Captain Cook’s “Oil Jackpot”: How to Become the Next Alaskan Oil Millionaire.

By Travis Johnson, Stock Gumshoe, July 19, 2011

“The New Alaskan ‘Oil Gush’ Is Underway…

“Forget the greedy oil tycoons of Iraq, Saudi Arabia and Iran… Forget the oil giants Exxon, BP and Chevron…

“This Tiny Exploration Company could deliver you a quick and early retirement…”

That’s the intro from Chris Mayer in our newest tease — he’s trying to recruit new subscribers for his Mayer’s Special Situations newsletter (“on sale” for $747), one of two letters he runs for Agora (the other, Capital and Crisis, is his “entry level” newsletter, usually costs around $150/year).

And in exchange for subscribing, he’ll send on his special report about “Captain Cook’s ‘Oil Jackpot'” … but being the intrepid Gumshoe that I am, I’d rather find out what company he’s pitching on my own. And share that info with you, naturally, since I like you so much.

So this is come kind of company — small, naturally — that’s going to produce a lot of oil in Alaska, and presumably without drilling holes in the protected tundra at ANWR and making the polar bears and caribou angry. So who is it? Here’s some more of the pitch:

“Tiny exploration outfit resurrecting Alaska’s declining oil industry”

“This booming penny stock, priced at under $6.35 per share, has just received the necessary approvals from the Alaska Department of Natural Resources”

And it’s about to put a $1.2 billion oil gusher into production.

Mayer says that although they’re working in a historical oil district in Alaska, the fields they’re working are “too small” for the big companies… but that for a tiny company like this, it “could mean a fortune.”

So that’s interesting.

More interestingly, we’re told that revenues last quarter soared 550%, which generally ought to get our attention.

We also get some quotes from other sources, which the copywriters always try to use to get us to believe — after all, if they cite one detail from a newspaper, the rest of the ad must be legit too … right?

Here’s the quote from the Anchorage Daily News that Mayer includes:

“… geologists believe the [Alaskan] Inlet still contains large amounts of oil and gas”

I suspect they replaced the real word (Cook Inlet) in this early part of the teaser because using that term would make it perhaps a little bit too easy to find this company on your own — but no worries, you’ve got your friendly neighborhood Stock Gumshoe in your corner to do the heavy lifting. And to listen to Mayer’s interminable “presentation” so you don’t have to!

It’s in the oldest producing basin in Alaska, apparently (oil was produced in Cook Inlet for years before Prudhoe Bay on the North Slope was discovered), but much is still untapped.

He also includes a quote from Petroleum News, also obscuring the name of the inlet:

“Nearly all of the operating oil and gas fields in [this] Inlet derive from exploration done in the 1950s and 1960s, before the discovery of the giant Prudhoe Bay field caused the attention of explorers to switch to the North Slope. As a consequence, only limited exploration of [this]Inlet has taken place in more recent decades.”

So what has this company done?

They “quietly” bought over 600,000 acres of “prime oil territory” in this [redacted] Inlet.

How much oil is there? Mayer says that already “over 13 million barrels” have been discovered. He says it’s worth $1.2 billion, but of course, oil explorers are valued at a small percentage of the above-ground value of their reserves — oil that hasn’t been produced yet might be worth $15 or $20 per barrel if it’s pretty easy to extract, but often even proven reserves are valued less than that by the marketplace.

Still, Mayer does also say that this is just their first well, and that the massive exploration potential of the rest of this big parcel is untapped. And he says that the reserves are valued at far less than that $15-20 range …

“This little-known penny stock has hit the “mega-millions” of oil jackpots…

“By acquiring this huge “oil treasure” at less than 40 cents a barrel of oil equivalent (BOE) on Proven Reserves versus the historical U.S. Average cost of over $19 a barrel of oil equivalent.”

So, 40 cents a barrel sounds pretty good. What’s our company?

Well, eventually Mayer does spill the beans and tell us that he’s talking about Cook Inlet, though we coulda figgered that anyhow.

And he thinks the quick gains will be 376% as production ramps up on their first platform, but could be a “life changing 8,236%” as the other 590,000+ acres go into exploration and production. But that doesn’t help us to identify the pick. A few more details? I thought you’d never ask!

“… this tiny U.S. exploration company is now the largest licensee of oil property in the State of Alaska… with more acres than Chevron, Exxon, or ConocoPhillips.

“And yet no one has ever heard of it.

“What’s more… in order to encourage more oil exploration in the region, the State of Alaska is drastically cutting costs for this tiny U.S. exploration company.

“Refunding 40% of drilling and exploration cost and 20% of other capital costs….

“According to a recent article in the Alaska Business Monthly, this tiny U.S. exploration company has completed its planning and received the necessary approvals from the Alaska Department of Natural Resources to begin operations of this oil platform now.”

And as a bonus, we’re told that this company has also found natural gas, which is in great demand in Alaska …

“According to the Fairbanks Daily News, a study by the Alaska Department of Natural Resources shows there is enough natural gas in the Cook Inlet to supply South Central Alaska’s energy needs for a decade or longer….

“… according to a recent SunTrust research report on this explosive wildcatter, over 16 billion cubic feet of natural gas has already been discovered in its Alaska territory … valued at well over $400 million. “

And finally, the teaser tells us that this company bought their massive $1.2 BILLION “oil jackpot” on the cheap …

“How much? A mere $4.5 million from a distressed owner in Alaska…he was basically in a ‘must sell now’ situation.

“The bottom line is…this tiny company acquired the oil rights to over $1.2 billion worth of Alaskan oil at a massive 99.6% discount…

“That’s like buying a $1 MILLION home for $4,000!”

So … who is it? Well, I gave all those clues a nice thorough rinsing, shoveled ’em into the Thinkolator, and got an answer right away — this is … Miller Energy (MILL)

And the stock price has climbed a bit in the several days since Agora started blitzing us with this teaser, with plenty of folks either subscribing or figuring out the stock on their own — at least, that’s how it looks to me, given the very hairy price movement (it made both the “largest increases” and “largest decreases” lists last week) and unusual options action over the past week.

And yes, though this company was built on their expertise in the Southern Appalachian basin, and they have largely been focused on Tennessee oil and gas production, they did just start “a new chapter” in late 2009 when they bought a big chunk of land in Alaska on the Cook Inlet for what does sound like “pennies on the dollar.” Those assets were previously owned by Pacific Energy Resources, and Miller bought them out of Chapter 11 bankruptcy proceedings in late 2009 — you can see the detailed press release here.

And they do claim that the Alaska assets are worth $1.2 billion — that’s using a NYMEX PV-10 number (net present value based on 10% discount rate, I guess based on NYMEX standards), which is a substantial increase over the value they claimed about 18 months ago — and the increase in the value of their reserves, along with their claims of tax credits and such from the State of Alaska (yes, those parts from the teaser are accurate — and they do get some help in their costs from the State), has led to some strong revaluation of the stock. It was around a dollar before the Alaska buy, shot up pretty quickly to $6 over the following few months, and has spent the past year trading in the $5-7 range.

Which is about all your friendly neighborhood Gumshoe knows about these guys — I’m quite sure this is Mayer’s pick (the company even lists him as an analyst on their website, though they spelled his name wrong), but whether or not they will actually hit those production levels and turn what was considered a moribund Alaska asset into a hugely valuable future cash stream, well, that’ll take more analysis than I’ve done today (and perhaps more prescience).

They do also own a lot of infrastructure-type assets associated with the Alaska properties (like a production platform), so that’s probably a positive, and they are producing oil and gas both in Tennessee and in Alaska, though the analysts who cover the stock don’t expect that to bring an operating profit anytime soon (they did have that big revenue spike of more than 550% last quarter, but it didn’t make it to the bottom line).

If you want to see a more pessimistic look, one of the Motley Fool writers says they’re using “sleight of hand” and that this is a stock worth selling — I don’t know if he’s any more right than Mayer is, but it’s always worth considering both sides. If you’d like a taste of the excitement from the company’s own mouthpieces, they have some recent conference presentations and their latest conference call on their IR site here.

So whaddya think? A new era for Alaska oil and a buy for this opportunistic company that bought a dirt-cheap asset out of bankruptcy? Or did that previous owner go bankrupt not just because of the weak economy in 2009, but because the assets weren’t as valuable as they think?

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9 Comments on "Captain Cook’s “Oil Jackpot”: How to Become the Next Alaskan Oil Millionaire."

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Londonian
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Londonian
July 19, 2011 11:42 am

This is Miller Energy. Worth a small speculation maybe.

Myron Martin
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July 19, 2011 11:44 am
I bought on the basis of Chris Mayer's reputation as a deep value analyst with a good track record, though many times he is early to the party and it takes a year or so for his stocks to become profitable. Another analyst has also picked up on the rather compelling story so it may be hard to tell whether any price jump is triggered by fundamentals or just these promos by big newsletter publishers. Another potentially hot oil play in a completely different part of the world is developing in Kenya/Uganda/Somalia. The President of Heritage Oil is a major… Read more »
advantedges
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advantedges
July 19, 2011 12:48 pm

I will stick with HAL, SLB,XOM,CVX,COP and a few other winners………might as well consider buying XLE if you want an ETF,,,,,,,

Paul K
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Paul K
July 19, 2011 1:09 pm

Thanks Gumshoe – great analysis. This one was of particular interest.

Digs63
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Digs63
July 19, 2011 3:25 pm

I have sent dozens of emails, I want to add http://www.readtheticker.com to your software/charts/classes section for review. maybe some one will read this

No Clew
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No Clew
July 19, 2011 8:12 pm

Also promoted in Dr Kent Moor's Energy Advantage newsletter recently.

jof
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jof
July 19, 2011 9:58 pm

Any of you more knowledgeable in this field have any info on HUSA?

sudhesh joseph
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sudhesh joseph
August 18, 2011 9:48 am

This article is very misleading…Just check Miller Energy Resources and you will see that this company is now being sued for FRAUD…check the article at http://investing.businessweek.com/research/stocks

Gravity Switch
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August 18, 2011 10:03 am
I certainly didn't do exhaustive in-depth research on this one, as I hope was clear from the article above, but was focused on identifying the stock that Chris Mayer was teasing and giving folks a start on their research. About ten days after I wrote this some more criticism came out of Miller from the StreetSweeper folks (http://seekingalpha.com/article/282825-miller-energy-this-hot-alaska-stock-may-be-about-to-melt-part-1), who did much more investigation than I did, and that really got the lawyers revved up. The current crop of lawsuits from shareholders started building following the StreetSweeper stuff and, more importantly, the collapse in the share price, about two weeks after… Read more »
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