We don’t write about newsletters that are published overseas all that often — but there are offshoots of Agora and the Motley Fool that publish similar teaser ads in both Australia and the UK, along with some competitors, so they do come across the desk here at Gumshoe HQ every so often …
… and we hate for our delightful readers around the world to feel left out, so we do try to get to them when they’ve got a nice overhyped promise to sell.
So it is today, with a teaser pitch from Tom Bulford for his Red Hot Penny Shares letter, published by Fleet Street in London. He’s tempting us with the promise that a tiny UK company has its mitts on a huge oil strike, here’s how the tease begins:
“US Government officials say it could be the largest oil reserve in recorded history…
“… An energy source FIVE times bigger than the Saudi Oil Fields, it holds more oil than all of OPEC…
“And one specialist UK firm has exclusive rights to drill 3,000 acres of it!”
Sounds pretty compelling, right? That’s the basic theme behind almost all junior energy stock promotions and teasers: That a tiny company has the rights to an oil discovery or other valuable asset that’s worth far more than the company itself.
So which one is it?
Here’s a bit more hinting for you:
“It could be enough oil to fuel the entire planet’s demand for 46 years.
“An energy source five times bigger than the Saudi Oil Fields…
“So the question is, why are you only hearing about it now?
“Well here’s the thing…
“In official circles, this trapped oil has been known about for the better part of a century…
“For decades it’s baffled geologists and scientists all over the world.
“If only they could get their hands on it… if only they could tap this colossal reservoir of crude.
“But for more than 75 years it has proven far too difficult and costly to get at. Even leading experts in oil extraction believed tapping it was impossible.”
Which means it’s one of those “unconventional” oil fields — deep water or shale or oil sands or something like that. How about the specific firm? Any clues on that?
“One tiny British firm – currently trading for less than 2p a share – could be about to blast most of the big guns out of the water. Exxon, Shell, BP – they’re all looking on with envy.
“You see, this British firm has landed an exclusive deal to drill 3,000 acres of this oil-rich land.”
He does insert a wee bit of cautionary language, too, thankfully:
“Now a tiny oil stock like this, in the early stages of development, carries a lot of risk. Many drillers fail to turn a profit, or even strike oil, as I’m sure you’re aware.
“But it’s exactly because of this risk that the potential gains are so great.
“The biggest gains on stocks like this are usually made before they start producing. They’re made on anticipation of the company’s profit. And they’re often made ahead of the oil reserves being proven.”
And it turns out that what’s being teased here is something that was last aggressively pushed as an investment idea (in my universe, anyway) in 2007 or 2008, during oil’s first run to over $100 a barrel. That’s oil shale, the kerogen trapped in rock that’s been discovered in massive quantities in the vicinity of the Rocky Mountains, and studied for decades, but that has been uneconomic or otherwise unappealing to extract, largely because it requires heat to separate the oil from the rock.
There are folks who believe that we’re on the verge of actually producing this kind of oil in commercial quantities, including a vocal critic who commented away like crazy when I downplayed the potential of oil shale in a different piece a few months back, but I think it’s plenty reasonable to remain a bit skeptical. Sure, there may be advances that bring oil shale to production as abruptly as the shale oil and shale gas revolutions that were brought about by hydrofracking and horizontal drilling, but my impression is that we’re still in the “de-risking” phase of these technologies. Feel free to disagree with me, I’m not an energy expert and could certainly be wrong.
Here’s how Bulford describes it:
“… oil in this reserve is incredibly difficult to extract… or at least, it used to be.
“It takes a very long time – around 65m years – for organic matter to decompose into oil. If after these 65m years the oil ends up trapped in rock, it is known as shale oil.
“The only way to get shale oil is to use a controversial process called Fracking.
“Fracking uses huge amounts of water and chemicals to break up the rock and get at the oil within. Some evidence points to fracking causing massive environmental damage – and even earthquakes.
“There’s another type of oil – called OIL SHALE – which is very different.
“Oil shale is a sedimentary rock containing unique plant material that’s only 22m years old. In another 40m years it would turn into pure crude.
“But we don’t necessarily have to wait 40m years for the chance to tap it.
“Breakthrough drilling technology means this 40m year process can now be condensed into mere months.
“And what’s more, with this process, there’s relatively little environmental impact.
“Energy experts are likening this oil shale revolution to the colossal success of ‘unconventional’ natural gas…
“A market estimated to be worth around $61bn, that’s proven a cash cow for clued up energy investors.”
Then we get a bit more about the company being teased:
“One tiny London-listed firm is at the forefront of this energy revolution…
“They will soon use the new super-efficient extraction technique to try to tap 3,000 acres of these coveted oil reserves…
“If everything goes to plan, even after transportation costs, they’ll be getting pure crude for an estimated $40 a barrel. That’s $48 below the current market value!
“And right now, they’re trading for less than 2p per share!
“But I doubt they’ll stay at this ludicrously low price for long…
“I firmly believe that in 12 months they’ll be up over 344% – more than quadrupling your stake.
“But my estimate could be on the conservative side…
“International stockbroker Numis Securities estimates a far higher return.
“Assuming a long-term WTI oil price of $90 a barrel (it’s currently at $88) Numis predicts an un-risked stock price of 14.2p per share.”
Now, trading for a few pence per share doesn’t automatically mean this is a ridiculously teensy penny stock — it probably does, but London has a long tradition of very low priced shares, and they price their stock in pence, not in Pounds, so there are some decent-sized companies that trade for 5-15p per share (for folks on this side of the pond who have trouble with the London-listed shares, small p is pence, 1/100 of a Pound, so if you use that number the currency conversion to the US$ would get you a price in US cents). Maybe 2p is pushing it a bit for the test of whether it’s a credible company, but we’ll see what we find.
We also learn that the company’s risk include a neet to bring in a partner or raise money to put together the $300 million or so they’ll need for the project … and that it will still be two years or so before they have the necessary permits to proceed. But Bulford foresees a catalyst before then:
“… we can get an idea of this company’s success long before 2014…
“A similar venture with oil goliath Total, using the same ground-breaking technology, is getting off the ground as you read this.
“They have already run a successful pilot test and are in the process of proving the environmental and economic benefits of oil shale extraction on a huge scale.
“All being well, this will prove the benefits of the new process and bolster confidence in the tiny firm I’ve been telling you about – pushing its share price towards Numis’ 8p estimate.”
OK, so that’s probably enough clues for you — who is our little 2p wonder?
We set up the Mighty, Mighty Thinkolator to drive on the left side of the road, let her get up to speed, and get our answer nice and easy: This must be TomCo Energy (TOM in London, TMCGF on the pink sheets)
And yes, it is very tiny — the price is about 1.6p right now, so just shy of three cents, and it has a market cap of just about $30 million. Writing about such a tiny company brings risks on its own as we share it with the great Gumshoe universe, since even our relatively small group of folks could easily drive the shares up if they got interested — it is extremely illiquid even in London and trades quite rarely on the pink sheets, so please don’t rush into anything.
Do they really have a project? Well, they have a potential one — they do have a lease on about 3,000 acres in Utah, they have partnered with Red Leaf Resources to use Red Leaf’s “EcoShale™ In-Capsule Process” to produce oil from shale, and yes, Red Leaf also has a test underway with Total. Red Leaf is private, in case the technology excites you, so you can’t easily invest in them directly.
TomCo has delayed the update of their resource report by a quarter, but their latest update says it should be out by the end of the first quarter as they anticipate new pricing models from Red Leaf based on the tests that have been done so far. I have no idea whether the teased $300 million will be a real capital price, but this is a mining process — they dig up the shale, then put it in this “ecoshale” processing capsule to heat it and extract the hydrocarbons, so if there’s any scale we’re talking about a big, industrial mining operation, not just a drill pad and a rig.
Will it work? Beats the heck out of me. The stock rose a bit at the end of the year, which I would guess came partly in expectation of the updated ore resource and partly due to promotion by Tom Bulford, but it has wavered in the 1.5-2p neighborhood for most of the past year. Total’s test projet with Red Leaf started in earnest over the Summer, apparently, but I’ve seen no results from that or any indication of when results might be released — perhaps there will be more detail when (if) TomCo publishes it’s updated resource report in a couple months. Until then, I’m sure there are folks out there who know way, way more about this stock and this technology than I do, so if you’d like to pitch in on oil shale production, Red Leaf, or TomCo, feel free to jump right in with a comment below. Thanks!