I have to confess, I love the Indiana Jones stories… the ones about an intrepid explorer who goes against all odds and finds the huge prize. When you translate that to the world of investment newsletters, that usually means that a little company found a huge gold deposit, or an oil basin that nobody else believed was there, or something else of great hidden value.

The stories don’t often work out in the long run, of course, that’s the nature of speculating on explorers… but they’re usually fun and interesting, and they get the blood flowing. It’s way more exciting to look into someone that discovered oil in the jungle than it is to find the company who manages to improve their returns by 20 basis points on commercial real estate deals… even if we know, as grown-ups, that we ought to be looking more at the boring stuff.

And Christian DeHaemer can usually be counted on to spin a good tale in this department, so I pricked up my ears when I saw new ads from him saying that “We just found the mother lode” — let’s look and see what exactly he’s talking about, and what this “secret” Indiana Jones story might be. His “All-in BUY on a huge oil find” pitch is a tease to entice subscribers to his Bull and Bust Report ($99 first year, six month refund period).

Here’s how it starts…

“There’s never been another opportunity like this…

“The chance to finally secure your retirement regardless of what’s happening in the markets…

“And to see gains as high as 759%… on ONE tiny stock that has gone unnoticed”

And a picture of a waterfall in a distant jungle helps set the scene…

“Exactly 2,672 miles from Wall Street…

“In a tiny, remote country the size of Idaho…

“With fewer than a million residents…

“And a GDP that’s less than $10 billion…

“An absolute miracle is unfolding…

“And it will be responsible for one of the greatest wealth transfers in human history…

“One that could allow the people populating this area to go from dirt-poor to obscenely rich —in just months.

“And investors could become wealthy right alongside them.

“Because in this remote location, an $878 BILLION oil discovery has just been made.”

OK, so the big picture is, “this is about Guyana” — those are references to the former British colony, one of what are still often called “The Guianas” (French Guiana, Suriname (which used to be Dutch Guiana), British Guyana, and Spanish Guiana (which is now part of Venezuela), and you can throw in Portuguese Guiana, which is now the state of Amapá in Brazil). And I guess it’s appropriate to have tales of riches spun about this part of South America, because it was in the Guianas that Walter Raleigh landed to search for El Dorado. For such a relatively small area, the Guianas were the focus of a wild amount of expeditionary lust from the big European powers for centuries, with economies dominated by slave-powered sugar plantations.

Guyana, the former British colony, became independent in 1966 and has been through plenty of political turmoil in the ensuing generations — ethnic strife, authoritarian regimes, natural disasters, territorial disputes with Suriname — but they also found some oil (well, that was probably the source of some of the strife, if we’re being honest).

And that’s what DeHaemer’s talking up here when he says…

“In just three years from now, this tiny nation’s income is set to EXCEED that of the world’s biggest oil and gas empires…

“Including Qatar, Kuwait, and even Norway.”

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He’s not the only one, of course, though “oil exploration” hasn’t generally been the focus of a ton of attention over the past few years, not with oil collapsing during the pandemic and the focus on alternative energy… Guyana has been a global leader in new oil discoveries for several years now. And this year, with Russia throwing the energy market into a tizzy with their invasion of Ukraine, has certainly turned oil (and natural gas) back into hot “stories” again. At least for now.

So what’s our Guyana oil story stock?

ExxonMobil (XOM) is the leader in Guyana offshore oil exploration, it appears, and part of DeHaemer’s rationale is that following XOM into Guyana will be lucrative, as their final investment decision back in April committed another $10 billion to expanding their latest project in the area. They’ve probably got partners on some of their exploration blocks, or are generating enough attention that it’s bleeding over into smaller companies who have nearby exploration licenses, so perhaps that’s what’s being teased here. Let’s see what hints DeHaemer drops…

“On paper, Guyana is one of the poorest nations on Earth…

“But in just two years, it could see its income climb to heights greater than Brazil’s…

“And at the forefront of this wealth-creating force is one tiny U.S. company that has gone under the radar…

“And just recently discovered 10 billion barrels’ worth of oil.”

OK, so we can be sure he’s not teasing ExxonMobil, that’s no fun, what might this “tiny U.S. company” be?

“This company owns a 30% share in ExxonMobil’s largest field — a 6.6 million-acre behemoth of sweet crude. It represents potentially billions of barrels of unrisked exploration on top of the 11 billion barrels that have already been found.

“Soon there will be six floating production storage and offloading vessels on the scene. Each will produce more than $1 million of oil a day.

“This company is set to grow earnings at 25% per year for the next 10 years. Compounding this powerful means a $10,000 investment could potentially turn into $93,132. And this is a safe blue chip stock that pays a dividend.”

Aw, man… “safe blue chip stock?” Where’s my microcap Indiana Jones story!?

Apparently it has done well over time, at least… one last clue:

“The best part is over the last 36 years, the stock has gone up even when the S&P 500 has gone down. In fact, if you had invested in this stock at the beginning, you would have beaten the market by 1,200%. And that’s before it hit the mother lode.”

OK, so that “blue chip” partner for ExxonMobil in Guyana is Hess (HES), which is indeed a nice, profitable large cap US oil company. At first glance it looks pretty inexpensive (at 14X earnings), with big earnings growth recently and probably into next year, but when you look closer there’s clearly a substantial investor bet being made on their growth — if you compare them to other big US oil companies, HES is downright expensive (XOM is at 7.5X earnings, Occidental (OXY) at 6X, the average PE ratio for the XOP ETF of major oil companies is right around 6).

That might still work out, but it is, for HES more than ExxonMobil, dependent on the accelerating production out of the Staebroek block offshore Guyana — that’s probably a reasonable bet, production is growing and they keep making more discoveries, and ExxonMobil said in their press release a couple months ago that they expect to be producing more than a million barrels of oil a day from that block by the end of the decade. Hess is a 30% partner on that whole block (XOM is the lead, with 45%, China’s CNOOC has the other 25%). Hess says this is a “transformational opportunity” for them, and it certainly looks that way — as long as oil demand doesn’t drop off too much (their break-even prices for these Stabroek projects are pretty low, in the range of $25-35/barrel for Brent Oil).

I’d even agree that HES is probably pretty reasonably valued, even at roughly twice the average multiple that their peers trade at, because of that Guyana growth and their generally solid financials. I haven’t dug deep on their financials, and I haven’t invested in a big oil company in a long time, but it’s not a terrible idea. And as Guyana auctions off new exploration blocks this year and in the future, the Stabroek projects are probably going to look ever more attractive in comparison, if only because Stabroek’s tax and royalty regime is MUCH lower than Guyana will demand from new entrants.

Not very Indiana Jones, though. So I was pleased to see that DeHaemer also pitched some smaller-cap plays on this explosion of interest in Guyana… can the Thinkolator ID those for us?

Let’s see…

“Stock #1: The Small Cap Rocket

“This company has been in Guyana since 2008 and has a large interest in two blocks offshore. It’s done 3D seismic surveys and started a three-well program. The company believes in these blocks and is spending $2 billion to find out how much oil is down there.

“The last time this wildcatter found a major oil deposit back in 2005, the stock price went up 1,200%. That’s the type of return that is possible in Guyana.”

That’s not enough to get us a 100%-certain match, but the Thinkolator’s best match here is CGX Energy (OYL.V, CGXEF), which actually has roots in Guyana going back well before 2008 (they were drilling wildcat wells in Guyana in 2005, though those turned out to be “dry holes”). I don’t see any indication of $2 billion in spending on their projects in Guyana, they’ve actually now offloaded two of the the three blocks they were partnered on and are awaiting drilling on an important prospect in the next month or so (planned for November but delayed by equipment, apparently). Reuters notes that this particular joint venture, which includes both CGX and Frontera Energy (FEC.TO) is “expected to be the next consortium to move oil exploration projects in Guyana to the development phase” (ExxonMobil/Hess/CNOOC, of course, is the first).

Might be an exciting one, though they’ve so far failed to find anything nearly as compelling as ExxonMobil’s discoveries. I do also find it interesting that CGX is building a deepwater port for the oil and gas industry in Guyana, that might end up being a nice business. Right now, it’s valued at about $350 million, they are entirely focused on Guyana, and a lot is riding on their next drilling results — whether they’ll find something exciting or not, I have no idea. If you want somewhat more muted exposure to that, Frontera, their partner, is about 3X the size of CGX and has oil and gas projects throughout South America, and it’s currently profitable.

There are quite a few other smallish players who are involved in Guyana or Suriname, many of which are also active in Africa, including Kosmos (KOS), Tullow (TUWOY) and Eco-Atlantic (EOG.V, ECAOF), as well as plenty of majors like Equinor (EQNR), TotalEnergies (TTE) and Repsol (REPYF). And I’m probably missing a few.

What else might we find?

“Stock #2: Guyana Growth Play

“When you are betting on Guyana to go from rags to riches, you want to own something that will benefit, like real estate or a Ferrari dealership. But instead of flying to South America and creating a business, you can just buy a proxy company. These are usually telecoms, breweries, or major retail chains.

“We’ve found a telecom that is growing at 55% a year. As the economy booms, so will telecommunication. This company is cheap. It has a price-to-sales ratio of 0.90 and a price-to-book of 1.07. It also pays a dividend of 1.74% and has a market cap of just $633 million. This stock is starting to run as the word gets out — don’t sleep on it.”

That’s very likely to be ATN International (ATNI), which owns niche telecom businesses throughout the US and the Caribbean, including Viya in the US Virgin Islands, Logic in the Cayman Islands, and One in Bermuda, and they are also 80% owners of Guyana Telephone and Telegraph, the largest telecom company in Guyana (the other 20% is owned by the government, in case you’re curious). Guyana is not going to be the driver of their results in the near future, not with only 700,000 residents, half of whom don’t have cell or internet service (GTT doesn’t typically feature in ATNI’s quarterly updates)… but as the country grows on the back of oil revenues, who knows?

Right now, the US business accounts for about half of revenue and is attracting some federal grant funding as the government tries to improve broadband access in rural areas (they’ve got some relatively large projects in Alaska, for example), and the other half is spread across all their international projects, mostly in the Caribbean. They’re also spending pretty equally on both halves of the company.

Small wireless and wireline telecom companies can be pretty interesting cash flow investments, but often don’t look profitable under GAAP accounting, largely because of the massive investments they have to make to extend their networks. That’s the case with ATNI, which is not likely to be profitable but expectes to have “adjusted EBITDA” of at least $165 million for 2022. They do carry some debt, like pretty much all telecom companies, but that means their enterprise value (net debt plus market cap) is only about $1.1 billion, so they have an EV/EBITDA multiple of about 8X.

That’s not super cheap for a little telecom company, but maybe it’s reasonable… their capex to create future cash flow is supported by a lot of government grants (though some of those grants also shrink from time to time and cause them stress, like the US Virgin Islands subsidies recently), and who knows, maybe Christian DeHaemer is right and Georgetown, Guyana in 20 years will be the Dubai of northern South America, which would probably be good news for their primary telecom provider. Not much of a direct Guyana story these days… but maybe someday?

And one more…

“Stock #3: $7 Stock to Launch

“The third stock is an upstream oil company. That means it drills for and produces oil and natural gas. It has properties in South America, including 35 exploration and production blocks in Colombia, Ecuador, Guyana, and Peru. It also owns pipelines and a deepwater port in Colombia. The company had total proved plus probable reserves of 167 million barrels of oil equivalent.

“The company is seriously undervalued. It has a forward P/E under 3, a price-to-book of just 0.50, and a profit margin of 72%. It also has $295 million in cash and $538 million in debt. The market cap is only $806 million. This should be a $21 stock today — and once the Guyana story gets out, it will be.”

Ah, now THAT one is Frontera Energy (FEC.TO, FECCF), which I noted above… CGX’s partner on some drilling offshore Guyana, and a profitable company with a variety of oil and gas projects throughout South America. The shares are around $7 in the US right now (roughly C$10 in Canada), they did have US$295 million in cash at the end of the second quarter (it’s down slightly from there now), and they are, according to the few Canadian analysts who cover the stock, trading at about 4X forward earnings now (again, this is only two analysts, but the earnings forecast has been cut in half in the last six months).

So… why is Frontera looking so inexpensive these days? I assume a little bit of the recent weakness is from oil and gas prices that have come down a bit, which is hitting everybody in the business, but perhaps it’s just exploration risk and political risk that has people concerned. They seem to have effectively pulled out of Peru a couple years ago, which had been a major focus (and is no longer mentioned in their presentations), so maybe that worried some folks.

This one has been around for a while, I covered it years ago when it was called Pacific Rubiales and was the largest oil producer in Colombia, but it went bankrupt in the oil collapse of 2014 and then emerged and became Pacific Energy for a while, changing it’s name to Frontera about five years ago. Frontera seems to have plenty of growth potential and a solid business in Colombia, with some exploration potential now in Ecuador, and any dramatic growth in the next few years, should they be so lucky, would most likely be due to a big discovery in Guyana. We’ll see how their drilling goes, probably next month.

Will these more speculative investments on the future of oil in Guyana work out? Maybe. Oil discoveries are never guaranteed, not even when you’re exploring in a “hot” area — the Staebroek block has been called one of the best exploration successes in generations by some experts, who say that the drilling results blow away the averages (hitting oil 90% of the time, when other offshore discovery projects might average 20%)… but outside of Stabroek, the results have been much more average, with other explorers having disappointing results, (either lower quality crude found, or none at all). There’s still a lot of offshore Guyana that remains untouched by the drill bit, so hope springs eternal.

DeHaemer also notes a few of his past successes, most of which we’ve covered from time to time — he particularly highlights the two biggest winners he has touted, Africa Oil and Petro Matad, and those were indeed barn-burners for a time (I still own a stub of Africa Oil, which is no longer really an exciting Kenya exploration story but is a cheap offshore producer in Africa, Petro Matad was a Mongolia oil story that had a hot run as a stock on some early news, but didn’t work out or become “real” in the end).

His “potential for 759% gains” pitch seems to be based on “what if this turns out like Petro Matad’s huge run from 2009-2011,” and that’s just silly… but, yes, oil explorers who make big and economically viable discoveries can indeed generate massive shareholder returns. And sometimes, if there are lots of headlines about the discovery at a time when oil prices are buoyant, a tiny stock will be a big short-term winner (at which time, if history is any guide, it’s best to take some profits).

These are the charts for both Africa Oil (blue) and Petro Matad (purple) going back to their “discovery” heydays, when DeHaemer was indeed teasing both stocks aggressively for at least several months. I included the WTI Oil spot price (green) and the S&P 500 (orange) for context:

So we’re a little short on stories of high adventure… but Guyana has been the hottest story in offshore oil exploration for several years, and seems primed to be a major producer for decades. I wouldn’t argue with Hess as a relatively low-risk way to play that growth, they have similar exposure to ExxonMobil but are about 1/10 as large, so Guyana could continue to have a meaningful impact for their shareholders… and if you want to try to play oil drill roulette with some of the exploration blocks where other producers are hoping to repeat the success that XOM and HES have seen, that’s your call. When it works, it’s exciting… when it doesn’t work, well, you’ve probably seen a roulette table — the dealer takes your chips.

Do let us know if any of the above interests you, or you have a better match for that first Guyana prospector (we’re not really guessing on the other two, but CGX is a guess). Or, of course, if you have other investments that you think will do better as Guyana joins Brazil in the club of major South American offshore oil producers. Just use our happy little comment box below… and thanks, as always, for reading.

Disclosure: Of the investments discussed above, I own shares of Africa Oil. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.