“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 …