Well, you probably know the drill by now — if there’s going to be a teaser pitch made for a $5,000 (or $3,000 “on sale”) newsletter, and if that pitch is going to be made by probably the largest marketer in the newsletter world, well, yours truly is going to be inundated with requests to solve the puzzle.
So it is again today — Frank Curzio is sniffing around for 150 new subscribers for his Phase 1 Investor newsletter (that’s the “top of the line” letter published by Stansberry & Associates, it usually recommends little tech, biotech and resource stocks). And to get you interested, he’s hinting around about “a very thinly traded resource firm.”
Here’s the rationale they share in the ad:
“In April of 2009, we did something we had never done before in the history of our business…
“And we thought we’d never do again.
“In short, we came across a gold stock that was so microscopic… So thinly traded… We had to initially limit the invitation to learn the details to less than 200 subscribers.
“That gold stock generated the opportunity for tremendous gains for those who were able to get in…
“Unfortunately, not everyone was able to participate….
“When we first did this in 2009 we limited the opportunity because the stock we were recommending was trading for less than $3 a share and had a market cap of less than $200 million.
“Today, we’ve come across a similar opportunity… But this new stock is even smaller and potentially more lucrative.”
Well, if they pitched that stock more widely in April, 2009 then I might have missed it — we were, of course, publishing back then (going back to 2007 now, Stock Gumshoe is getting a bit long in the tooth). I don’t think we covered any Phase 1 teasers that month.
But still, yes, we can verify that they’ve used the “just 150” or “just 200” slot pitch before (and say, “yeah, right” the the idea that they’d “never do it again”), and they’ve certainly teased several small gold stocks that have had nice runs over the past several years. The most recent one, actually, was a “just 75 slots” pitch back in January of 2012 for Gold Standard Ventures, and that one did have a nice run to a triple before falling back, it’s now cheaper than it was when they touted it (the Stansberry letters almost all use stop losses, so presumably he would have had you sell with some kind of gain if you bought below a dollar way back then).
So what’s the stock they’re touting this time? Well, again it’s a resource company — though this time it’s in the energy space, not in gold or silver. And it’s apparently a very small stock again, so I’ll share my standard warning: Because Curzio’s ad campaign has heightened interest about this pitch, and because it’s such an expensive newsletter and some folks assume that means it’s a “better” pick, when we write about these kinds of stocks they sometimes react violently to the new attention. It all depends on how tiny it really is, and what the “normal” trading volume is … and, of course, on what kind of opinion we might have or you might have — but the standard warning even before I figure out the stock for you (we’re getting to that) is, “be careful.” Tiny stocks that shoot up quickly on a wave of new attention can fall back down just as quickly, even if nothing else happens.
So now… how about the clues from Curzio’s letter?
“It’s a tiny resource firm with a market cap of less than $100 million and it trades for less than $1.50 a share….
“The good news is, if you’re able to get in on this, there’s little doubt in my mind you’ll have the opportunity to make quite a bit of money.
“Of course, there are no guarantees. Trades such as this, especially on very small stocks, carry large and inherent risks. But I believe gains of several hundred percent are possible…”
Curzio said the word of this new energy play and the company profiting from it came from a well-connected wildcatter he knows — I don’t know if this is yet another pitch brought on by their connection to Cactus Schroeder, who the Stansberry folks have relied on in the past for expert info, or if it’s someone else. Here’s what they say about the specifics:
“As soon as I heard about this tiny firm I hopped on a plane to meet our wildcatter contact…
“… we hopped in his pickup truck and began to tour what he believes is one of the largest oil fields this country has ever seen.
“He says oil production could dwarf the Eagle Ford area in Texas. Eagle Ford is currently one of the largest oil fields in the world.
“… look what a Lubbock Texas newspaper said when comparing the Eagle Ford to this new discovery… ‘The 140-mile-long and 70-mile-wide oil shale is anticipated to be one of the largest oil plays in American history. [It’s] depth is equivalent to 10 Eagle Ford Shales stacked on top of each other.'”
So that sounds enticing … and given that quote, we know they’re talking about the Cline Shale — which is a hot new area in West Texas, part of the Permian Basin (names fluctuate a lot when you’re talking about shales at different depths and locations, the Cline is also sometimes called the Lower Wolfcamp Shale, among other monikers). So it’s an established oil and gas area, to be sure — some are saying it might be the largest new oil field discovered in the US since Prudhoe Bay, so the chatter about the Cline Shale is likely to continue for some time. It’s still pretty early days for this formation, but the speculation is that it’s maybe 50% bigger than the Bakken, and will be substantially less expensive to produce, and it has a high ratio of oil and liquids (more valuable) to dry gas (less valuable). So the big picture seems intact, it is really a promising area.
You can see that article from the Lubbock Avalanche-Journal here (awesome newspaper name, by the way). Or if you want more perpective from newsletterland, there’s another general piece on the promise of the Cline from the Oxford Club folks here (that article suggests a look at large regional player Devon, FYI).
How about some clues to point us at the little company Curzio is teasing? Here you go:
“… among $22 billion Devon Energy… $13 billion Chesapeake Energy… And $31 billion Apache energy… Sits a tiny firm that could make you an absolute fortune….
“Over the past year, this tiny firm increased production by over 200%…
“Which is more than Devon Energy, which only increased production in the area by 24% in the beginning of 2013….
“The tiny firm also has a major interest in a very large tract of land in this new discovery, which is virtually untouched. Its partner in this land is one of the biggest and most successful energy firms in America, which is more than 100 times the size of our tiny firm.”
So apparently it’s not just an explorer, it’s producing now — and we’re told that some hotshot investors have effectively endorsed the stock:
“… some of the smartest investors on the planet have recognized the potential of this company and have invested significant sums of money in it.
“One of them is a private investment firm in Texas. The head of this firm used to be in charge of Morgan Stanley’s Global Oil and Gas Investment Banking division.
“Get this: The private firm currently owns over 15 million shares and continues to buy. As one analyst noted, that’s ‘certainly an encouraging sign.'”
And after Curzio goes on to tell us the he can’t tell us any more, for fear of revealing the secret, he tells us that…
“Right now, this tiny firm has dozens of producing wells and by the end of 2013, it’s estimated they will increase the current number by more than 30%. Conservatively, you could double your money on this stock by the end of the year.
“In fact, one energy analyst says this firm, could double or triple in price but is still largely undiscovered….
“An energy firm with a market cap of over $15 billion, recently leased land near the tiny oil firm’s stake.
“In fact, the huge company got permits for three wells just one mile north of one of the firm’s projects.
“And since the tiny firm owns interests in over 40,000 acres in the area, and has a market cap of less than $100 million it’s a prime candidate for a takeover.
“In other words, some experts are predicting the large energy company is preparing to buy out the tiny firm, which could make you even more money off this stock.”
Well, it’s not a LOT of clues — but thankfully, the Mighty, Mighty Thinkolator is well rested. This stock is almost certainly … Lynden Energy (LVL on the Venture exchange in Canada, LVLEF on the pink sheets).
I can’t say that we’re 100% certain on this one, since we had to sneak in the back door to figure out our target (we found their major investor first, that’s John Lovoi, then tracked down the most likely of his Cline-related holdings), but it all checks out pretty well with the limited clues given so I’m almost certain. We’ll call it 98% sure, but we’re also just making that number up.
Lynden Energy is indeed a very small company, market cap about $90 million … which is, coincidentally, very close to what a consultant estimated last Summer as the net present value of their proven and probable reserves, discounted at 10%. I haven’t checked those numbers but it does mean that there’s at least some fundamental reserves and production backing up the current market cap.
I think I’ve only mentioned Lynden once in this space, that was back when Curzio’s boss Porter Stansberry was pitching the Cline Shale (he was teasing Devon, too, for his “secret shale region) — at the time I noted that there were a small crop of land-rich Cline stocks, and that some of them would probably end up being teased … and Lynden was one of those. It has also been touted by Keith Schaefer over at Oil & Gas Investments Bulletin, who posted this detailed assessment of the stock over a year ago.
Here’s what Keith Schaefer was saying about Lynden in an interview back in February:
“Lynden Energy Corp. (LVL:TSX.V) is a really interesting story. It’s a Permian play in West Texas and has this asset called Mitchell Ranch, with more than 100,000 gross acres in the heart of the Cline shale. Net, it owns about one-third of that. That big a land package in that location in one big block is very rare. If it spun out that asset and IPO’d it, it could probably get $250 million for it, worth $2.50/share. Lynden is just going to sit on the land for a little while and let everybody else prove up the ground around it. That asset could double or triple the current stock price if it gets one really good well out of that play. It raised its own money, so it doesn’t need the Street. Because it doesn’t pay the Street, there’s not a lot of research on it. It’s a bit of an undiscovered gem.”
Lynden does have roughly 40,000 net acres in the Permian Basin, though it’s from a somewhat confusing array of partial interests, joint ventures, etc. The basic story is that their producing property, Wolfberry, is generating the revenue. They’re using that revenue, and selling off some of the producing wells (they sold some of those wells to Breitburn Enerby Partners (BBEP) at the end of last year) to finance further reserves increases in the Wolfberry, but more importantly to push forward on development of their Mitchell Ranch project. Mitchell Ranch is the large acreage position, it’s a 100,000 acre parcel in the eastern shelf of the Permian Basin, which is apparently right where people want to be for Cline Shale/Wolfcamp access. They’ve been pretty clever and patient about the development of this project, it appears — they have a working interest partner for the whole thing, but they’ve effectively sold off a third of the property to a large operator in exchange for access to their data and an overriding gross royalty (1.25%). It’s not really a sale, it appears that they get it back in about six months (that’s 30 months from when the deal was struck in Summer 2011) if the partner isn’t producing and maintaining their interest, but if it’s a successful field as expected, it’s effectively a sale. So that’s what Schaefer means when he says they’re going to “let everybody else prove up the ground around it.”
You can see Lynden’s latest annual report here, which is a year old (fiscal year ends in June, apparently), and their latest release from the March quarter here. They’re currently profitable because of their recent asset sale to Breitburn, but even without that they have had decent operating earnings from their Wolfberry wells. The cash flow is still going back into Wolfberry wells to continue increasing production, but they are apparently participating in seismic studies on the Mitchell Ranch property to begin to plan exploratory wells there. I only skimmed the info, but I didn’t see any word on the big E&P company that bought in to that third of the Mitchell Ranch property or what they might have learned from any exploration there, but there is also apparently a lot of drilling activity in the neighborhood so perhaps they’re learning more as their competitors drill.
That’s about all I know about Lynden, it appears to be a relatively conservative company focused on developing a potentially large Cline Shale/Wolfcamp asset, but I have no idea how quickly any such development might move … or, indeed, whether they’ll be successful at finding meaningful reserves as they expect. They’ve been building up their Wolfberry production for a couple years now and the larger Mitchell Ranch property has mostly just sat there as a “this might be big” project, so it appears we’re still waiting on that. I don’t know whether they’re going to want to be passive and develop it slowly or if they’re hoping for some big breakthrough drilling form neighboring explorers or from their partner on the property so they can sell out at a big premium, but so far the indication is that they’re going to sell off wells once they’re proven and producing and use that money to find new reserves. I can’t tell you whether it’s a great buy here or not, I’m no expert at evaluating energy projects and I haven’t looked that closely at Lynden yet … but I’m sure there are some oil and gas mavens out there who know more about this one than I do, so I’d be delighted to hear your opinion with a comment below.