teased this turd in July when still around $11, , Superior Propane has fallen like a dead baby sparrow. And now it’s ‘safe’ to buy when nat gas languishes.
Take your ball and GO AWAY.

RWM
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RWM
April 3, 2012 4:56 pm

Wake up and smell the gas! The problem is our current do-nothing president, not Bush.

B dog
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B dog
April 3, 2012 4:57 pm

Hey don’t stop there blame pres Carter that bumble head!

Joe Kelly
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Joe Kelly
April 3, 2012 5:09 pm

Obama is for the most part, other than Supreme Court nominees, a continuation of Bush. Only with more gusto to actually get Bin laden.

That being said, we’re here to look for ideas. Encana is worth looking into. Thanks Travis. (greedy pinko. Too lazy to sign in)

Mr. T
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Mr. T
April 3, 2012 5:22 pm

I am intrigued that ECA is buying into a LNG export facility. I am not expecting the price of natural gas to go up anytime soon, but ECA is good at hedging and it will be interesting to see what happens when the LNG export market actually makes some headway. I think if you were willing to be patient and collect some dividends this could be a good trade, although I might wait for a pullback in the markets before buying.

Buddy
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0
April 3, 2012 5:49 pm

Seems as if this site has become a refuge for political partisans. Me, I’m nonpartisan. All political types are accompanied by disasters.

That said, we’re not talking politic here. We’re considering an evidently well run business, Encana, which may be in a slow period, but my suspicion is that this NG and LNG are have solid futures with most factors pointing up. Admittedly, 4% dividend is not great, given that inflation is near 10%, but natural gas just may shield an investment from the ravages of zero interest rate caused inflation.

adamnb
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0
adamnb
April 4, 2012 12:48 am

I’m with you. I’ve had my fill of bi-partisan bullshit. As for ECA, they do own 30% of the
proposed Kitmat LNG export facility, now in development near Vancouver, and set to
target Asia. There’s a good possibility that ECA could beat beat Cheniere’s project to the
punch.

David
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David
July 10, 2012 6:39 am
Official inflation is only 2%. Unofficially, it’s more like 5%, not 10%. Let’s not make things worse than they are! 2% compounded annually is still enough to cut your savings in half in just a few years. We’re all adults here. We can remember back to when gas was only $2.00/gal. It wasn’t that long ago. Now it’s $3.50 down for the summer from over $4.00. Gas stations should post a sign under their prices “Your Federal Reserve at Work!”. I agree with you about politics. Both parties were co-opted a long time ago and now it makes no difference… Read more »
Areokat
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Areokat
April 3, 2012 5:53 pm
A Couple of comments about ECA and the natural gas discussion. The EPA was blocked by Bush,from using the “Clean Air and Water” regulations to inhibit “fracking”. EPA, bless their little commie heart just lost a federal court case they tried to bring against an exploration company for water pollution. The flood of shale oil & gas that is now driving the price of natural gas below $2.15. So where is this flood of natural gas going- how about cheaper, cleaner electric generating power plants and the there is the natural gas truck engines that is beginning to replace diesel… Read more »
adamnb
Member
0
adamnb
April 4, 2012 1:06 am

There are no shortages of LNG projects currently serving Asia, with LNG exports coming from Indonesia, Malysia, Australia, and Russia. The same is true in Europe. The US and
Canadian projects could well threaten to transfer their natural gas glut to the rest of
the world.

Twink
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Twink
August 4, 2012 5:53 pm
True, but now with the change in regime such that the EPA has a free hand, we cannot even come up with an agreement with our closest friend and neighbor. However, Canada is going to sell their oil, watch out NG is next with the Vancouver port, to China. So, China buys Canadian oil to fuel their manufacturing of product (that we gave them the technology and manufacturing processes to copy) in an environmentally polluted (so polluted that people wear masks every day to breathe) (which then hits our West coast and we have to clean up to meet our… Read more »
Joe Kelly
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Joe Kelly
April 3, 2012 7:36 pm

I’d be offended at being called an idiot but I voted for jimmy Carter. You’re correct Travis. We all need to look inthe mirror.

Twink
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Twink
August 4, 2012 5:57 pm

Good for you. A lot of people voted for him. He was a disaster which is nothing compared to the current disaster. However, you voted.
We don’t have to agree. We have to talk, discuss and learn from each other and history. Then we have to act. Each of us no matter what can vote. At a minimum, vote. It gives you the right to crab about the person elected for four years whether you voted for them or not.

oracle
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oracle
April 3, 2012 8:30 pm

That was hilarious. I’m still amazed at how many people who claim to be smart still defend Obama’s poor policies.

Herach
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Herach
April 4, 2012 6:13 am
Nat gas is going to suffer low prices for the forseeable future. Nat gas is also the fuel of the future. Money to be made is in the pipelines. The cost of transmitting gas is independant of the price of gas. The volume of production is creating huge demand for transmission and, yes storage, until stoarge becomes available. Meanwhile, the meter keeps ticking. I prefer the MLPs available. I prefer the ETFs such as the biggie, AMLP and the closed end MLP Tortoise, TYG. Big differences in tax reporting of individual and ETF or funded MLP. Again, when will the… Read more »
tcolmer
Irregular
3
April 4, 2012 8:01 am
So, working in the oil industry (refining) for the past 35 years has led me to these conclusions. Natural gas will indeed fuel more vehicles in the US because of price per mile delivered; already existing infrastucture to distribute it, and abundance of it locally. This makes CLNE, or any other company that can get Nat gas pumps added to your local walmart rich. As far as the US exporting it, indeed LNG is planning on building an export facility ( in Lousiana, not Texas), but Kinder Morgan already has one here on the scenic Mississippi Gulf Coast (that is… Read more »
adamnb
Member
0
adamnb
April 4, 2012 11:06 am
I agree but I think nat. gas will dominate other areas too. It will also beat out coal and nuclear in power generating plants. The former CEO of Exelon, the largest US nuclear power company is on record as saying that anyone who wanted to invest in a nuclear plant in this era of low cost gas needs to have his head examined. He also believes that coal fired plants are on their way out in America. Already petrochemical companies are switching over to gas liquids and will become one of the most profitable industries on the back of cheap… Read more »
David
Guest
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David
July 10, 2012 6:49 am

Here in San Diego, Sempra is our electricity provider, and they’re using their Natural Gas to generate. The city busses also run on Natural Gas. (Yeah, no pollution.) It makes sense to buy into the fleet owners (like fedex) that have been and are converting their fleets to Natural Gas.

areokat30
Member
0
areokat30
April 4, 2012 5:57 pm
Thats right, the LNG facility is in Louisiana. Close enough to Texas for those pipeline to get all that Eagle Ford nat gas to the export market at a competitive price. I think I saw that Blackrock put a couple of billion into Cheniere so they must think there is a good possibility of making some money in nat gas. I find it very interesting that the Administration is taking credit for all the increase in oil and gas production when all the new production is coming from Private land – no federal drilling permits have been issued for drilling… Read more »
Stansberry CS
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0
Stansberry CS
April 5, 2012 9:19 am

If you have any questions about Stansberry and Associates, please do not hesitate to call customer service at 1-888-261-2693. We would be happy to assist you. We are open Monday – Friday 9-5 EST.

ed
Guest
0
ed
April 7, 2012 7:56 pm

forgot this one–Obama did not get Osama Cia had him narrowed down to that region for about 2 years, but as usual politics got involved, congratulate the ppl that capped him not the posers

marywilbur
Member
0
marywilbur
April 8, 2012 4:11 pm
Dear Gumshoe, I found you by googling Dan Ferris who I somehow tripped over while researching somestocks in the early hours of the morning. I listened to the whole boring song and dance about how I could make all kinds of money in the oversaturated natural gas market. I listened to his sales pitch for his 12% newsletter, which like the dumb money sucker that I am I subscribed to, and the even more unreal sales pitch for his $1000 newsletter. I admit I was tempted, but reason saved me. I remembered if it sounds too good to be true… Read more »
BLINK
Guest
0
April 9, 2012 10:42 am

How about investing in the companies that are building out the infrastructure. The old picks and shovels, for those going west in search of gold. Would that be companies like Halliburton – HAL ? The stock is about the same place as two years ago $33. Same story with SLB. With BHI down -20%. The only good news is TKPPY.PK up almost 40%. in the same two year period. Please add your input to these ideas.

Bob
Guest
0
Bob
April 9, 2012 4:46 pm
As Timothy Colmerauer says above, “The key is to figure out who can get it to the masses, economically!” America has an energy plan, it just hasn’t told its citizens what it is. The plan is clearly to deliver low priced US and Canadian energy to high priced markets in Asia in exchange for Asian manufactured goods. That will give the US a high-value commodity to trade with Asia, rather than merely buying their products and having them reinvest the proceeds in our bonds. If it works, it could help reverse our enormous trade deficit.  To do that requires… Read more »
BrentOC
Guest
0
BrentOC
May 1, 2012 3:31 pm

The several posts blaming W for today’s economic disaster is a riot. When will these people stop drinking Obama’s Kool Aid?

ddinvest
Member
0
ddinvest
May 2, 2012 3:02 pm

I sign in to figure out the get rich fairy tale, and I get a dose of hostility toward George the Younger. I must be in the twlight zone. Encana is a good investment…but not right now. In fact, not much is. As the market goes towardd 14000, I will wait till The Bernake person sops making the ocrappo person a multi-millionaire. When he does crash the market, I want cash in hand.

A. Barbuto
Guest
0
A. Barbuto
June 26, 2012 3:55 pm
I would like to torpedo all of these imbecilic energy plans:…..Hydrogen, Ethanol from corn, fusion….and see more projects that make Natural Gas, and Solar available to industry and the public. Nuclear is dead…….per Chernobyl, 3-Mile Island and now Japan…. Hydrogen will never be realized…….it blows up ( The Hindenberg in the 1930s killed the Airship as transportation) and Liquid Hydrogen will never work,.. cryogenics boils off, I know I have worked with Liquid Nitrogen and the coldest substance there is,.. Liquid Helium. Ethanol from corn………………is political pork barrel to the corn growers…. The infra structure is for liquid fuel for… Read more »
Maria
Guest
0
Maria
June 26, 2012 9:24 pm

Fracking will not continue to use millions of gallons of water. Already there is development by Gasfrac Energy Services to “cleanfrac” with a petroleum product that leaves virtually no unusable waste. Check it out.

aoibhneas
Member
0
June 26, 2012 10:18 pm

Problem is GSFVF is a falling knife right now and who knows where the bottom is? A shorter over on yahoo message board enumerated the numerous problems the company faces. Dwight Loree cashed out and left the new management in quite the hole.

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