This one was sent in by a reader. This is from an ad for the “best of the best” from ChangeWave Research, another newsletter company I’ve heard of but don’t really know much about.
One of the things they’re offering to potential investors is a Special Report about “The One Oil Stock You Must Own Now”, which they believe is a $30 value on its own.
Well, I don’t know if their subscription service will help anyone … or if the work they put together collecting their special report is worth $30. But I do know that I can tell you what that one Oil Stock is for free (and if you think that name is worth $30, feel free to send it to me … paypal to firstname.lastname@example.org … but I”ll tell you everything I know about the company first).
Here are the details.
They start out with a nice tease of a promise, of course: “this little company that could be a 5-bagger from here.”
And it’s involved with the oil sands — if you haven’t heard that called the “next Saudi Arabia” by at least a dozen people, you’re not reading your stock spam!
They lay out their bona fides: “this stock is the best oil-sands value we’ve uncovered so far
(and we’ve already doubled our money twice in two others).”
And then they get into some specifics — or as I like to call them, “clues.”
“This company controls 311 million barrels of recoverable reserves”
“hardly anyone in the U.S. follows the stock.”
They are “just beginning to ramp up … oil recovery from its big ‘oil sands’ holdings”
“this company should be extracting 10,000 BOE/day (barrels of oil equivalent) by the end of 2007 … and 50,000 barrels per day by 2009.”
Sounds pretty good, eh?
They also say that this firm has a technology advantage, in that they use Steam-Assisted Gravity Drainage (SAGD) to extact bitumen, and that this is cheaper and quicker. I’m skeptical that this is a competitive advantage for this company in particular, but you can decide for yourself.
And finally, the stock is less than $4.
The close? “Buy it now and watch it double by within 18 months – and it could be a
five-bagger in 3-5 years.”
(And of course, “click here” for the full report)
For those who don’t want to “click here” and subscribe to some newsletter, the Stock Gumshoe is here for you!
The One Oil Stock You Must Own Now is …
Kidding! That would be too easy.
It’s Connacher Oil and Gas (CLLZF.PK for those confined to US markets, CLL in Toronto).
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To tell you the truth, this is actually a pretty compelling company, from the little research I’ve done. But why am I sure it’s the one ChangeWave is trying to sell us?
First, the 311 barrels of reserves — that’s not actually the current number reported by the company, as far as I can tell (there are so many confusing levels of reserves that it’s hard to pin any of these guys down, and they’ve just recently bumped up most of their reserve numbers) but you can get there using their numbers, and it’s a number that analysts have used for them before in the recent past. So there’s one.
Second, it’s one of a relatively small number of companies that have current in-construction oil sands projects of any size using SAGD in Alberta. You can see the whole list from the Alberta cheerleaders here. And it’s the only one on that list that’s priced under — or even particularly near — $4, either Canadian or American (the price has actually come down a bit, it’s close to $3 US.
And they are predicting that the first production oil sands project now under construction, which they call Pod 1, will indeed produce about 10,000 BOE/day. And production is just about to start, according to the company’s filings and presentations.
So I’m convinced these are the folks ChangeWave is talking about. Here’s the rest of what I think is interesting about this company:
They own roughly 30% of an oil production company in Peru and Argentina (Petrolifera Petroleum) that has some solid production online. They also have some conventional oil and gas properties in Canada to go along with the oil sands projects, so they already have pretty good cash flow and aren’t just building up debt waiting for the oil sands to start paying off. If you believe Oil will stay in this range and make oil sands production in general feasible, on the straight numbers (and there may be hairy skeletons in the closet, I haven’t looked closely) this does look quite undervalued to me.
They bought a natural gas company nearby (Luke Energy), so that they can control the price of natural gas they use to create steam for their SAGD extraction (which looks a lot more like drilling than mining, in contrast to some of the oil sands projects I’ve seen).
And they bought a refinery nearby as well (across the border in Great Falls, Montana), to help control their supply chain and supply some additional cash flow — refineries, no matter where you are, are pretty good business at the moment. They’re also involved in some very preliminary pipeline hookup plans to get connected to the US networks, which is not something to count on at the moment, but they are in a pretty fast-developing section of oil sands projects so it’s possible.
There are piles of risks, of course — if oil goes too low, oil sands stop being cost-effective (most people put the number somewhere in the low $30s). Alberta is a gold rush area right now, so it’s hard and expensive to get equipment and people. And their oil projects in Peru and Argentina are subject to some political risk, thanks to the wave of nationalization sweeping South America. And I’m sure there are plenty of risks on top of those, that’s just what comes to the top of my mind.
But you can do the due diligence if you’re interested — I think I might look into this one a bit more too, I’m actually intrigued. They have some solid presentations on their website, and of course they’re a public company so you can read all of their financial statements to your heart’s content. Thanks to your friend the Stock Gumshoe, at least you know where to start …