The Great Red Oil War” part two (Uganda)

By Travis Johnson, Stock Gumshoe, April 2, 2009

RED PROFIT TARGET #2: Small oil firm scores big dark continent ‘gusher’

“’Gusher.’ That’s exactly the word the Financial Times recently used to describe this company’s 2 billion-barrel oil find in Uganda — the largest in sub-Saharan Africa in a decade…”

That’s the beginning of our little teaser for the second “Great Red Oil War” stock pick from Christian DeHaemer (if you missed yesterday’s writeup, which went into the “big picture” behind this investment thesis a bit more, click here for part one of the Great Red Oil War and that teaser for another Africa-focused oil stock.)

Today we’ll jump right to the clues, and try to identify this company …

“… the problem with Ugandan oil has always been transporting it. The poorly developed, landlocked country has no sea access.

“However, this inventive petro-player is close to a deal with the Ugandan government to export thousands of barrels of oil per day to the Kenyan port of Mombasa — by rail.

“That’s not all, either: They’re also behind a $2 billion pipeline proposal that could transport a whopping 500,000 barrels per day to Mombasa by 2015…”

OK, so maybe a pipeline deal in there somewhere, and definitely some significant oil reserves in Uganda. What else?

“Exploration deals in other hot African oil zones Tanzania, Mali and the Democratic Republic of the Congo — and yes, even Iraq — make them more than a one-trick pony…”

Aha, another Iraq story, too — just like yesterday. Interesting (and scary … but certainly interesting).

“Now, here’s what makes this company a must-buy right now:
“They’re trading for around 1/35 of the gross, pre-production value of their proven petroleum reserves…
[at $50 a barrel]

“That’s why this company is another of those “must have right now” plays: They’re simply too ripe-for-the-plucking NOT to be in someone’s sights (most likely China’s) even as you read this…

“The more under-priced a company is relative to its tangible assets, the bigger they jump in a takeover scenario.

“If you take nothing else away from this bulletin today, hear this: More than any other stock I’ve ever recommended, this one has the potential to turn in serious, fast gains on a buyout — at least 10 times your money, I’d bet…”

OK, so that’s what DeHaemer tells us. What does the Stock Gumshoe Thinkolator say?

Let me just warm it up here for a moment — I’m on an airplane, sometimes it doesn’t like the altitude.

Aha! The answer, please …

Heritage Oil (HOC in Toronto, HTGLF on the pink sheets)

This is one of two partners who have a joint venture in Uganda that appears to have made everyone accept that Uganda has commercially viable oil fields (their partner is Tullow Oil, also an interesting company but not a match for the clues given — there’s an interesting article on the two of them and this project in the Financial Times, and the earlier article where they use the word “gusher” is here).

Heritage, like Addax yesterday, is also working in Iraqi Kurdistan, as well as in Mali, Tanzania, the Democratic Republic of Congo, and Uganda, as teased (along with Russia, Oman, Pakistan, and Malta, according to their website).

The shares have been bouncing around between $2 and $10 or so over most of the past year, and the trading volume looks like it’s extraordinarily low — so the shares have been moving up recently, perhaps because of the promising Uganda news, but be very careful about this one, it would be easy for just a couple Gumshoe readers to drive the price higher in a hurry if you got excited. I know of no reason why you’d need to rush your research, though DeHaemer does say that he thinks it has the potential for fast “serious” gains on a buyout — I don’t have any wisdom to impart on that speculation, your guess is at least as good as mine. They did have some talks about selling some of their assets to a third party last Fall, but those were apparently broken off by Heritage.

They are certainly not profitable yet, but they are producing some oil (in Russia and Oman, apparently), and they say they have enough cash on hand to cover their drilling and exploration activity for 2009.

And unfortunately, since I’m traveling I’ll have to leave it there for you to continue your exploring and research — let us know with a comment below if you’ve got an opinion on Heritage Oil, if you think their pipeline or rail transport schemes will work in Uganda, if you’ve high hopes for their Kurdistan exploration, or whatever. We’ll take a look at “Great Red Oil War” stock number three tomorrow …


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8 Comments on "The Great Red Oil War” part two (Uganda)"

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Shoeless
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Shoeless
April 2, 2009 9:33 am

BINGO! That was my mention yesterday. This is an old recommendation perhaps 2-3 years ago. Go to their web site and check out the board members. One of them has the magic hand “SHAKE” to be the man to go through to drill in Iraq. This guy went to college with the son of someone who is important in Iraq.

Mike Will
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Mike Will
April 2, 2009 11:04 am

I am shamelessly mentioning a lithium-ion stock which I actually heard from on this site. CSGH – I have owned it for about 8 months and have watched it go thru some funky maniulative trading which has smoothed out now. They have real products, and real contracts, great growth and earnings. Penny stock now – but I think it will be heading to the big boards soon. It is getting noticed. Do your DD.

J.F.
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J.F.
April 2, 2009 12:28 pm

Heritage trades as HOIL:LSE, worth checking for price comparison if you can’t buy in the UK. I thought it was worth a punt in january and still do. Terrific drilling results and appears to be still under valued with some nice upward momentum.

Myron Martin
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Myron Martin
April 3, 2009 8:59 pm

Hate to disagree with the Gumshoe but I remember seeing Tullow as one of his recommendations, not Addax. Will do some more research, I remember dismissing it because it was London listed and I have not yet progressed to buying on foreign exchanges, though I do own some foreign stocks on the Pink Sheets as well as ADR’s!

Gravity Switch
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April 6, 2009 11:12 am

Tullow and Heritage are partners on this Uganda project, Addax (teased by this ad, too) has different projects, mostly in West Africa.

And you’re always welcome to disagree, but I’m pretty sure this one’s the right match for the clues.

ponce
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ponce
April 7, 2009 4:47 pm

I started buying HOC.TO in 9/05 and sold @ around $13 in 2/06. The old CEO was the grandson of old Iraq oil magnate. He formed a joint oil exploration venture with the ruling family of Kurdistan. That CEO had since resigned. The stock was going up and down for no reason so I sold. It has not done much since then. This one of those high hopes but did not work out.

scott
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scott
April 29, 2009 4:55 pm

so if one wanted to participate in this stock, how does one buy on the foreign exchanges? forgive my ignorance, new investor

ponce
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ponce
April 29, 2009 8:57 pm

American brokers can buy Canadian stocks like HOC.TO. The downside is you cannot trade online in Canadian stocks. My broker is Scottrade. The normal charge per trade online is $7. For Canadian stocks it will be broker assisted and the charge is $27 per trade.

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