“$51 Billion Worth of Soviet Oil” Revisited

About that Mongolian Oil tease ...

By Travis Johnson, Stock Gumshoe, April 6, 2011

One of the all-time best-performing ideas in the history of stock teasers, right up there with NetFlix and Skyworth Digital, came to us from Christian DeHaemer as the first salvo in the enthusiastic battle of Mongolia’s resources. I first wrote about this pick of his back in February of 2010, when it was one of several Mongolian ideas he was pitching for his new Crisis & Opportunity newsletter, and it has since gone up by about 700% or so — impressive, even if the other Mongolian picks he chose at the time were far more pedestrian (one is up a few percent, one up more like 35% last time I checked).

And this stock, an oil company drilling on a few exploration blocks in Mongolia and with eager customers to the South (yes, that would be China) is still being actively teased — and still with more or less the same message, so I thought I should take a little look-see once more. I’ve looked at Petro Matad and the other Mongolian stocks from time to time, and the Irregulars can tell you that I’ve been tempted more than once — but haven’t bought. Which has been, so far, a mistake, at least with this pick.

The oil company is Petro Matad (MATD in London, PRTDF on the pink sheets), and the gains of 700-800% or so to this point have certainly been impressive (it was around 20-30 pence when I first heard of them, it’s now at about 180 pence) — but the folks at Angel Publishing are convinced that this is just the beginning. Here’s a taste of what they’re saying about this stock now:

“For most analysts, it would be truly absurd to think they could uncover an opportunity that could legitimately pay you 180 times your money…

“But when I say ‘The Hammer’ has uncovered what looks to be the biggest oil story of the last decade, I’m not exaggerating.

“This is the best chance I’ve ever seen at easy, fast profits — especially in a market as unpredictable as oil.

“This really could be the score every investor sits around and waits for.

“For some, it takes years. For others, decades…

“Most will never see it in their lives.

“But you will, if you listen to me — and ‘The Hammer’ — today.

“I’m serious. Your chance to retire on the spot is staring you right in the face. All you have to do is seize the opportunity and run with it.”

“The Hammer,” by the way, is just a nickname for Christian DeHaemer, who’s been around the block with a couple publishing groups with newsletters like Crisis Trader, GRESSOR, Red Zone Profits and, yes, The Hammer. He took a well-publicized (by him) trip to Mongolia a bit over a year ago and touted several ideas, and then really honed in on Petro Matad, by far the most successful of those ideas, to re-recommend and re-tease it several times over the past year or so.

The description of the company and their resources hasn’t changed much since early 2010 — the pitch is that the Soviets left Mongolia behind without even looking for the huge oil reserves that are there (5.4 billion barrels untapped in the country, according to this ad), and that this small company is the best way to get ahold of some of it.

“The Russians left behind a HUGE amount of oil.

“And that’s why I’m writing to you today…

“Because the oil that Stalin didn’t drill for is about to make a handful of folks very rich in the coming months…

“You see, there’s one company (that trades for $2.90 per share as I write this) that has its hands on 91 times more Mongolian oil than Mother Russia ever extracted ….

“Even better, that 638 million barrels is only a fraction of what this company actually owns.

“That figure is just the proven reserves from a single one of their properties.

“They also have rights to two other prime chunks of land in addition to the one I’ve been telling you about — and both have the very same, oil-promising geography as the first.”

And even if you’re used to the overwhelming optimism of these kinds of pitch letters, it’s still impressive:

“Along the western border of Mongolia sits an oil-rich field roughly the size of Connecticut.

“The oil is plentiful and easily accessible. It isn’t under 5,000 feet of sea water, buried deep inside a mountain range, or even in hard-to-process oil sands…

“It’s just below the Earth’s surface — in conventional, easy-to-drill deposits.

“And here’s the real kicker…

“One tiny, under-the-radar company owns it all.

“That’s right. Thanks to early foresight few others had, this $2.90 micro-cap controls every last drop of the 638 million barrels of oil that have been discovered in this region…

“They own all the rights to $51 billion worth of easily accessible oil.

“For a $2.90 per-share company, it’s the discovery of a lifetime.

“For you, it could mean earning 180 times your money within the year…”

We get several examples to help you get excited, other oil-related stocks that had gains of thousands of percent thanks to discoveries or other good fortune — like CGG Veritas, which went from $3 to $48 “in the blink of an eye” (OK, it was four years … but I guess that’s a blink of an eye in geologic time), or Smith International, which went from 44 cents to $80+ “seemingly overnight” (yes, it wasn’t actually overnight — took a while, and Schlumberger bought them out last year … but still, 18,000% gains are lovely even if they take many, many years to materialize).

Interestingly, both of those oil sector examples are service companies, not oil companies — so read into that what you will, perhaps there’s more money to be had in drilling these wells for money than there is in selling what comes out of ’em?

Well, anyway — so that’s the idea from DeHaemer, and it’s a teaser that still sends more questions my way than almost any other. The latest tweak to it is that you have to buy the shares now, before the thaw comes and drilling season starts up again in Mongolia so they get back to work on their wells. We’re told that the results of that drilling could drive the shares far higher (DeHaemer himself undoubtedly pushed the stock higher last year, but the fact that their drilling did actually locate some oil helped even more).

So what’s really going on? Well, I can’t say that I’ve visited Petro Matad (and no, I’m not planning to get there anytime soon — Venice, Phnom Penh, Buenos Aires and, oh, about a thousand other locations are on the list ahead of UlaanBaatar), but they are still exploring and expanding their resource base.

The latest news from Petro Matad is fairly promising, in that they upgraded their resource estimates, but it’s not because they’ve started drilling yet — about two weeks ago they announced that last year’s drilling, combined with seismic data, has allowed them to dramatically increase the amount of oil they expect to be recoverable from their primary prospect area (that’s block XX in Mongolia, which is in the far east of the country, south of the Tolsun Uul oil fields and on what they call the “oil export road” to China, which would receive oil from Mongolia by truck).

The “focus area” is in the Davsan Tolgoi Prospect, which is in the northeastern corner of Block XX (the tease mentions a huge oil field, the size of Connecticut, .

Incidentally, the original exploration license for Block XX appears to run only through July — they were granted a five year license back in July of 2006. I don’t know whether there would be any trouble in renewing or extending that license, but it’s always worth keeping a bit of concern in the back of your mind. Remember our friend Khan Resources from back in January, they’re still trying to get arbitration started over the seizure of what they thought were uranium rights in Mongolia, after the Mongolian government got what they undoubtedly thought was a better offer from the Russians. This is a different deal, and it is a Mongolian company (not a foreign interloper, despite their London stock exchange listing), so I assume their chances are pretty good of keeping their licenses, and keeping a friendly relationship with the government … remember what they say about “assume,” though. Other deals I’ve seen mentioned for oil blocks in Mongolia say they have a five-year exploration period, another year of optional extensions, and then a 20 year period for “exploitation,” I have no idea if Petro Matad’s deal is similar to that.

So … some more detail, in case you’re curious. The oil field is teased as being about the size of Connecticut — and that is true about the oil exploration block that Petro Matad is working (block XX), it’s about 14,000 sq. km., much like the nutmeg state. They did a three-hole drill program last year and had good results, and the recent announcement that they have tripled the resource estimate has helped drive the share price a bit higher still — though the 638 million barrels that they tease is a pretty old number now. The prospects within this Davsan Tolgoi focus area, which is the preliminary area of study within block XX, now is expected to have 293 million barrels of recoverable oil (if you “risk” that number — which basically means just multiplying it by the calculation they use for their probability that they’re accurate — then it goes down to 225 million barrels). The “oil in place” is far higher than that number, but if you don’t expect to be able to recover it, well, it’s not particularly valuable. You can see the full announcement here in English (pdf).

That announcement came out on March 21, and the stock jumped by roughly 25-30% that day to get to the current level (it had been this high before, last Summer during the first phase of excitement, but had tailed off during the long period of no real news). At the same time, they also noted that they have begun drilling on their two other exploration blocks, which were granted in 2009 — this is very basic early drilling, meant to back up the seismic data they collected last year and help them to directly measure some of the potential reservoirs. Those blocks, IV and V, are off in west/central Mongolia and are in an area where there hasn’t been oil exploration before (unlike block XX, which had historical exploration and data to build on) … and they’re also far, far larger, each block is at least twice as big, so they’ve got their exploration work cut out for them.

So that “pre-exploratory” drilling in blocks IV and V is apparently underway now, and drilling in block XX should begin any day now if it’s not already been started. I suppose it’s certainly possible that the shares will move based on any drilling results that might come out, though it could take quite a while — they started drilling operations in late April last year, too, but it wasn’t until July that they reported results (and the oil shows that helped to get everyone excited).

Petro Matad is no longer a teensy company — they have 183 million shares outstanding, so at a share price of 185 pence (about three bucks) that’s a market cap of right around $550 million. Which means you’re paying about $2 per barrel for their estimates of “unrisked” oil in the ground, and getting future upside (and downside) for free, though I’m sure they’ll raise more money by selling stock in the years to come. That’s probably not bad if they’re able to continue to define this resource at reasonable cost, particularly because most of this oil is expected to be pretty shallow, land-based, and in reasonable proximity to some basic oil infrastructure (though getting to the point of actual production at some hypothetical point in the future would certainly cost a lot more money — if they get that far, I expect PetroChina, which is finding strong resources at the block next door, would be delighted to pony up for a share).

I don’t own shares of Petro Matad and have never (to my detriment) been able to convince myself that it’s reasonably valued given the risks, but I’ve clearly been too cautious given the recent share price performance, and it is starting to seem a bit more real now — if those of you who’ve been riding the stock since we first covered it here have anything to add, feel free to jump in with a comment below.


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16 Comments on "“$51 Billion Worth of Soviet Oil” Revisited"

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Brian
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Brian
April 6, 2011 4:17 pm

To my detriment as well, I have watched it and not bought it, But, with the price of oil currently and the fact that Mongolia has had little drilling, I think Matad is worth a shot.

Mark
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Mark
April 6, 2011 7:04 pm

I’ve done some research on Matad and there’s risk but that’s what it’s all about in Mongolia. Risk money on a low price stock for a possible huge reward! I’ve invested in Prophecy Resource, soon to split into Prophecy Coal and Prophecy Platinum. I researched the com

Mark
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Mark
April 6, 2011 7:11 pm
I’ve researched the company extensively and for a dollar you can buy a share of a company that has 1.4 billion tonnes of coal, in a country that boarders Russia and China and isn’t far from Japan, that will IPO on the Hong Kong stock exchange after the split and name change, and has approval to build power plants and use their own coal to run them! I mean sure it’s a risk but it’s a dollar a share! Same with Matad. 3 dollars a share and I can own a piece of a company that could be a huge… Read more »
Bez
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Bez
April 6, 2011 7:29 pm

hey guys, I am a beginner in this field. I have account with a Canadian broker and it seems they don't trade this stock, also they dont trade any over the counter stock. I was wondering if you can help me find a good broker in US, so I can trade pink sheet and OC stocks. Thanks

Hopeful
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Hopeful
April 6, 2011 8:17 pm

Mark — can you please share the company name and stock symbol for the company you described going for $1/share? Thanks

Mark
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Mark
April 6, 2011 8:36 pm
Sure it’s Prophecy Resource PRPCF (PCY on Toronto). Me and my stock research buddy have researched this stock and company so much and we can’t find what’s wrong with it! The CEO John Lee seems like he knows what he’s doing and has connected the company to big time Mongolian investors and business men. Once they split the companies into two Prophecy Resource shareholders will be given shares of the new company Prophecy Platinum which is currently Pacific Coast Nickel. Lee wanted to split the Canadian interests and Mongolian interests so investors can focus on either one. Look into and… Read more »
WHO NNOZE
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WHO NNOZE
April 6, 2011 10:16 pm

bez try m siebrt third ave nyc1

jvt999
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jvt999
April 6, 2011 11:58 pm
Heard about this last year and waited until the fall/winter when price dropped on no news and picked up a position on the pinks. I don't subscribe to DeHaemer, but did in the past and never was touted a scam. Risky as are all explorers in commodities, but this appears to be well documented and accessible oil, with no legal tie-ups, objections, or other hindrances to drilling. I'm gonna hold my hand for at least a coupla the river cards. Also own Prophecy…John Lee has done a great job since he took over as CEO. Already starting to sell their… Read more »
Ian
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Ian
April 7, 2011 12:59 am

Maybe sour grapes on my part (I hold Soco, who used to have the adjoining acreage)but I'd want to see some actual flow – which PM have been curiousloy reticent about – before getting too excited : the Chinese have invested $ billions and get a couple of hundred bbl per well….
Good luck to all.

dan
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dan
April 8, 2011 10:54 am

Dr. Steve Sjuggerud from stansberryresearch.com promise x10 gains in his newly:
"The secret currency". Could be interesting if we could find out what it is…

Geo-man
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Geo-man
April 8, 2011 11:18 am

Descriptions of weak live oil shows in high quality reservoir rock is indicative of petroleum migration through the zone. However, the traps may have been breached by faults, providing conduits for petroleum escape to the surface. It seems inappropriate to assign "proven reserves" to fields before an oil column has been documented in the well bore. "Proven reserves are typically calculated after commercially viable production has been established.

John Dods
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John Dods
July 21, 2012 10:04 am

How wrong you were! Gross misleading points in this article, petro matad down to below 10p now.

rus
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rus
April 7, 2011 2:27 am

I'm with investorline and have no problem trading otc stock with them

bigjim
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bigjim
April 10, 2011 5:18 pm

optionshouse will allow you to do both and the transaction fees are very reasonalble

Gravity Switch
Admin
11
April 7, 2011 8:24 am

As Buffett always says, there are no called strikes!

And yes, I can see your caution — the oil they say they've found is fairly close to the surface and they have had "shows", but not exactly spindletop.

Gravity Switch
Admin
11
April 8, 2011 12:18 pm

Thanks Geo-man. I don't know what standards they use, I don't think they've actually booked proven reserves by my understanding of that term, but I could be wrong — I take for granted how much I appreciate all the Canadian-listed companies using the same terminology and standards, at least on a basic level, makes me wish they were listed in Vancouver instead of London.

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