“Railroad Baron’s $4 Billion Energy Stash Unlocked”

By Travis Johnson, Stock Gumshoe, October 21, 2007

This one comes in from Andrew Mickey’s Breakaway Investor — we’ve seen a few of his ideas in the past, with mixed results. Not surprising, since a lot of the companies he likes are very small and make for some volatile investing at times.

And it’s a good story, whether or not you end up liking the stock or Mickey’s rationale.

Here’s the basic background:

They tell us in the ad that there is a special island in the Gulf of Mexico that has been off limits for oil and gas exploration for 95 years. It was bought by the widow of a railroad baron and turned into a wildlife refuge, home to 30,000 geese and 50,000 ducks, along with plenty of deer and other critters.

Mickey tells us that the estimates of energy production from this island are up to $4 billion, or even up to $11 billion depending on who churns the numbers.

He also does a good job of building an argument about why this company is particularly well prepared for success (as long as natural gas prices go up) — they have lured a “legendary” energy CEO out of retirement to run the firm, and they have attracted attention of some other folks who Mickey calls “white collar wildcatters” that are great investors in this sector, and who have helped many early stage companies grow to greatness.

So we’ve got a newly opened up gas exploration and production area, in the Gulf of Mexico, run by a legendary oilman who recently came out of retirement, backed by some good investors, and located in a wildlife refuge type of area that was protected for 95 years thanks to the fact that a railroad tycoon’s widow bought the island in 1912. Phew. Good story!

So that’s got to be South Padre Island, right? Drilling for suntan oil? No?

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And of course, we are warned that this is such a small stock and exclusive opportunity that they will only make the report available for 12 days, and that you’ll be expected to keep your lips sealed so the word doesn’t leak out.

I’m guessing those 12 days are already up, since the price they’re using for this stock of $1.10 is more than 12 days old, but I’m also guessing that, surprisingly enough, they’d probably still be happy to sell you a subscription to Breakaway Investor.

But if you just want the name of the company that’s being teased here, well, I can help you with that … this little petro company is …

Bayou Bend Petroleum (BBP in Canada, BBPMF on the U.S. Pink Sheets)

The secret island owned by the railroad widow is Marsh Island, Louisiana, which as you can imagine has been surrounded by gas production for many years. It was indeed opened up for gas leases fairly recently, though I’m sure the wildlife advocates aren’t exactly thrilled about that. It’s actually a pretty popular place for fishermen, in spite of a big ol’ passel of aligators, and gets a lot of visitors for such a remote area. It’s right about in the middle of the Louisiana coastline.

They did quote a Rigzone article in the teaser, and that article about Bayou Bend and the Marsh Island projects is available here. The company was born of Pearl Exploration and Production, a British Columbia energy firm that was trying to build a Gulf of Mexico business.

The legendary CEO is Clint Coldren — he sold his company, Coldren Oil and Gas, back in 2006 and stayed retired for a few months until being lured out by Bayou’s plan to exploit this newly available shallow-water natural gas property. I don’t know if he’s really legendary, but I’m sure he is to some people — he’s at least a fairly well known guy in oil circles.

And the legendary “white collar wildcatters” are, as best I can tell, Ian and Lukas Lundin, sons of Adolf Lundin and heads of the Lundin Group (www.thelundingroup.com), which is invested in at least a dozen oil and gas and mining companies around the world, and has taken part in founding or funding many others over the last 30 years or so. They seem to focus on shareholder value and recognizing that value through takeovers and mergers, so I suppose there’s some potential for Bayou to be bought out at some point by one of the bigger players. That’s entirely a guess on my part.

The good news for you, intrepid Gumshoe reader, is that since this email started circulating a few weeks ago, the price has dropped — you can now get this $1.10 company at less than a buck, either 94 or 97 cents, depending on whether you’re pulling a loony or a greenback out of your pocket.

This is one of those energy companies that sounds innately appealing — they have a lot of shallow water, eminently drillable prospects, and there’s a tantalizing promise that they’re very near production. When I learn about an oil or gas company in this particular stage of its development, when it starts to know that it has profitable production about to come online, but before they’re really profitable or have a high profile, I always get a little tempted. It all sounds too good to be true … and of course, sometimes wrenches fall into the works and it does indeed fall apart. I have no idea what this company’s prospects really are — I am impressed with the people involved, and the investment thesis makes sense, but I can’t tell the future any better than you can.

In the end, I would guess that this is probably an above average investment in exploratory natural gas in the Gulf of Mexico — but it’s still exploratory, they certainly aren’t making money yet, and they are going to be extremely dependent on decent natural gas prices in the years ahead. Intriguing, and maybe worth me taking a deeper look. Or if you’ve checked them out already, then by all means let us know what you think.

Oh, and that “railroad baron?” That’s Russell Sage, whose eponymous foundation that’s well known as an academic research funder was founded by his widow. His second wife, and the aforementioned widow, Margaret Olivia Sage, did buy Marsh Island back in 1912, as a refuge for wild birds. One imagines that she’s not thrilled about drilling for gas there, but then again, her husband was by some accounts a Wall Street robber baron, mainly associated with railroad investments and accused of usury at one point, so one may doubt that this fortune was built by walking particularly softly on the earth.

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October 22, 2007 6:07 pm

Okay, assume they are successful establishing production wells, how are they planning on moving the gas to a shore tie-in and the cost?