Monster Gas Discovery: Tiny US Company Hits Jackpot (White Cap Report)

I haven’t written much about the folks from the White Cap Report, which seems basically to be just a relatively low cost “small growth stock” newsletter … but the ad that a reader forwarded last night caught my attention. Like the Matt Badiali teaser we looked at a yesterday this one is also targeted at a Chinese energy resource, though this time it’s a huge gas field being tapped by a small cap US company.

And no, it’s not the huge and controversial InterOil field in Papua New Guinea, though that’s been teased before, too, and also as a “gas to China” play — this one’s an actual field in China.

I haven’t seen the ad circulated heavily, so it could be that we’re early (or very late) on this promo, or that it didn’t get pushed very hard in the first place, but they use a target date of June 3 so I’d guess that we’re probably not late to this particular party. Whether it will be a worthwhile party is, of course, yet to be determined.

Here’s how the pitch begins:

“MONSTER GAS DISCOVERY!

“Tiny U.S. Company Hits Jackpot Alongside Energy Giants

“3.8 trillion cubic feet of the world’s highest-grade gas lies within this field…

“Analysts predict the stock could pop from $4 to $17 as early as June 3…”

What they mean by “highest-grade gas” is that this is coalbed methane, which apparently requires less refining than most natural gas.

And here’s a bit more about the promise of this coalbed methane play:

“… a tiny U.S.-based company just “spudded” well #ZJN 001.

“The well lies within a 175,000-acre stretch loaded to the gills with natural gas in China’s Ordos Basin.

“And not just any gas… Coalbed Methane – the purest natural gas in the world.

“What’s remarkable is exclusive rights to the field belong 100% to a tiny U.S.-based firm.

“It already received written drilling authorization from China’s Ministry of Commerce, too. Meaning no red tape.

“And the fact that energy Giants – Shell and PetroChina – are also actively drilling in the Basin (north, south and west of the small cap) lends itself to an irresistible opportunity for the company and investors alike…

“Just consider this…

“An independent report (issued by LCH Surveys Limited) estimates the field is worth $460 million. Or more than 62 times the value of this tiny company’s assets.”

The ad draws a parallel between this top-secret, unnamed teaser stock and Targa Resources, which was another small company drilling in the same neighborhood as BP and Exxon, and had massive returns while those two giants slumbered. No big surprise there, part of the basic strategy behind most of the “White Cap” ads I’ve seen is basically just that small cap growth stocks move faster than large cap stocks … which is obviously true, though of course they can certainly move both up and down at that accelerated pace.

So what else do we learn about this unnamed company that they persist in calling “Small Cap, Inc.”?

Their field is 77 miles from the major West/East pipeline.

“China United Coal Bed Methane Company (CUCBM) says Small Cap, Inc.’s discovery contains in excess of 3.8 trillion cubic feet of ‘sweet gas.’

“International energy auditor Cawley, Gillespie & Associates valued its field at $400 million.”

Just an aside here: as someone who is just a bittersweet month or two away from leaving my longtime home in Washington, DC, I’m having a hard time resisting the urge to draw a line between this “sweet gas” and our city’s treasured Ben’s Chili Bowl. Maybe I’m just hungry for lunch, or have been spending too much time with three-year-old’s.

But anyway, we wanted to make millions, right? So how to do it?

“Wall Street hasn’t calculated any of the gas into Small Cap, Inc.’s stock price. Yet.

“The tiny company’s market cap is only $193 million, presently.

“Considering the value of the gas in the ground ($400 million)…

“And given the 99% purity of the gas…

“And the fact that its first well – one of four planned – reached total depth in mid-November…

“It’s a no-brainer the company should head higher as more investors clue in.

“In fact, our leading analyst expects the stock to hit the $17 price target by the time the company releases its next earnings report on (or around) June 3.

“(The report’s release will confirm our data. And likely tip-off Wall Street to what’s happening.)

“Which may explain why Morgan Stanley recently bought a sizeable block of shares for its house account.

“And why on April 7, a Small Cap, Inc. insider loaded his personal account with shares.”

OK, so that’s an embarrassment of riches for your friendly neighborhood Stock Gumshoe … took just a moment or two of percolating in the Thinkolator to conclude that this is …

CAMAC Energy (CAK — free trend analysis on CAK here from Marketclub, one of my advertising partners … the trend looks like it is not very definitive at this moment)

CAK, until about a month ago, traded as Pacific Asia Petroleum (used to have the ticker PAP), but then PAP “acquired” the interests in Nigeria’s Oyo Field that were held by CAMAC International (a huge private company) in exchange for a 62%+ position in the new company and cash, and switched to a new name and ticker.

So the overall company is quite a bit larger now and is effectively controlled by CAMAC International, unless they decide to sell off some of their holdings … I’m guessing that the $193 million market cap teased is for the pre-closing size, which would mean it’s in the neighborhood of $600 million now… the stock is right at $4.50 right now, and it looks like the company had about 42 million shares outstanding before the deal, and with the cash and shares needed to compete the deal that will probably just about triple to 130-140 million or so, (I haven’t seen the official new number or read all the filings, but there were also warrants involved to maintain CAMAC Int’l’s ownership percentage.) This article on CAK publishes an opinion that they can generate $80 million in profits from the Oyo Field, which would mean that if you ignore China (and if the analyst is right) they’d be trading at about 7.5X earnings (China will be a drag on earnings as they continue to drill and develop).

So it’s certainly accurate to say that investors are not valuing this company primarily based on its Chinese assets, at least not now that they have their big position in the Oyo Field — that field, by the way, is a deepwater Nigerian find that just started production back in December. I think CAK’s share of production at this field is going to be 60%, and it’s expected to produce 20-25,000 barrels a day, so the company is probably going to quickly become profitable and generate much more dramatic cash flow from that field, well before the Chinese gas assets begin to be produced.

And that Chinese field is called the Zijinshan block, and it is indeed in the Ordos Basin (which is in Shanxi Province). They have a thirty-year production contract on this field, and they’re expecting to continue drilling this year, and to begin production in 2012. They also own some other assets in China — including rights to an enhanced oil production technology, and to an oil exploration target in Inner Mongolia.

They are not profitable yet, and certainly would have been waiting for a while longer to get to that stage if they hadn’t made this acquisition … but they say all the right things about focusing on “near cash flow” projects and limiting expenses to bring Chinese production online as soon and as profitably as possible, so that’s nice, and they do certainly have some valuable assets … whether they’re worth $4 or $17 a share or somewhere in between is, of course, in the eye of the buyer (that would be you, should you be so inclined).

As for me? Well, this one looks pretty compelling — it seems likely to me that the stock will get significantly more attention from institutional investors now that they’re above a $500 million market cap and are expected to become profitable, particularly once the shares settle down and they start reporting as the new CAMAC Energy, with some clearer numbers. There is no real analyst coverage now and very little institutional ownership, but CAMAC International’s controlling stake will probably also help bring attention (CAMAC Int’l boasts a lot of big-name oil guys on the board, some of whom will also serve as CAMAC Energy directors).

I haven’t seen the actual date of their earnings release, but the White Cap folks are telling us to “circle the date” for June 3 as their target for the earnings release to come out and publicize all this compelling info and drive the shares up to that $17 target — I wouldn’t hold my breath for anything happening that quickly, but I will admit to being interested in this one, I’ll have to spend some time trying to figure out their real numbers and reading through the filings to see if it will enter the Gumshoe portfolio (I will not, of course, trade in the shares for at least three days, per my rules).

So what do you think? Compelling, or too confusing or risky? Did the idea of getting most of their revenue from a single offshore field just get a little more frightening after BP’s disastrous Gulf spill, or are you interested in using a Nigerian deepwater resource to spit out cash and fund the development of some promising fields in China? Let us know with a comment below.

And of course, if you’ve been a subscriber to the White Cap Report we want to know what you think — just click here to review it for your fellow investors at Stock Gumshoe Reviews. Thanks!


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22 Comments on "Monster Gas Discovery: Tiny US Company Hits Jackpot (White Cap Report)"

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Jeff
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Jeff
May 4, 2010 5:42 pm

Might be a pop up on May 17th:

HARTSDALE, New York–(BUSINESS WIRE)–CAMAC Energy Inc. (NYSE Amex: CAK), a U.S.-based energy company engaged in the exploration, development, production and distribution of oil and gas globally, today announced that the Company’s President and CEO, Frank C. Ingriselli, will be presenting at Rodman & Renshaw's 6th Annual Energy Investment Conference on May 17, 2010 during the opening morning session at the Grosvenor House Hotel in London, UK.

WWE Bob
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WWE Bob
May 4, 2010 7:13 pm

Did a little more due diligence. Their website describes operations in the Oye Oilfield off Nigeria.Operations are done by a "small" company named ENI S.P.A.I certainly contributed to their bottom line by purchasing gas at their ENI/ENIT stations all through the length of Italy.

Jeff
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0
Jeff
May 4, 2010 5:42 pm

Might be a pop up on May 17th:

HARTSDALE, New York–(BUSINESS WIRE)–CAMAC Energy Inc. (NYSE Amex: CAK), a U.S.-based energy company engaged in the exploration, development, production and distribution of oil and gas globally, today announced that the Company’s President and CEO, Frank C. Ingriselli, will be presenting at Rodman & Renshaw's 6th Annual Energy Investment Conference on May 17, 2010 during the opening morning session at the Grosvenor House Hotel in London, UK.

WWE Bob
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WWE Bob
May 4, 2010 6:51 pm

Read the SG post,did due diligence,& bought shares at $4.58 this AM.Several hours later,stock is pushing $5.00/share.As Travis said,it seems compelling.Since I was able to unload all shares of BGBR pump & dump at a profit,this appeared to be a much more stable chance.Besides,it has more than one person running it.Major insiders include Stanford University.This could be interesting & legit as opposed to BGBR.The risk appears to be much less than playing Powerball & Travis is correct,no analysts & few Institutional holders.Perhaps this is the ground floor to get in on?

gumwatcher
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gumwatcher
May 4, 2010 7:16 pm

Travis would you tell us if you do decide to buy?

WWE Bob
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WWE Bob
May 4, 2010 7:31 pm

Travis,didn't know that you were moving from DC…to where & what happens to the site?ENI is known in Italy as Agip & I misspelled Oyo,sorry.BTW,the Agip stations along the Auto strada del Sole sell great foods,not prepackaged crap like here & their liquor miniatures are great on board the plane(especially the grappa).You could eat your way down the length of Italy without spending big bucks just by stopping at their auto/truck plazas.

WWE Bob
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WWE Bob
May 4, 2010 7:40 pm

ENI is running down at about $42 now.Their website discusses the CAMAC/PAP deal quite well.

WWE Bob
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WWE Bob
May 4, 2010 7:43 pm

Travis,since you didn't recognize me from my user name…new name & email address here…I won the $50 from your contest a few months ago recommending WWE.

Whitecap Rich
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Whitecap Rich
May 4, 2010 10:18 pm

As a Whitecap Subscriber I watch the recommendations they make- I put the play on a watch list and wait. Sometimes it takes off like a scalded dog but usually it pops and retraces. Played PAP twice both for a profit. Generally like the service (for sure their sarcasm and wit matches yours) for the price they provide some other selections for plays I would not have thought of. Perhaps time to look again at CAMAC.

Ayub
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Ayub
May 5, 2010 4:15 am

“And why on April 7, a Small Cap, Inc. insider loaded his personal account with shares.”

Tried to look at Insider Trading Transactions under CAK, to no avail, it just listed insiders selling the shares as opposed to buying it. Any insights?

Techman
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Techman
May 5, 2010 4:48 pm

CAK is making a bit of a run in a down market.

Agustin
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Agustin
May 12, 2010 11:24 am

It seems interesting.
However I had expected thar such an important agreement would require complete financial information in the SEC filing and apparently it's not the case.
Some questions:
How much CAPEX will it require?
25.00 bpd do not come from the blue. Who and how is assuming the expenses? where is the cash comong from? what about sales and working capital? I assume ENI involvement helps a lot, but as said financials are not clear. Why?

Jason
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Jason
May 18, 2010 9:09 pm

Hmm, earnings came out May 14, and the report said they won't cover the Nigerian data until their next quarterly report (August). So much for that B.S. move by June 3. Where did they even get June 3 as a day anyway???

WWE Bob
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WWE Bob
May 21, 2010 5:14 pm

CAK is now being covered by S&P.Hmmmmm…I wonder if……?

Jason
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Jason
May 30, 2010 5:14 am

Fwiw, they have since changed the tease to June 30, as it was a typo. (the calendar had June 30 circled on it)

Milan Todorovich
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Milan Todorovich
December 2, 2011 1:42 pm

CAK is now trading at $1.13!

Gravity Switch
Admin
11
May 4, 2010 7:21 pm

I always disclose my stock buys and sells to the Irregulars as I make them, and I disclose them otherwise if I happen to be writing about a stock with which I have a direct interest long or short. Otherwise I may note it or not at some point here on the free site, but I don't do so for all my personal buys and sells.

Not that following my personal buys and sells would necessarily do you a heck of a lot of good on any given day, unfortunately …

Gravity Switch
Admin
11
May 4, 2010 7:50 pm

The site will remain unchanged, aside from the tremendous improvements I hope to get to \”someday\”. I'm moving to Western MA, may close up shop in terms of writing new stuff for a week or so for the move, and im sure many articles will be filled with my bitter complaints about packing, but nothing major will happen to Stock Gumshoe and the site won't go down at all unless there are unrelated problems — my server, thankfully, is maintained by some kind folks in the Midwest and Canada and won't need to move.

Gravity Switch
Admin
11
May 4, 2010 7:11 pm

As I said, this one intrigues me — but do be careful with short term moves like this, we get enough folks here to pop a stock a little bit from time to time, especially a small cap stock like this, so the shares may well fall back soon. Especially since 90% of stocks seem to be falling today.

Gravity Switch
Admin
11
May 4, 2010 7:22 pm

Ha! Yes, ENI is very big in Africa in general, I'd be comfortable with them being the operator of my field — for those who don't know, they're in the same general league as the other big state-champion oil companies like Total of France, etc. Their ticker is E in New York, if you're curious.

Gravity Switch
Admin
11
May 4, 2010 7:53 pm

I thought that sounded familiar — Maybe I should host another contest to keep y'all occupied while I'm moving!

Gravity Switch
Admin
11
May 5, 2010 11:13 am

There was a statement of ownership filed on Apr 7 from a large holder, if memory serves — not a buy, but plausible enough to mistake it for one (or stretch the facts)

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