The great Gumshoe faithful have been focused on one thing over the last couple days: what the heck is Byron King talking about with his “oil kitchen?”
That term might sound familiar to you — King first recommended a stock using that “oil kitchen” phrase, referring to a large oil source area offshore Namibia, back in July, 2010. Your friendly neighborhood Gumshoe wrote about it at the time, of course, first for the Irregulars and a couple months later for everyone else, and you can see that original story here.
But the pick he was teasing back then was bought out, in a nice short profitable run for folks who happened to buy the stock at the right time … so what is he pitching this time? Well, let’s let him introduce it:
“I’m writing today with some urgent news on a massive oil find off the coast of South West Africa.
“If the idea sounds familiar, it’s because I first covered the story of this discovery nearly two years back. In fact, you may reading a similar presentation to this one. I explained how a tiny Canadian company had discovered a whopping billion-barrel oil find.
“But recently, more news has come to light, as even more oil has been found in the same exact region.
“This is the kind of opportunity that can change your life….
“When I first broke the story two years ago, the world’s leading energy consultants estimated that there could be 2.3 billion barrels of oil in this country’s offshore ‘oil kitchen.’ But now they’ve raised the estimate more than three fold, to 7.9 Billion barrels.
With oil prices hovering above $105 per barrel, that means the find is worth an estimated $829 billion.”
Well, one might assume that if he says “exact same region” it’s still the same company (or in this case, the acquiring company), but let’s check out the details to make sure we get the full story. Here’s some more of King’s tease:
“I call it the “oil kitchen” because it’s the cooking zone in the earth where crude oil formed over millions of years — from the remains of tiny aquatic plants and animals that lived in ancient seas.
“And chances are… this oil is located in rocks that date back 10 million to 270 million years ago.
“Perhaps most amazingly, one off-the-radar company owns a 90% stake in huge portions of this field….
“That means this company… priced at under $4 per share… is sitting on oil reserves which could power the United States for more than an entire year.
“With this massive “oil kitchen” discovery, this company’s stock could soar three-fold… five-fold… even 10-fold… and STILL be grossly undervalued!
“And the best news is you don’t have to send your money out of the U.S. to invest in this explosive overseas opportunity… you can do it easily right through your local broker.
“Once word gets out on this exploration company, it’s likely to start an absolute feeding frenzy on Wall Street.”
What’s with that tripling of the estimate of potential oil? Here’s how he puts it:
“… back in 2009 the world’s leading independent energy consultant released an estimate for this tiny Canadian company’s 90%-owned find — which I’ve code named OIL BLOCK XX13A and…
“According to this highly regarded consultant, BLOCK XX13A was on track to produce as much as 2.3 BILLION barrels of oil…
“Now due to new seismic and geophysical studies, they’ve upped that estimate more than three fold… to 7.9 billion barrels!”
King says that we might see the stock quickly double, triple or quadruple if we get a quick bidding war on the back of this new resource estimate, with companies like Petrobras, Statoil and the Chinese state companies perhaps interested … and, of course, he says that if they don’t get taken over the returns for patient investors could be “1,795% or more.”
He shows a little diagram surrounding the “oil kitchen” off Namibia, too, with “code name” labels for the exploration blocks — he already mentioned “Oil block XX13A” but he also shows XX14A, XX14B, XX15 and XX16 on the map and says that …
“those are the areas owned by the tiny Canadian company I’ve been telling you about. And beneath those blocks potentially sits a massive 7.9 billion barrels of oil.”
So yes, this must be a tease for the company that bought out King’s tease last time around — and just to make that a bit clearer, he goes on to describe this company, which happens to be a Brazilian firm:
“The leading geologist — a personal friend of mine — whose scientific work led one of the big oil guys to drill deep in Brazil’s distant offshore and discover this massive oil field… recently started his own oil company…
“And his new company bought out the tiny Canadian Oil Company off the coast of Namibia who’s discovered this oil kitchen!
“He’s already helped turn Brazil into an oil powerhouse.
“Now he’s about to do it all over again… but with new company that trades for under $4 a share!”
Byron King is pitching his special report, ‘Oil Kitchen’ Profits: How to Multiply Your Money Through This Massive Oil Discovery, in which he’ll no doubt reveal that ticker and company name for you and probably give some more info … but that, of course, comes to folks who pony up $750 (“on sale,” naturally) for a subscription to his Energy & Scarcity Investor newsletter. But if you’ve read this far you know that we’re not going to subscribe … we’re going to take all those clues, toss ’em into the gaping maw of the mighty, mighty Thinkolator, and, free of charge for our valued Gumshoe readers, confirm that this stock must be …
HRT Participacoes em Petroleo (HRP in Canada, HRTPY on the pink sheets, HRTP3 in Brazil)
Which agreed to buy UNX Energy, that company King had originally teased, just over a year ago for about $780 million, in hopes of establishing an offshore oil system offshore Namibia that’s similar to the huge offshore deepwater discoveries in the pre-salt off Brazil — the idea being that Namibia used to be contiguous with Brazil before the continents separated, and that some of the oil or oil potential moved with the African landmass when the continents were formed. HRT has a large onshore exploration program in Brazil in the Solimoes Basin (way up in the Amazon headwaters region) and already has monetized part of that asset by selling a junior share to TNK-BP, but what’s getting the most attention for the company is their Namibian exploration that King is teasing, including the former UNX Energy exploration blocks.
Here’s how HRT describes the Namibia potential on their website:
“With the recent discovery of oil and natural gas deposits in deep and shallow waters in the Campos Basin, the exploratory potential in Namibia has increased even more. The acquisition of assets in the country has made HRT the largest holder of offshore concession areas, with 12 exploration blocks covering 68,800 km2.
“The company is currently undertaking the largest 3D seismic survey ever done on the west African coast, covering approximately 10,000 km² in prospects already mapped in 2D seismic surveys. It is estimated that the companyy’s assets have an approximate volume of 7.9 billion BOE (barrel of oil equivalent). With the start-up of the campaign planned for the second half of 2012, HRT is hoping to discover a new exploration frontier, bringing economic and social development to the host country.”
The stock has been on quite a run this year, but if you scroll the chart back a few months you’ll see that it is still well, well off of its highs from last year, when those new shares that they sold to buy UNX were listed and the stock began a serious collapse — I don’t know if that’s just because of the big outlay for the Namibian assets or if there was other news at the time.
HRT just released their 2011 results a couple weeks ago, and you can see the presentation here. The stock is below $4 still, though just barely, and the company has a market cap of a bit over $2 billion. About $750 million of that is in cash, and the company is planning for the exploration program for this year and next to be roughly covered by that cash — they’re also looking to “monetize” some of their gas assets to focus more on oil, and to bring in a farm-in partner on the Namibian projects to help with funding the drilling, since, as you can imagine, offshore exploration ain’t cheap.
They are the operator in several exploration blocks in two basins offshore Namibia, with a tiny non-operating interest in a third basin — the one that’s teased is the area where most of their blocks are, in the Orange Basin on the southern end of the offshore area, bordering South African waters. Those are, if you want the actual numbers instead of King’s “secret codes,” blocks 2713A, 2713B, 2813A, 2814B, 2815, 2816 and 2915, which basically surround the area of the Kudu Field, a very large natural gas field that was discovered decades ago but has never entered production (they’re still trying — the latest I’ve seen is that they got Russian investment a couple years ago after Tullow seemed to downplay it, and the government is now hoping for 2016 production to fuel electricity generation in Namibia, possibly in partnership with South Africa … Tullow still owns about 30%, I think, and is still listed as the operator). You can see the detailed offshore map here.
So … they’re not going to become a profitable company anytime soon, but they are certainly exploring in basins where there is a huge amount of possible oil to be found, and the do have the cash on hand to get through quite a bit of the early exploration work this year and next. The question really is how long it will take, how much will be economically recoverable, and what the stock price will look like. This might actually be an interesting year, since they seem to be planning for the big ramp-up in drilling in Namibia to happen starting in the fourth quarter of 2012, so it’s quite possible that we’ll see something big over the next 12 months — of course, “something big” when you’re talking about an exploration company could be either good or bad, and clearly investors are expecting at least some “good big” news. I assume that they’re likely to wait until they have some initial drilling done in the Orange Basin before they do any big deals to share that project, but that’s just a guess, I don’t know what level of risk the company is comfortable with or what outside interest there’s been in any kind of farm-in deal on their blocks. They have spent a fair amount already on doing 3D seismic on some of the most promising areas, which is probably why the estimates have done up, and that work was enough to get them some extensions for their exploration window from the Namibian government, so they now have almost 2-1/2 years left on their exploration permits for most of those key blocks.
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