“An evil tyrant’s demise offers you a chance to gain 12 times your money instantly — or turn five grand into $950,000 or more — as the coveted gas reserves he controlled finally get tapped…”
I’ve spent a fair amount of time in the last couple years looking at the ads from Christian DeHaemer’s Crisis Trader newsletter — partly, to be honest, because they’re fun. Crisis Trader is a newsletter that generally focuses on buying in war-torn areas or in regions where most investors otherwise fear to tread. It may be crazy sometimes, it may or may not be profitable much of the time, and some of the companies he has called to our attention have crashed and burned quite dramatically … but they’re never boring.
Oh, and this newsletter is worth $5,000 a year, if they do say so themselves, but right now you can get it for the “sale” price of $995 a year.
You may remember a few of the huge promised gains that Crisis Trader has brought to us in the past — the one that still comes to my mind is Range Resources (the microcap Aussie company, not the big US one), which was teased as a pirate raider that snuck in and bought the rights to Somalia’s oil reserves. You can look at this article from last Summer if you like, but suffice to say that the shares were at 50 cents, a return of 700% in months was “promised” as a possibility … and today, the shares trade for about seven cents and as of the last time I checked Range’s partner, Africa Oil, hasn’t even drilled a hole yet — partly because they can’t bring drilling rigs into the country because no one will risk losing them to the pirates off the Somali coast.
The last one we saw from Crisis Trader was a Canadian company with Algerian exploration prospects, First Calgary Petroleum — I wrote about them when the ads started back in May, and they just got two weeks ago got bought by ENI, the big energy firm, for a small premium over the Crisis Trader price (DeHaemer had a price target of $71, they sold to ENI for $3.60. Canadian.)
So that’s the downside potential of picks like these — but of course, there are tiny little resource companies that boom on occasion, and war-torn or politically unstable regions can sometimes spew riches if you dig in the right place. I won’t guess at the odds, but let’s look and see what this little company is that DeHaemer is teasing today.
So, do you have the stomach to resist a pitch like this?
“I’m talking about instant gains of 12 times your money — and possible medium-term gains of more than 19,000%, if recent history holds true. (I’ll show you the hard-numbers proof on this in a second.)…
That’s $1,000 into $191,650 — or five grand into an incredible $958,250.”
We’ll pass up on the “hard numbers proof” for a moment — satisfy yourself with the realization that “hard numbers proof” about something a few years out is very difficult to obtain without the imagination of H.G. Wells.
Let’s look at the actual clues about this company …
First, this is all about Turkmenistan, a former Soviet republic (sandwiched inbetween Kazakhstan, the Caspian Sea, Uzbekistan, and Iran) that has massive gas reserves (third behind Russia and Kazakhstan among the former USSR, I think). The dictator whose passing has DeHaemer so excited is the former “President for Life” of Turkmenistan — Sapurmurat Niyazov, called by the self-chosen honorific Turkmenbashi. As with so many presidencies “for life”, it ended in his death by a heart attack (second choice: dying in the arms of a prostitute in Cuba).
Turkmenistan was, and still is under his successor, a wacky place by outsider standards — Turkmenbashi was no dummy, he set it up so that people would get free gas, water and electricity until 2020, and he had lots of wacky, eccentric laws, like the prohibition on recorded music, along with various sops to his Islamic constituents. He definitely fit the dictionary definition for the “cult of personality”, though it was repression, money, and gas that gave power to that personality, not his individual charms and leadership skills.
Turkmenistan was one of the most repressive regimes in the world in terms of human rights and freedoms, so hopefully there really is an opening up since his death — this is the first I’ve thought about Turkmenistan in years, so I don’t really know much about that.
I do know that he died not just yesterday, however — he died almost two years ago, in December of 2006. So this investment opportunity has apparently been some time coming. Either that, or this is an ad that started a couple years ago, which would be odd since I don’t remember anything along these lines coming through in 2007 (and it would be a tough one to forget).
So why does it matter that he died?
“Now, foreign drillers have been chafing at the bit for years to get at this incredible gas pool — yet, because of Niyazov’s mismanagement of his country’s resources and economy, this incredible resource has languished.
“But on December 21, 2006, Saparmurat Niyazov did the one thing that would better his country’s economy and the welfare of his people the most…
“He died of a massive coronary.
“Since that moment, Turkmenistan’s prospects have been looking up…
“And so have the profit prospects of early investors in one key company.”
OK, so I would at least think about disputing some of that — from what I’ve read, President-for-life Niyazov actually invested quite a bit into both improving natural gas extraction and in building downstream businesses like refining plants and chemical businesses. He didn’t open it up to outsiders, of course, but he did realize on which side his bread was buttered — and that it was buttered with natural gas, and the butter better not run out if he wanted to keep erecting monuments to himself.
But the part about opening up to outside energy companies might be valid … let’s see.
So who has replaced our friend the Turkmenbashi?
“… on February 14, 2007, acting President Gurbanguly Berdimuhammedow was named the official President of Turkmenistan after garnering 89% of the vote in a democratic election. [Interesting to wonder who got the other 11%, since as far as I know there’s only one legal political party]
“This was a great day for oil and gas companies (one in particular, as I’ll show you in a second) — and for those investing in them.
“That’s because Berdimuhammedow — medical scholar, university educator and former dentist — is sane and seems to genuinely care about the economic development of his country. In fact, the new President’s promised reforms to Turkmenistan’s financial system yielded year-over-year GDP growth of 120% and a 27% increase in trade surplus by the first quarter of 2008…
“And, unlike Niyazov, who dealt almost exclusively with his former Soviet cronies, Berdimuhammedow is feverishly seeking contracts with whomever he can for his country’s vast gas reserves: not just Russia, but China, Iran, India and others.”
Oh, so he’s a dentist! Sign me up!
There’s much more in the ad about this — talk about the pipeline projects they’re involved with to supply China and the West, and partnerships with Iran for gas exports.
And hey, in the wake of the Georgia dispute at least they’ve got some cushion from Russia — Russia would have to work their way through massive Kazakhstan before rolling tanks into Ashbagat, and I don’t know that there are legions of ethnic Russians there clamoring for a return to Putin’s rule.
There are several companies trying to get in and drill in Turkmenistan — according to the ad …
“It’s like America’s Gold Rush of the 1840s, and lots of heavy-hitting companies are staking their claims. Russia’s Gazprom and China’s CNPC are already involved — and Iran’s National Iranian Gas Company is circling like a shark. So is BP.
“However, one small publicly traded Anglo-Arab petroleum company may have beaten all these big boys to the biggest profits…
“Which I’ll prove could easily mean 12 times your money (if you get in now) — or even as much as PKZ’s incredible 19,000% gains or more…”
PKZ is PetroKazakhstan, which was a Canadian company that got access to a big gas reserve in neighboring Kazakhstan (neighboring, that is, to Turkmenistan, not to Canada). They got bought out by the Chinese state-run company Sinopec, to immense profit for early PKZ investors — so that’s the dream, apparently.
So who is this?
Who is “Company Z: The World’s Last Resource Stock Play Capable of Making You 190 Times Your Money?”
Your friendly neighborhood Stock Gumshoe has got his work cut out for him.
We get a few good, specific clues:
“They’ve been awarded a $25 million Caspian coast oil and gas infrastructure contract freshly approved by new President Berdimuhammedow…”
“Dramatically Increased Production — In first post-Niyazov year 2007, they boosted year-over-year petroleum production a whopping 56%. So far in 2008, their petroleum output is exceeding projections…”
“Soaring Revenue — On August 22, 2008, they posted an impressive 34% jump in year-over-year profits and a 63% surge in total revenue…”
OK, finally, that ought to do it! Throw all that gobbledygook into the mighty, mighty Thinkolator, and we find that this is …
Dragon Oil (DGO in London, DRAGF on the pink sheets).
This is a company based in Dubai, traded primarily in London and Ireland, whose main asset is that Turkmenistan oil field — it’s actually an offshore block, called the Cheleken Contract Area, in the eastern Caspian Sea. You can see their recent earnings release here if you like, those numbers about revenue and earnings growth in the teaser are accurate. Oh, and it’s controlled by the Emirates National Oil Company, which owns a bit over 50% of the company.
DeHaemer also takes credit for recommending this to his readers before it had a 180% run of ten months, which may be true, but if so that means he picked it at least a year ago — perhaps he watched it go from about 200 pence to well over 500p a share. It came right back down this year, so you can now buy it for near 200p again ($3.65 was the last pink sheets trade).
Part of the reason it came down was probably Russian hegemony, Dragon Oil would probably like to have the option of using Georgia’s pipeline to reach Europe and the Mediterranean with their products, though they also do have other options (most of their oil goes out through Iran). And of course, it doesn’t help that the price of oil got cut by a third in the last few months.
Other than that, I don’t know a whole heck of a lot about these guys — they are apparently unsatisfied with their property in the Caspian, as they’re also making deals in Yemen (yes, that same Yemen where the US embassy was recently attacked) and exploring elsewhere in troubled lands. Of course, most of the available oil and gas fields tend to be in these troubled lands (you can discuss amongst yourselves where or not this is a coincidence), so you can hardly blame them for that.
So … the latest Crisis opportunity is Dragon Oil. They are at least producing stuff and seeing revenues grow, and they’re predicting continued increases in output this year and next from that Caspian Sea field. Dehaemer bases his “proof” on the argument that Dragon Oil is undervalued relative to their proved and probable reserves of 324 million barrels of oil (that number jumps around a bit, but 324 was the estimate at at least one point — I think the more recent number of 288 million is currently more accurate) and a big pile of natural gas, and he wagers that the company would be worth about 12 times the current price if they were to accept a buyout like PetroKazakhstan did. The Cheleken property is indeed a big one, and Dragon has been playing the politics by talking about using pipelines to Russia or China in addition to the sales they make through Iran and through the pipeline that cuts through Georgia.
It gets better, though, for your little greed impulses — the letter was written a couple weeks ago, when the shares were trading at around $6. The collapse to $3.65 since then means that if you could get a 19,000% return then, perhaps it will be a 30,000% return now?
I wouldn’t hold my breath, but these kinds of little resource companies are always fun for gambling — I wouldn’t tell you not to take flier on it if you like a little adrenaline and dice-rolling with your beer money, but I would urge everyone to research carefully first, and never wager more than you can afford to lose on violently volatile stocks like this. It may well be the big hit Dehaemer predicts — and it probably won’t fall apart quite as completely as Range Resources, since Dragon has much more in the way of real assets and cash flow, and has operating profits at the moment, but it may well drop further still, especially if oil or gas falls again or they fall prey to political risk in Turkmenistan, the Caspian, or in Iran (a lot of options there).
I’ll leave you on a positive note: Dragon Oil is trading not only at a discount to the reserves value, and at a bargain price compared to where it was back in December, it’s actually looking fairly cheap based on plain old earnings — they earned almost 60 cents a share in 2007, and are on pace to beat that this year with first half earnings of 32.5 cents per share, so that’s a PE ratio of about 6. That’s all according to the company press releases, and I’d urge you to confirm those numbers if you’re a potential buyer. They’re also spending money on drilling and on new pipeline contracts, so I don’t know if this level of profitability will continue, but there is at least some “there” there — whether or not this is a “PKZ clone” is your choice to make.
So caveat emptor … and enjoy! I Hope the close to the week left you with a smile instead of an ulcer, and that swathes of green bless your portfolio in the week ahead.