These are the kinds of ads that we used to see all the time, during the fun and exciting days when oil was first headed toward $100 a barrel… there’s not so much of that “next Bakken” talk anymore, given the softness in the oil markets, but perhaps that’s a reason to look more closely.
After all, if you invest heavily in these kinds of stocks when natural resources stocks are popular, when gold is soaring or oil is hitting new highs every day, you’re probably the sucker in the room.
The ad is from Christian DeHaemer, who has been touting little teensy oil and mining stocks for years at his Crisis & Opportunity newsletter — sometimes they turn out to do very well, sometimes not, as I suppose is the fate of every junior operator that’s exploring for oil or gold or nickel or whatever. He’s currently peddling his newsletter for $1,599 a year and promising to reveal “The Mexican Oil Play That Can Change Your Life.”
So let’s figure that out for you and get the tension out of the room, shall we? Then you can decide to subscribe or not, no pressure, and you can probably be more sober in your assessment of the prospects for this “secret” stock if you haven’t paid $1,599 to learn about it.
Here’s the intro from DeHaemer:
“Read This Or Miss The Next Bakken
“A tiny oil company has won the right to tap into $490 billion worth of proven oil reserves in Mexico
“This development is giving investors just like you a brief opportunity to make 600% on your money by year’s end
“(And millions of dollars in the coming years)”
So we’re dealing with something in the “gradually opening up to privatization” Mexican oil industry, which has been in decline for many years because Pemex, the state-owned near-monopoly oil company in Mexico, is under pressure to deliver cash to the government, not so much to reinvest for future field development or growth. There’s a good recent (and short) article about this from Bloomberg here if you want to catch up with the basics.
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But which stock is it that Dehaemer is pitching? He starts the story with the Cerro Azul No. 4 well, which was a discovery in the Tampico-Misantla basin about 100 years ago, somewhat analagous to the Spindletop “explosive” discovery in Texas.
And the pitch is that the field became less important for Pemex as the oil flow dwindled to almost nothing, but that more oil is going to be recovered there again thanks to a micro-cap company. Here’s a bit from the spiel:
“In fact, there’s at least another 5 billion barrels of oil waiting to be tapped there, according to IHS Markit.
“And all that oil is about to do for Mexico what the Bakken did for the U.S.
“One micro-cap company is playing a key role in recovering that oil, as it won a bid on a prime block of Tampico-Misantla property last year.
“Since then, its stock has risen 171%.
“But I’m convinced that’s just the beginning.
“As of this writing, you can get this stock for under a dollar.
“Quite a bit under, actually.
“In fact, as I write to you now, it’s selling for $0.32 a share.
“A penny stock, yes…
“But this is no ordinary penny stock. In fact, it has the potential to make you a millionaire.
“That’s because in a few years — and I know this sounds hard to believe — this small-cap energy company could become a serious mid-tier producer worth $10 or more a share….
“In the short term, I fully expect it to give you 600% gains by year’s end.”
OK, so it’s an onshore oil field we’re dealing with here (most of Mexico’s focus is on offshore fields, which is also where most of the bidding is from oil majors in Mexico’s recent auctions)… do we get any other clues?
This burst of production that Dehaemer sees coming is going to be driven by fracking and horizontal drilling, we’re told…
“The only way to access these kinds of deposits is to use horizontal multistage frac wells… the kind that freed up all that Bakken oil.
“Extracting oil through frac wells is something this little micro-cap oil producer excels in.
“In fact, it was an early adopter of the technique and has drilled over 100 frac wells in Alberta.
“Over the years, it’s become ever more efficient and cost effective.
For example, since 2011 this company has cut the operational costs of producing a barrel of oil in Canada from $22.35 to $13.68.”
We’re also told some of this history in the ad, that this company won one block in the December 2015 auctions that first opened up Mexican oil to foreign firms — back when oil was collapsing in price, which kept a lot of bidders away. More details from the ad:
“This winning bid made it the first junior oil company to gain access to Mexico’s massive oil wealth.
“The block it won is a mature oil field comprising 7.2 square kilometers in the Golden Lane Trend of the Tampico-Misantla basin.”
We’re also told that this bid was made in partnership with a “major Mexican energy company” who provides the local support, including infrastructure and distribution, and that their management team has a lot of experience, with C-suite execs from Arcan Resources and Pacalta Resources and a boardmember who used to be CFO of Pemex… and that they’re going to use their “first mover” advantage to bid on more blocks over the next couple years.
And then we have the “urgent” push… which, I’m sad to say, has already passed (that’s what I get for taking a vacation):
“… when the company announced in January it was offering over 8 million private placement shares at $0.28 apiece, high net worth investors snapped them all up in just one month.
“As a result, the company raised enough money — $5.095 million (Canadian) — to meet 2017 work commitments at its Tampico-Misantla block.
“Now those investors are in prime position to make obscene profits from this company.
“They know gaining future oil blocks in upcoming auctions will skyrocket its share price.
“How much? Well, when it won the Golden Lane block from the first auction, its price shot up 171%.
“You can bet it’ll go up MUCH more next time.
“The second round of auctions is due for completion by July 14.
“That’s why you need to get in now.”
So what’s the story? Thinkolator sez this stock is International Frontier Resources (IFR.V, IFRTF OTC in the US), which is indeed focused on building a Mexican oil business.
International Frontier, through its 50% owned JV Tonalli Energia (Mexican petrochemical giant Idesa owns the other half), is focused both on developing the one block they won in the late 2015 auction, and on adding to that onshore development inventory with future auctions… though the catalyst Dehaemer was originally hoping for didn’t work out, they announced on July 13 that they hadn’t won any licenses in the latest onshore auction.
And yes, they did do a private placement at 28 cents starting back in January, though it was more like 18 million shares (8 million brokered and 10 million unbrokered), and they do say that they have enough cash to fulfill their obligations for their current block this year, and to make progress on bidding on future blocks.
Mexico is planning to offer unconventional shale fields for auction as part of its next bidding period, which had been planned for December, and will then, according to this CNBC article, offer two auctions a year starting next year — one for conventional onshore and shallow water fields, and one for deepwater and unconventional/shale plays… so there will be plenty more opportunities to get more exposure to Mexico for anyone who’s interested, though recent success in the offshore discoveries has brought a lot of global E&P companies back to the table and the bidding has been quite aggressive (the regulator sets a range for royalties, from minimum to maximum, and it seems that the way you win a bid is by offering something close to the maximum royalty and also promising to drill more than your competitors). The onshore fields are less desirable and smaller, and have less competition from major players, but apparently that doesn’t mean that even a well-connected “first mover” like International Frontier is guaranteed to win any licenses. The latest surmise is that this next onshore unconventional auction, dubbed “Auction Round 2.5,” is going to be delayed for political reasons.
So… for now, for IFR, it’s really about developing their one license area, I guess — and that will be generating news this year as they drill, though whether the news is going to be good or bad is beyond my ken. You can see the latest investor presentation from International Frontier if you’d like to get an idea of what they see happening this year.
Incidentally, this isn’t the first “win some licenses in Mexico” teaser pitch we’ve seen — Renaissance Oil (ROE.V, RNSFF) was pitched by Keith Schaefer for his Oil & Gas Investments Bulletin back when those first Mexican onshore auctions were being held… they’re tiny and do have multiple licenses in Mexico, mostly in partnership with Lukoil, and they’re also hoping to generate some good production from Mexican shale areas… and they’ve also raised money this year, with drilling results expected over the next quarter or so (though unlike IFR Renaissance does also have some producing fields in Mexico, so they have some cash flow now).
And that one, I should tell you, is also being pitched by DeHaemer as a “secondary” idea in the ad — here’s how he hints at it:
“There’s Another Situation That Stands To Make You Profits of Equal Measure
“Like the play I’d like to send you the FREE report on, the next opportunity I’m about to reveal is an oil investment in Mexico.
“… this firm won an oil block in the first round of Mexican auctions.
“It’s in the coveted Chicontepec region, which holds an estimated 59 billion barrels of oil.
“According to the company, the block it won in the first round of auctions holds 4.2 billion barrels of crude oil.
“And like so many Mexican oil fields, it’s grossly underdeveloped.
“And get this: Right now the company is selling for $0.25 a share.
“The smart money didn’t miss a beat with this company, either. They snapped up $11.2 million (Canadian) in private shares in just a little over a month.”
So yes, that’s Renaissance Oil — and that $11.2 million offering (it turned into C$12.6 million by the time all the tranches were complete) was back in March at C$0.25 per unit (each unit includes a warrant at 50 cents until July 2019, those warrants are, I think, a legacy of their July 2014 fundraising when they were first applying for Mexican licenses and getting a lot of newsletter attention, and raised money at a much higher price).
The next round of auctions is now likely to be early next year for the unconventional onshore blocks, and the next offshore auction is also being postponed a bit to give companies time to up their bids in light of the good results that Mexican bid winners like Talos and its consortium have seen in their initial offshore drilling.
And… that’s about all I know on this one. Success, or lack thereof, will likely depend on initial results from drilling on their existing onshore licenses for both of these companies, who are also both working in areas that are not particularly safe or stable politically. And though they may win more licenses in next year’s auction, the prices are going up — it sounds like the margins are going to continue to be tightened a bit for anyone wishing to win new licenses, assuming that there’s not a major political change in Mexico that upsets this nascent bidding process in some other way.
Have a thought about International Frontier Resources or Renaissance to share? Or about Mexican oil in general? Let us know with a comment below. We’ve kept the comments from our original July 24 article appended for your information.
P.S. If you’ve subscribed to DeHaemer’s Crisis & Opportunity, please click here to share your thoughts about that letter — your fellow Gumshoe readers want to know. Thanks!