“Africa’s Hidden $55 Billion Energy Fortune” Crisis Trader

by Travis Johnson, Stock Gumshoe | May 21, 2008 11:37 am

I haven’t looked at an investment teaser from Christian DeHaemer[1]’s Crisis Trader[2] in a while, but he usually has some interesting ones — he wrote to us late last year about lifting the blockade in the gunboat basin[3], and for some of his other newsletters he spun tales of a secret nickel[4] project in the Philippines, and about the tiny company that got in under the gunfire to oil[5]-investment-in-somalia.html" target="_blank">buy the rights to Somalia[6]’s oil.

If you’re guessing that these kinds of tiny exploration companies in energy and minerals can be very hit-or-miss … you’re right. DeHaemer has actually had one of the worst records for teaser picks in the history of the Stock Gumshoe — some of them have had quick runs up in conjunction with the newsletter ad campaign, but almost all of them then fell rather quickly. None have yet to reach his stated potential of several hundred percent gains … though to be fair, some of those “promises” were for a year or two, and I don’t think any of his picks that I’ve tracked is quite a year old yet.

Regardless — I like a good story almost as much as I like a good stock idea, so let’s see if this is either. Sometimes these little guys work out pretty well and spin a good yarn (like gold[7]-of-pharaohs.html" target="_blank">Centamin Egypt, subject of the “Gold of the Pharaohs” teaser from a different newsletter, or the fight against China[8]’s rare earth minerals monopoly that brought us Lynas. I own both of those stocks, just FYI).

So what are we dealing with here?

Well, it’s a teaser for a Canadian wildcatter that has rights to a large natural gas[9] field in Algeria.

But that’s not exciting enough, so we have to bring Russia[10] in.

Apparently, a former Russian energy official has been part of an effort to wrest control of the company from current management … and there’s a reason for this hostility.

Russia is the primary supplier of natural gas to Europe, and, through Gazprom, has been using that lifeline to put pressure on some former Russian republics (Belarus and Ukraine[11]) and to generally put the fear of Stalin into the hearts of Western European leaders. The UK’s gas reserves are declining, and LNG remains a relatively small business for imports from Qatar and elsewhere, so when Putin grinds his heel into the pipelines and slows delivery, Northern Europe suddenly starts to feel a little chillier, and Italian gas stoves sputter a bit.

So Europe is desperate to get access to other sources of natural gas. One of those promising sources is North Africa[12], including Algeria, which is just a quick hop across the Mediterranean Ocean from gas-hungry markets in France, Spain and elsewhere.

And the story would be incomplete without Algeria’s precarious history — Algeria has been trying to speed up its recovery from their long civil war, and one way to do that is with more gas extraction, leading to more money, which always helps keep the people happy.

Algeria has also had on-again, off-again deals with Gazprom and Russia, including some kind of complex deal for MiG fighter planes that had something to do with debt forgiveness and possible future gas deals.

Head spinning yet?

The great fear from Europe is that Algeria will partner with Russia in some kind of natural gas cartel a la OPEC.

And the great fear from Russia is that Algeria will supplant it as the major provider of gas to Europe, and thus take away their political strength and their market dominance.

So … what does this mean for our little company?

Well, I don’t know … but I can tell you that DeHaemer thinks it means there will be a bidding war. Gazprom on one side, European energy companies on the other.

(of course, the story is not necessarily that clear cut — Russian and European companies are both already active in other fields in Algeria, and we’re talking about just one of their oil fields here … but still, it’s worth a look).

So what are the clues we get about this little company?

The price is around $3.

Market cap is about $750 million (Dehaemer thinks it should go at least to $2 billion)

Let’s put the possible returns into perspective here — DeHaemer thinks the shares could double by August 2008, but he also says that you could pocket an “extra” $53,330 if you get in by May 31. Apparently that’s off of an initial investment of $5,00 because he says this “rare opportunity now could realistically turn a modest $5,000 investment into $53,330 in less than a year” (by February 23, 2009, specifically). He thinks the shares could go up by 37 times over the long run, with a top possible valuation of $71 and a price target of $35.

Here’s DeHaemer’s whole spiel on the possible valuation, for posterity:

“If the $3 stock I’ve been telling you about controls $16.5 billion worth of Algerian natural gas — and remember: this does not include recovering six times its production costs– it would make sense to pay $2 billion… or one-eighth the value.

“But here’s the thing: This tiny $3 company already has 4.2 trillion cubic feet of natural gas and 800 million barrels of oil in place.

“And with oil trading at roughly $110 per barrel and natural gas at $9.80 per thousand cubic feet, this company’s assets are already valued at $129 billion.

“So let’s combine this company’s current assets with the total value of its Algerian gas field and the number reaches more than $145 billion.

“If one-eighth the value is our conservative takeover price estimate, then it would make sense for a company to pay $18 billion to acquire the tiny Canadian wildcatter.

“After all, Chevron spent $18 billion to purchase Unocal. And Conoco spent $36 billion to acquire Burlington Resources.

“$18 billion is an absolute steal…

“Now at $3 per share, this small company only has a market cap of $762 million. An $18 billion takeover would put this company’s shares at roughly $71.”

Sorry, I should have warned you to have a drool cup at hand before sharing that info. $3 to $71 sounds pretty good, eh?

Maybe a bit unbelievable, sure … but we can dream, can’t we?

The point man for this Russian effort to possibly take over the company is Yuri Shafranik, we’re told, who also is on the board of Waterford Finance, which owns 9.4% of the company.

So all that data goes tumbling into the mighty Gumshoe Thinkolator, and I can reveal to you that this company is …

First Calgary Petroleum (FCP in Toronto, FPL in London, FCGCF on the pink sheets)

They released earnings a couple weeks ago, you can read that press release here for an update of operations[13] if you’d like a cool splash of reality to bring down your heart rate. They’re trying to put together financing right now, with the most likely lenders, not surprisingly, being a few European banks. They claim they’ll not have any trouble getting funding to move forward with their major Algerian project. The big news of late has been the ouster of the CEO as part of the agreement with our Russian friend — I can’t read enough between the lines to tell you whether that means the company will be taken over, or whether this compromise just gives them a better foundation of support to move forward. Certainly, the stock market liked hearing that the CEO was out.

Shares are still around $3 — a little below, C$2.89 today. This is well off their highs of around $6 last summer, but a bit of a bounce off their pre-CEO-departure lows of a bit over $2.

And from there, you’re on your own, go forth and researchify — let us know if you think this is really a good investment, or speculation.

I’d always hesitate to bet on takeover targets unless the company itself seems promising without a buyout, and I can see that there is some potential with this one if natural gas prices remain high … but I’d stay well short of recommending it without reviewing their data much more carefully.

Remember, even though the tale spun is one of urgent moves, international intrigue, huge price spikes, and potential 3,000% returns, that these kinds of promises don’t very often work out. In fact, from the similar stories I’ve seen time and time again, they’ve never worked out, at least so far. Successes happen on this scale on occasion, but so far I’ve not seen one that was telegraphed by a teaser email first.

This might be the one in a million, I suppose, but I have no idea … and if it’s not really going to go up a thousand percent before next week, there’s plenty of time for you to research it, get comfortable with their prospects, and make a sober decision about whether or not to buy. I can’t say that there’s always time to wait and be patient … but there’s almost always time.

Full disclosure: as I noted above, I do own shares of Lynas and Centamin Egypt. I don’t own shares of any other company mentioned here, and will not trade in any company mentioned for at least three days.

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