This teaser came in a couple weeks ago, and a few readers have sent in suggestions about the possible solutions, so I thought a lovely Spring weekend here in Washington, D.C. would be the perfect time to take a gander at Andrew Mickey’s teaser … and lordy me, it’s a long one. At least three companies teased, all weaved into a web of fear and greed. I had to read three pages before I even found out which newsletter it was for.
And this is a lengthy one, indeed, so I think I’ll be spreading it out across a couple missives to you, dear readers.
But probably most of are are primarily interested in the number one pick here, anyway … so let’s take a gander at that one first.
This first one follows a lengthy build up about Gazprom … we hear about how Putin is using Gazprom’s massive gas reserves to bully Europe, and especially to force Ukraine to knuckle under. We hear that Gazprom is now essentially using an anti-U.S. message in trying to expand their reserves in Africa.
And that leads us to … something that has precious little to do with Russia at all. Mickey talks about a secret little island in the Pacific that’s beyond Putin’s reach — an island that holds massive reserves of natural gas that, until recently, were thought to be too virtually useless.
So the argument is a bit thin (Putin’s command of natural gas threatens the U.S., because the U.S. depends on natural gas for electricity, and therefore this company’s reserves should be worth as much as reserves in the U.S.), but, nonetheless, it’s worth a look.
The specific clues?
Well, we know it’s on a Pacific island, and it’s an island that’s already seeing big investments by CNOOC, ExxonMobil, and InterOil to build LNG plants that will make it possible to transport the stuff to end markets, particularly in China, Korea and Japan, all big LNG customers.
And he says it’s a 40 cent stock, with a market cap of around $50 million … and that they recently bought 8.4 million acres of land on this island for gas exploration.
Well, if this sounds familiar … that’s because Andrew’s in some ways piggybacking on the research of his colleague Ian Cooper (colleague in the broad sense, I don’t know if they know one another) — Ian was the one who teased us with the story of InterOil, which is a much larger company working on this same island.
And that island, of course, is Papua New Guinea. It is indeed in the Pacific Ocean, and it’s certainly not in Russia.
Which brings us to the company, which the Thinkolator tells us, with great certainty and conviction, is …
Invicta Oil & Gas (IGG in Toronto, INOGF on the pink sheets)
Oh, wait … I mean, it’s LNG Energy, Ltd.
Sorry, they just changed the name of the company about three weeks ago — you’ll probably see it listed under both names if you decide to do some research.
And, super bonus for you, the shares are no longer at 40 cents … they’re down quite a bit, to about 30 cents now.
Did I mention how handy it is that my beloved Greenback is now at rough parity with the Loonie? I may be losing money, but I don’t have to do currency conversions … yippee!
The shares hit their high of around 80 cents last Summer, after they announced their plan to acquire that acreage in Papua New Guinea, and it’s been basically straight down every since … it looks like they were only at about 40 cents for long enough for Andrew Mickey to get his quote, so apparently his recommendation has yet to move this one.
So what do we think about this one? Well, if you believe that the market for liquefied natural gas (LNG) will remain strong, or grow much stronger over the next few years, it’s possible that you’ll find an intriguing lottery ticket here. Mickey claims that similar acreage would be valued at $300 million in natural gas basins in the U.S., and he says that the fact that it’s only valued at $50 million or so means it’s trading at a huge discount. It should be pretty clear that this is a bit of a stretch — natural gas that’s a cheap pipeline ride away from the end user will always be worth much more than natural gas that is years from being drilled, and that will have to be turned into a supercooled liquid and then shipped via tanker to the end user.
That’s not to say that this company’s acreage isn’t worth more than the shares are trading for now — that’s possible, and I haven’ dug nearly deep enough to tell you one way or the other. But I’m sure they’re not worth more than a similar company in the U.S.
LNG is certainly getting the attention of many investors these days (we even looked at a much larger LNG-focused company just last week), and there are examples that Papua New Guinea might be able to follow of little island nations that have turned LNG into their lifeblood (particularly Trinidad and Tobago in the southern Caribbean), but the vast majority of natural gas is still transported via pipeline and consumed on the same continent as the wellhead. I’m inclined to believe that LNG will become a more and more important part of the natural gas market, and that it will, over time, help to smooth the differential between nat gas and oil by developing an international spot market for natural gas … but it’s probably going to take a while. I have no idea whether this particular exploration company will find the amount of gas they hope, whether they’ll be able to extract it profitably, or whether their partnerships with InterOil and the larger firms will work out and get the needed LNG infrastructure built and working in a reasonable time frame.
I know there are many of you out in GumshoeLand who love the cheap little exploration and production stocks … so if this is up your alley, let us know.
And I’ll get to the rest of these “Putin/Russia” plays next time — I’ve got most of the solutions, just have to do some thinkifyin’ …