This teaser came to my attention a couple days ago, it’s from Ian Wyatt for his Energy World Profits newsletter, which as far as I can tell is new — it at least hasn’t been covered in this space before. It’s a newsletter that he edits with Gregor Mcdonald, who apparently is an “energy economist,” and yes, it’s all about investing in energy stocks and the like.
And like so many of our favorite teasers, it’s about a tiny stock with a huge and “undiscovered” asset — here’s how they pitch it:
“The $4.2 Trillion Land Grab on a $1.00 Stock
“How You Can Make 696% Gains From One Man’s Visionary Claim Stake
“And How You Can Get a Free Tank of Gas Today!”
I like the “Free tank of gas” bit — they throw in some coupons for $40 worth of gas if you subscribe to their $300 newsletter. I wonder if this will inspire imitators, if we’ll see newsletter dudes plying us with free gas the way that banks used to ply us with free toasters … one can only hope.
We then get into the heart of the sales pitch for this stock:
“Buy Oil for Just 20 Cents a Barrel
“You see, this incredible, forward-looking company is sitting on 685,000 acres of oil-rich land in Canada. Based on test wells and geologic mapping, estimates are that this company is sitting on at least 10 billion barrels of oil, and potentially as much as 60 billion barrels. And at 92 cent a share, it’s like buying oil for just $0.20 cents a barrel!
“With oil trading at around $80 a barrel, we’re talking about a mountain of cash for investors. But when oil moves back to its old highs, your returns will be mind-boggling. Later in this letter, I’ll show you why a return to $147 a barrel (and even higher) is inevitable. But first, some more numbers…
“If the lowball estimate of 10 billion barrels is right, this company is sitting on nearly $800 billion worth of oil! Remember, that’s the low end estimate! I can barely even write the number if the high-end estimates are right…$4.2 trillion dollars.
“And you can buy in — right now — for just under a dollar a share.
“Needless to say, a company with $4.2 trillion in assets should be able to make you quite wealthy when you buy it for just under a dollar a share. And I’m happy to say that you’ve got the opportunity to buy this stock while it’s virtually unknown.”
And of course, Wyatt takes the credit for unearthing this massive diamond in the mid-continent rough:
“And here this little company is sitting on reserves as potentially large as Russia’s. What’s even more astounding – most investors have never even heard of it. It’s not on CNBC. And you won’t read about it in The Wall Street Journal.
“In fact, it would still be undiscovered if I hadn’t zeroed in on it.
“I knew when I found this company with 685,000 acres of land in Saskatchewan — land that could hold up to 60 billion barrels of oil — I had to get this urgent message out to you, while the stock is still flying under Wall Street’s radar.”
And then he goes on to make it quite easy for the Gumshoe, going into some of the company’s history:
“Todd Montgomery is described by his business partner as “a traditional prospector type…” Despite serving as CEO or Director for several public oil companies, Montgomery “…more or less lives out of his pick-up truck…”
In the mid-90s, Montgomery approached his friend Christopher Hopkins about prospecting for coal north of Alberta’s Athabasca region….
“Montgomery found coal in Alberta. But he also found oil sands. He and Hopkins started a company to exploit the bitumen deposits. They eventually sold 40% of the company to the Chinese oil giant Sinopec (NYSE:SNP).
“By the time Montgomery and Hopkins sold out to Sinopec, oil prices had already started their meteoric rise. And that’s when Todd Montgomery’s visionary genius made history.
“You see, all of the developed Oil Sands fields stopped at Alberta’s border with Saskatchewan. Even though Shell found Oil Sands in Saskatchewan as far back as the 1950s, the discovery was never developed.
“In 2003, using a little-known clause in Saskatchewan’s 1964 Oil Shale Regulations, Montgomery laid claim to 1.4 million acres of land — right next to the developed fields in Alberta! “
So that makes it quite certain that we’re looking again at an old friend: Oilsands Quest (BQI) — Click here to get a free instant trend analysis of BQI from Marketclub, one of my advertising partners (the short version? This old momentum favorite is just the opposite right now).
Oilsands Quest was one of the hotter oil sands stories of 2006-early 2008, when everyone got hyper about the potential of the oil shale. After all, when oil prices are heading to $150 a barrel it’s the most expensive oil that’s most leveraged to those prices … and there isn’t much oil, aside from the ultra deepwater offshore fields, that’s more expensive to extract than the tar sands of Canada.
And whaddya know, this ad even shares much the same language as an earlier ad that Ian Wyatt used to tout the shares for a different one of his newsletters, back in May of 2008 when BQI was starting a run from $4 to $6 a share. At the time he called it the “$64 Trillion Land Grab“, but the gist was the same. Matt Badiali did a big promotion for his newsletter using Oilsands Quest as his teaser pick, too, a couple months earlier in March of 2008 — he called it the “oil sands story that 60 minutes missed,” and there was also a fair amount of hype over the potential for BQI getting listed on the Toronto exchange, but apparently that listing never materialized.
It’s still a fascinating story — and Montgomery’s focus on the potential for the Saskatchewan oil sands when everyone else was focused on Alberta was certainly the kind of thing that can make fortunes, though they’ve had at least their share of troubles in actually exploring and developing those Saskatchewan resources.
BQI has actually done better than some of the more staid and established oilsands players if carefully choose the time period you look at — it’s just that in order to get to their roughly 100% gain over the past five years you have to sit through a gain of close to 2,000% followed by a loss of something like 90%. And of course, if you bought it back in 2007 or 2008, when it was heavily touted by several newsletters and investors flocked into this hugely leveraged play to record oil prices, you probably don’t have charitable feelings about Oilsands Quest right now. The company has had plenty of challenges that helped the share price collapse, but certainly near the top of the list were the capital-intensive nature of their projects during the credit crunch, and the dependence of new oil sands production on high oil prices when, if you’ll recall, oil fell back under $40 again a year ago.
So this pick from Ian Wyatt certainly makes sense if you think the past is prologue, and that we’ll be returning to and surpassing those all-time high oil prices of almost two years ago — if that’s the case, then it’s certainly possible that investor enthusiasm for Oilsands Quest will heat up again and bring a nice share price advance.
Still, we must remember to be quite cautious about expectations for this one — they have estimated resources and have had “resources” for years, but they have not yet been able to book reserves, which is the more specific estimate of what might be profitably extracted that investors (and acquirers) tend to rely on much more heavily. This year has seen more testing of the reservoir, particularly their prime Axe Lake site that seems likely to be the location where they start production someday, announcements about those testing plans, and reiterations of the massive potential resources that are likely to be under their huge land holdings in northwestern Saskatchewan. It does seem to me that investors who’ve been burned on this one before (and I’m one, I dabbled in options at one point — at the wrong point, it turned out, though I currently have no ownership interest in BQI) are remaining fairly cautious, thus the $270 million market cap for what Wyatt calls $4.2 trillion worth of oil.
If you’re interested in the details of the bitumen and how they plan to extract it, there was also an interesting story on BQI about a year ago in the OIl and Gas Inquirer.
Wyatt bases his percentage gains on real events — when oil prices hit their all time highs, BQI was to a large extent the same company but traded at about $6 a share; and he uses the “top of the market” buyout of another oil sands company by Statoil to make valuation judgements about a potential 1,000-3,000% gain (that buyout priced North American Oil Sands at .91 per barrel of oil in its reserves, apparently — though I think those were really “reserves,” not just “resources,” an important distinction). So there is some potential reality to the thought that BQI could be worth considerably more someday if oil prices trend far higher, or if the takeout game gets back underway in the oil sands.
There have also been some developments specific to Oilsands Quest recently — as of this month they’re selling off their Pasquia Hills oil shale licenses (the site is in southeastern Saskatchewan, nothing to do with their larger oil sands leases) to a new company … and their CEO is also resigning to helm that new company, so Stephen Hopkins will remain on the BQI board but will no longer be running things for BQI, I have no idea whether that’s a commentary on which project has more potential or just the desire of an exploration guy to run an earlier stage development project instead (or if, as some have suggested, that transaction has a bit of a smell to it). They’ve also lost a number of other board members over the past year or so, and they sold a few more shares back in December to raise money.
And of course, they’re still talking themselves up to various investor conferences to keep the story in the front of our minds as actual production remains uncertain and, at best, probably years away. They had a pretty good and detailed presentation at the TD conference a week or two ago, with updates on their various tests of in-situ refining (heating up the bitumen and pumping it out, as opposed to mining the sand).
So will BQI take another big run? I have no idea — certainly if oil prices spike again, as some folks expect with rising emerging market demand, they’ll have the wind at their back … but they are years away from production, and they’re still faced with spending millions on infrastructure and exploration before they can book their reserves and start production, so this remains a compelling story of a huge potential reserve of oil … but whether the story is worth a nickel a barrel or a dollar a barrel is certainly in the eye of the beholder. Wyatt seems to think that there will be significant buyout interest in BQI when oil prices resume their steady march northward, and I’d agree that any kind of massive return in the next couple of years is either going to be because oil prices doubled or because a reserves-hungry suitor found their leases cheap enough to gobble up the company.
What’s your call? I was probably too optimistic a year and a half ago when I saw several folks touting these shares, and Wyatt and the others were certainly either too optimistic or, as those of us who are wrong like to call it, “early” back when the shares were dramatically higher than today … but are they now cheap enough to be compelling to more sober minds? Let us know what you think.
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