Matt Badiali runs the S&A Resource Report newsletter, which recommends mostly energy and commodity stocks. The teases he uses to promote his newsletter are usually pretty compelling and hyperbolic, and from what we’ve heard at Stock Gumshoe Reviews his letter is one of the favorites in the commodity space, so I always like to take a look when a new ad comes rolling in — add that to the fact that my readers have been pummeling me with questions about this so-called “Project Bronco,” and it seemed high time to take a look at our latest teaser about an ocean of oil that’s just sitting there in the U.S., waiting to be tapped.

Interestingly enough, I’ve even been getting questions from folks who subscribe to S&A Resource Report — at least one of whom didn’t think this sounded like one of the stocks that they’d actually been told about yet in the monthly newsletter issues. I suspect it’s just that the tease is so mysterious that subscribers might not immediately associate the “Project Bronco” pick with one of the stocks that has been covered, but I don’t really know.

So what are we looking at today? This is all about producing the “stranded” oil from old and well-known U.S. oil fields. Or, as Badiali puts it,

“Trapped for over four decades, one of the single largest oil resources in the world is finally tapped. Early investors stand to make an absolute fortune.”

Sounds good, right? Here’s some more from the opening of the letter, just to get you in the mood:

“With the support of the U.S. government, American companies are now mobilizing on a massive oil reserve…

“A cache that could hold as much as 430 billion barrels.

“To put that in perspective, that’s more than all the oil in Iraq and Saudi Arabia, combined…

“And it’s right here in the United States.

“No, I’m not talking about ‘oil sands,’ or any kind of ‘oil equivalent.’

“I’m talking about liquid, bubbling crude. Stuff we can just pull out of the ground and use. Stuff that’s been buried right underneath our feet for decades… but has been impossible to tap…

“Until now.

“‘The recoverable resource would last over 400 years,’ says the RAND Corporation, an elite government think tank.

“‘That’s more than all the proven oil reserves of crude oil in the world today,’ reports the Denver Post….

“Claims are being staked — huge projects that will likely make millions for many folks. In fact, the Department of Energy (DOE) has already written big checks to get these projects going….

“No oil company can even think about drilling if they don’t have access to a brand new, revolutionary drilling technology…

“A device that allows oil firms to finally access this ocean of oil… from areas once thought impenetrable.

“As geologist Mike Boyles says: ‘[It’s] the magic drug for getting [this] oil out of the ground.'”

OK — so we get a few more pages on extracting oil from old fields that has been previously “stranded”, and about how many efforts the government has made to find ways to extract that oil over the years. And there really was a “Project Bronco,” it was a plan to explode a 50 kiloton nuclear warhead underground to fracture oil shale and, I presume, heat the shale to extract the oil somehow. They didn’t actually end up doing this, of course, but it was, interestingly enough, designed as a concept for the Piceance Basin — the oft-studied shale oil resource in Colorado that supposedly has 1.5 trillion barrels of oil that still can’t be profitably tapped… which, in a walk down memory lane, takes me back to the first Badiali teaser I ever wrote about in this space (about three years ago), all about that trapped oil shale resource and yet another experiment to extract it.

But though the concept is somewhat similar — finding new technologies to extract “stranded” oil — in this case what Badiali is teasing is the company that dominates the use of a “magic drug” for extracting oil from conventional fields that have just been effectively “tapped out” by a lack of pressure.

And, as he does eventually go on to clarify, this “magic drug” is CO2, which is injected into old oil wells to increase pressure, which then can help them extract more oil from those fields.

So what clues do we get about the specific company doing this CO2 work? Let’s see …

“I’ve just discovered one small Texas firm that’s the undisputed leader in this new technology…

“A tiny firm that, I believe, will soon start collecting the lion’s share of profits thanks to the legacy of ‘Project Bronco’ and the release of centuries worth of untapped oil.

“Forbes calls them ‘the undisputed leader’ in their field…

“The Department of Energy (DOE) calls the technology they’re using ‘state of the art.'”

And a bit more …

“the DOE just did a study of 200 oil wells in the Gulf Coast region.

“The study showed that this small area alone had an additional 3 to 5 billion barrels of oil, which could be recovered with this innovative process.

“Incredibly, the small Texas company is the ONLY company in the world who has the infrastructure and the resources in this area to make a killing off this oil.

“At today’s oil prices, this one area alone could produce more than $62 billion in future earnings – over 15 times this company’s current market cap.”

OK, so … a company based in Texas, with infrastructure for “magic” CO2 injection “in the area” of the Gulf Coast, with a market cap of something under, but probably pretty close to $4 billion ($62 divided by 15).

And …

“They’re also involved in major projects in the Rocky Mountains. In April 2008, the U.S. Geological Survey estimated 4.3 billion barrels of recoverable oil sits in old fields in that region alone.

“Combined, these projects could be worth $160 billion in future earnings.

“And this is just the beginning of a nationwide effort that could last for decades.”

Finally, the P.S. — always the favorite part of a sales letter … and, If I remember correctly from way back when I was writing fundraising letters, often the only part of a letter that people read …

“P.S. As I was writing this letter, the tiny Texas company at the forefront of “Project Bronco” quietly signed a huge deal, acquiring thousands of acres of oil lands in the Great Plains. This deal isn’t widely known yet, but it won’t be long before it is — and their stock starts running.”

So … answers, please? Well, I was pretty sure about this one before I got to the P.S., but with that detail that they’ve signed a huge deal for acreage in the Great Plains, I can be pretty certain that this must be …

Denbury Resources (DNR — instant trend analysis on DNR, which is currently not so pretty, is available here from Marketclub, one of my advertising partners)

Denbury is an oil and CO2 company, with a market cap of about $3.5 billion, and with CO2 plants and pipelines (“infrastructure”) near the oil fields of the Gulf Coast — along, of course, with many oil fields of their own down there. Here’s how they describe themselves:

“The Company is the largest oil and natural gas operator in Mississippi, owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River, and holds significant operating acreage in Louisiana, Alabama, and Southeast Texas. The Company’s goal is to increase the value of acquired properties through tertiary recovery operations, combined with a combination of exploitation, drilling and proven engineering extraction practices.”

And, what do you know, they also recently agreed to acquire/merge with Encore Acquisition (EAC) — which does indeed have lots of acreage in the Bakken and nearby basins, and in Oklahoma, both of which could be included in a broad definition of the “Great Plains,” as well as in a few other areas. They also recently bought most of the Conroe Field near Houston, another old oil field that should benefit greatly from CO2 flooding.

Denbury is indeed very focused on this “magic drug” — they have an interesting quick video on their homepage about their use of CO2, and it is easy to see a bright future if things proceed as they are … that’s because CO2 injection helps in two ways, both of which are popular: It increases production from known (and therefore inexpensive) oil resources in the US, perhaps cutting import demand; and it sequesters CO2 in the earth, helping to reduce emissions of the greenhouse gas. They’re even trying to develop systems to recover manmade CO2 from factories, power plants and such for use in oilfield injection, but that part of the business is still pretty new and small.

And yes, Forbes did call them the “undisputed leader” — as long as you mean, “an analyst who wrote something for Investopedia, which is owned by Forbes.” That commentary is here, Eric Fox called Denbury “the ‘oiliest’ of the large cap independents and the undisputed leader of tertiary enhanced oil recovery methods.”

Denbury’s acquisition of Encore makes them instantly quite a bit bigger, and gets them access to more potential reserves — but it also, of course, carries some risks. Encore has just about the same enterprise value as Denbury (the market cap is smaller, but EAC has debt on their books and DNR does not, so EAC’s enterprise value is up to about $4 billion), so merging the two firms could always bring complications.

And the announcement of the acquisition certainly brought the price action we almost always see, which is a boost to EAC’s price thanks to the premium offer, and a drop in DNR’s price since they’ll be paying for about 2/3 of the deal with stock. EAC is also slightly pricier than DNR on most metrics (PE ratio, etc.), perhaps partly because of their “sexier” Bakken holdings.

Still, this one does look interesting — CO2 injection is growing as a way to rejuvenate oil fields, with more pipelines being built to carry the stuff, and more focus on underground storage of CO2 as an environmental measure can’t hurt, either (Denbury goes so far as to call it “carbon neutral” oil as they inject CO2 to take place of the extracted oil, and that sounds like a catch phrase that could certainly be popular with regulators).

And they’re pretty cheap, and likely to be profitable in the near future as long as oil prices don’t collapse — Denbury’s forward PE is about 13, EAC’s is about 16. Most of the companies of this size that get a lot of attention are primarily focused on natural gas, which has been a wilder ride lately, but Denbury is largely a CO2 and oil company, both of which seem likely to have somewhat steadier pricing and demand.

Does that mean Denbury will make you a fortune? Beats me — if you think so, or think not, feel free to share those thinkin’s with a comment below…. but I am, at least, pretty sure that Denbury is the stock Badiali would tell you about if you subscribed to his letter and read his “‘Project Bronco’: The Secret Injection Technology that Could Make You a Fortune” special report.

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