There’s no shortage of long-winded teaser pitches to sit through today, but we haven’t looked at an energy teaser in a while… so let’s check out this latest spiel from Christian DeHaemer about “Energy Megafields” and see if the Thinkolator can identify some interesting oil and gas stocks for you to research.
We’ve looked at pitches from Dehaemer quite a few times over the years, he’s helmed maybe a dozen different newsletters and focused on lots of different sectors but he has probably gotten more attention for his “crisis investing” ideas and his “go find oil stocks in dangerous countries” teases… and he’s focusing on that kind of idea today, hinting that he has found three “megafields” where the oil majors will be buying up assets and making deals with smaller companies. And, of course, as those deals are made the little explorers will make investors rich, all you have to do is subscribe to his Crisis and Opportunity newsletter for $499.
That’s the plan, anyway. It obviously doesn’t always work, but sometimes fortune smiles on the little explorers… DeHaemer has teased little oil “frontier” explorers many times, and probably part of the reason that his ads catch my attention is that a few of those teases have been stocks that really did have great discoveries (or at least, encouraging press releases), and really did take off (at least temporarily). Some that come to mind are Dragon Oil, Africa Oil, and Petro Matad.
And those three provide some idea of the kinds of things that can happen to these sorts of stocks — those picks were all teased many years ago, well before the 2014 peak in oil prices, and if you did a “buy and hold” on them you’ve got a nice performance from one (Dragon Oil, up 300%+), a complete collapse and arguable sham operation from another (Petro Matad, down 99%), and a middling “muddle along” result from a third (Africa Oil, currently about flat from first pitch five years ago), despite the fact that you would have been able to book huge returns from all three if you were wise and nimble enough to sell near the peak (returns could have been over 1,000% for Africa Oil and close to 500% for Petro Matad at the “discovery” peaks). With these kinds of speculative investments you have to have time to follow them pretty passionately, and develop some expertise in reading the exploration results with a critical eye… or you have to just accept that there’s a pretty high probability of a 99% loss for any given “exploration” type speculation if you buy a bunch of them and just “buy and hope” for a big discovery or takeover.
(If you want more detail: Dragon Oil did pretty well for quite a long time, and was bought out at a substantial premium so would have showed gains of several hundred percent over a few years; Petro Matad shot up on excitement over their reported Mongolian oil discovery, but then the share price collapsed a few months later when subsequent drilling failed to confirm the deposit and the project was abandoned; and Africa Oil (which I traded at the time DeHaemer was pitching it, and sold portions of along the way but still own) reported great drilling results, got everyone excited, then fell on worries about both defining the resource and about the political and regulatory situation in Kenya that caused concerns about both the taxation rates and the uncertainty of ever building the pipelines and infrastructure that would be needed to produce oil… Africa Oil is now right about back where it was before their big discovery. I don’t mean to imply that I sold my Africa Oil shares near the peak, I sold about half on the way up in 2012 and another chunk on the way down in 2014, selling at an average price around $6 or so to guarantee a nice profit regardless of what happens with the shares I continue to hold.)
So what is DeHaemer pitching this time? Here’s the intro:
“Watch as the Same Analyst Who Uncovered a 759% Gain on ‘Secret’ Mongolian Oil and a 500% Gain on
‘Overlooked’ Iraqi Reserves Presents You With Big Oil’s Next…
“Big Oil is searching for its next world-class reserves where no one else has thought to look
“3 small companies are set to rocket up to 574.93% each
“And I’m so confident, I’ll send you $499 if I’m wrong”
That’s a quote, of course — I’m not going to send you $499. Part of DeHaemer’s promise is that at least one of those stocks will show big gains, and if that doesn’t happen in a year he’ll send you $499 and give you a free renewal for another year. Since he’s collecting your $499 up front, that’s really more of a “money back guarantee” than anything else, giving you your money back and providing you with an extra year of subscription are both “low risk” guarantees for a newsletter to make — they know that refund requests will always be fairly low, that the marginal cost of sending an electronic newsletter to one additional subscriber is zero, and that they’re never putting themselves on the hook to send you more than you paid. I’ll give them some credit for extending the promise to a year, though they don’t say what the performance hurdle is — this is a paragraph from the ad:
“I guarantee at least one of these three stocks — that I’m going to give you completely free — will book tremendous gains over the next year. And if they don’t, I’m going to wire $499 straight into your bank account.”
I’m not sure where that “completely free” part comes from — you have to pay your $499 to get the special report and subscribe to the newsletter, and I suspect that if you ask for a refund during the trial period you’re not also going to come back and ask him to “wire” $499 to your bank account if one of these three stocks doesn’t post “tremendous” gains. But still, it’s a guarantee of sorts — even if a check of your dictionary will confirm that “tremendous” does not actually have a mathematical definition, so perhaps one could argue that a 20% gain is “tremendous” (and sometimes it seems that way).
But here’s my offer: I check the clues, tell you what those three stocks are without charging you a dime (though, as always, we’re happy to take your money if you want the slightly improved Stock Gumshoe Irregulars experience), and guarantee you nothing.
And maybe I’ll throw a little opinion in there for you if I have one, and I’ll let you know that the Thinkolator has a 99%+ success rate when it comes to identifying teaser stocks (in an average year we get one teaser stock wrong out of about 200 solutions published) — which means that we’re almost always correct, but doesn’t mean anything about whether the stock will go up or down, or whether my opinion about the stock’s prospects will be prescient (it often isn’t).
Deal? OK, here are our clues…
“Big Oil is in a Mad Dash for Control of the Next 3 MEGAFIELDS
“These three basins are the key to putting trillions more dollars into the coffers of Big Oil and a few small companies.
“The small companies have been working around the clock to ‘de-risk’ the energy reserves — that is, take as much risk out of Big Oil’s investment as possible — before the majors move in…
“Why? Because they know they’ll be rewarded when they do.
“Through partnerships, licensing agreements, and investment, the people working in these three small companies have an opportunity to fill their pockets with more cash than you can imagine.
“And you can ride that wave, too.
“As soon as Big Oil illuminates these virtually unknown energy reserves, Wall Street will catch on, and many investors — from your golf buddies to large institutions — will want a piece of the pie.
“You can see why I’m so confident in booking three fast gains of up to 574.93%.”
And DeHaemer says that he’s “calling the bottom here” when it comes to oil and gas prices, which would obviously mean that any explorer starts to look more compelling if you’re convinced those prices will rise.
That’s the big picture… here’s a bit more of the spiel:
“The 3 ‘World-Class’ Basins and the Stocks That Are Going to Make You Rich!
“Remember, I followed the clues to find these three world-class basins that Big Oil is in a mad dash for… and I uncovered three standout small companies doing very exciting things in their respective MEGAFIELDS.
“But before I dive into them, I want to make it 100% clear…
“These are NOT beaten-up, debt-riddled American shale companies. They’re cash-rich, low-debt operations temporarily suppressed by the global attack on the American shale industry.”
Now let’s get into some specifics — what are these three “MEGAFIELDS” and which companies is he recommending in each one? We’ll go in order…
“The Company Sitting on African Oil ‘Magnitudes Larger Than the North Sea’ ….
“Here we’re looking at a virtually untouched find, with billions of barrels of oil.
“To give you some perspective, North Africa has 20,000 wells drilled, and West Africa has 5,000. But East Africa? Just 500.
“And yet already more oil has been discovered here — in one specific area — than was in the North Sea during its first seven ‘boom’ years.
“It’s no wonder the locals call this an ‘Alama Kubwa’… or ‘Big Score.’
“But here’s the best bit…
“One little-known company stands to take the lion’s share.
“In 2009, this company made the world’s largest onshore discovery in a decade.
“And ever since, it’s ramped up operations, spending billions on seismic testing and drilling.
“Right now, it reports its 2C numbers — the amount of proved and probable oil — as 780–880 million barrels.
“That would be huge if that was the maximum potential… but in this case, there’s still so much more to find! Potentially up to $91 billion worth at $70 oil.”
Well, surprisingly enough, it sounds like DeHaemer’s going back to the well here — that must be, again, Africa Oil (AOI in Toronto, AOIFF OTC in the US). Those numbers aren’t exactly from Africa Oil’s reports (their latest presentation had their “2C” number at 760 million), but they match the numbers that fellow newsletter seller Marin Katusa has used for Africa Oil before (Katusa at one point had a nice, long free article up on AOI — his site no longer has that, but it is up for free in a few other places like Stockhouse). Katusa’s article from last year also seems to be the source of that “several magnitudes larger than the North Sea” quote.
Africa Oil is probably a decent idea if you can accept limited upside (or a long period of waiting, or both) for a pretty de-risked situation when it comes to the downside — they have a huge cash hoard thanks to their fundraising in past years and their huge farm-in deal with Maersk last year that means they now are down to about a 25% position in most of the fields they discovered in Kenya and Ethiopia, this is what I wrote about that deal back in November as part of a Friday File commentary:
“Africa Oil (AOI.V, AOIFF), which I have owned for a long time and last wrote about a couple months ago because Marin Katusa was getting excited about the stock again, just did a huge farmout deal with Maersk for half of their best projects in Ethiopia and Kenya. That’s going to bring them about $350 million in cash, plus they’ll be carried for about another $500 million of investment as their initial projects make it through to production (assuming they actually do — that still depends on pipelines being built, more than anything else, and the payments from Maersk to cover Africa Oil’s share of development costs going forward depend on a variety of performance metrics).
“And now Africa Oil’s share of most of their projects is down to 25% (Tullow and Marathan were already major partners on most of those projects)… but they now have a lot of cash (well over C$600 million now) and no need at all to raise any, and still a meaningful share of what could become, eventually, substantial producing oil fields. The stock popped up by 30% or so on the announcement, but that doesn’t really mean much — it has bounced around a bit over the last several months, and it’s still below the C$2.50 or so at which they raised a couple hundred million dollars earlier in the year. Right now, with a market cap of C$840 million at about $2 per share, the assumption is that Africa Oil’s non-cash assets, including their remaining interest in their oil blocks plus the US$500 million of potential coverage for their development costs in the Lokichar basin to bring the first well online, are worth about C$250 million.
“That derisks things considerably, though it doesn’t mean that Africa Oil can’t or won’t blow the cash on something stupid or an investment that won’t bear fruit for many years (they’ve been talking about making investments in this low-price environment), and it doesn’t mean that the oil in Lokichar will be developed and producing in the next 5-10 years. It just means Africa Oil’s downside in that case is more limited now, and they have the chance to get substantial upside to eventual development without having to spend much more money on that exploration or development over the next few years. And, frankly, it also probably means that Africa Oil is a less tempting takeover target, so the chance of waking up some Monday morning to a $5 offer for the shares seems smaller to me now… but as a long-term investment, if they do actually end up creating an oil industry in Kenya, it’s a lot more appealing now than it was a year ago. Of course, with oil falling 10% this week there’s not a lot of appeal in the chart of any oil stock. “
Nothing really substantial has changed since then — they still have that same big cash hoard (they’re spending on their share of exploration in some wells and on some studies and preliminary production planning, but not spending very much right now), subsequent drilling and news has been generally positive but not shockingly so from what I can tell, and they’re still talking about developing these fields with their partners and about participating in government-supported initiatives that they’re hoping will lead to a pipeline from the area of their Lokichar field to the coast, but that pipeline and production is still years away and I don’t think there’s even really a clear cost picture that they can count on yet (Kenya is not an oil producer, so this is a new industry for the country — taxes, fees or profit sharing deals with the government aren’t all that clear yet). I still hold my “free” shares and I’m willing to be quite patient with them, if the fields are developed and Africa Oil doesn’t blow their cash hoard on something silly (US$500 million out of a US$700 million market capitalization as of the last quarter), then there’s upside to oil discovery and development of real production without a lot of downside, and the partners are pretty strong (both their joint venture partners, like Maersk and Tullow, and their financial backers, including the Lundin family). You can see Africa Oil’s latest investor presentation here from June, and their more recent quarterly press release update here from last week.
I’ll be pretty shocked if it soars 500% again in a year, absent a wild bull market for oil, but I think it’s reasonable to say the stock is undervalued here by perhaps as much as 50% as long as oil remains high enough to encourage continued investment in these big potential fields and development of Kenya’s oil infrastructure — which probably means a sustained price of at least $30-40 a barrel (that’s a guess). The story seems unlikely to change really quickly to me, but it’s still a pretty small stock and it moves on attention and sentiment as much as anything else so you never really know.
How about the other ideas?
“The Liquid Natural Gas MEGAFIELD Fulfilling China’s Energy Needs
“It’s no secret China has an insatiable need for energy… and a small country in the Oceania region — around Australia — has the ticket.
“But even better…
“One small company, working within this country, is set to take the king’s ransom.
“And the ‘insiders’ know it…
“In fact, this company has already turned down a takeover offer from a larger firm.
“And now it finds itself in the sights of one of the majors…
“They’ve already moved in and secured a partnership to work with this small company on a world-class LNG reserve…
“A reserve that is expected to produce over 9 trillion cubic feet of gas. To put that in a dollar amount, we’re looking at up to $123 billion worth of gas.”
So what is this? Some big gas field that’s apparently pretty close to China, close enough to give them a shipping advantage over the Middle East…
“… China imports gas from all around the world… particularly the Middle East and Russia. But no other world-class reserve is located SO close to the vital south coast cities of this country of 1.3 billion people. That’s why this company has the advantage.
“And that’s not all…
“The company I’m telling you about today thinks it still has yet to find the mother lode of gas!”
So what’s the company being teased here? Thinkolator sez it must be either Oil Search (OSH in Australia, OISHY for the 1:10 ADR, OISHF for the 1:1 OTC listing) or InterOil (IOC), which was hotly debated by shorts and longs for years but has faded from public attention of late. InterOil was going to merge with Oil Search, but has instead agreed to an acquisition by ExxonMobil for $45 a share in XOM stock (plus contingency fees if production exceeds a certain level), so we’ll stick with the guess (and it is a bit of a guess this time) that DeHaemer is talking up Oil Search.
And I have no idea what the prospects look like for Oil Search — LNG has been hotly promoted around the world thanks to big projects like the various Papua New Guinea fields being developed in addition to some large fields offshore Australia and Africa and the big shale fields in the US, but it has also led to some huge investments that are causing backers to struggle at the moment (like Santos, another Aussie energy company who is a junior partner with Oil Search but also recently reported a huge writedown of its assets at the large Gladstone LNG field in Australia because prices aren’t as good as had been hoped). I’ve been reluctant to get involved with LNG in recent years, partly because most of these huge, multi-billion-dollar projects are bets on future commodity price differentials (ie, difference between US domestic shale gas prices and Japanese LNG import prices) and I don’t have a lot of confidence in those future prices being strong enough to support the huge debt burdens that the biggest US LNG exporter (so far) has incurred… but that might just be me being a bit too conservative, and I honestly haven’t really looked at Oil Search or InterOil in a long time.
If you’ve got some insight to share, fell free to do so with a comment below… I’ll come back to this if I have time to put some more research into the PNG LNG situation in the future, but for now I’m going to move on to the next “hot” idea, which is the one DeHaemer seems most excited about…
“MEGAFIELD #3 The Oil Discovery That Prompted This Entire Research Report
“You may have heard about the ‘Liza-1’ discovery by Exxon.
“Exxon calls it “a significant discovery”… and Wood Mackenzie pegs the opportunity at around 350 million barrels of oil.
“And that’s just one spot!
“There could be untold millions — if not billions — of barrels off the coast of South America… and one small company is best positioned to profit from it.
“This little-known company has looked at today’s energy environment…
“It’s looked at territories around the world… the cost of production, capital exposure, and more.
“And it’s chosen Latin America as one area it will pump oil from…
“Specifically, three basins that make up one MEGAFIELD.
“All near ExxonMobil’s ‘significant’ discovery.”
That gets us pretty close to a definitive answer, but then we get a bit more specific with…
“… this company is so much more than just this discovery in South America…
“You see, it operates 68 producing fields in 22 countries.
“As soon as the oil price bounces back — and as I’ve shown you today, I’m confident it will — this company will ramp up production significantly.”
So that means DeHaemer must be teasing Tullow Oil (TLW in London, TUWOY (1/2 London share) or TUWLF (full London share) OTC in the US). Tullow is primarily an Africa-focused oil company, though they do have meaningful assets around the world, including in the North Sea — and a couple of their prospective fields are off the cost of Guyana and Suriname in South America, near ExxonMobil’s deepwater offshore Liza wells (Liza-2 expanded upon the great results of Liza-1 recently). Tullow probably isn’t going to be driven primarily by this Gulf of Mexico deepwater potential in the near future, but it may be appealing if you’re looking for a turnaround — they certainly took it hard on the chin with the fall of oil prices starting two years ago, and the stock is down some 80% since the Summer of 2014. Five years ago this was a $20+ billion company on the strength of their big discoveries in Africa, including those lauded fields in Uganda (that still really need that Kenya pipeline to get to meaningful export production — and Tullow is partnered with Africa Oil, as I noted above), and now they’ve spent a couple years slashing costs, doing away with the dividend, and refocusing on a few core exploration areas.
Ghana is the primary focus right now, with the low-cost production of the new TEN offshore project coming online now and creating some cash flow for them that they think will turn them cash-flow-positive by the end of the year, and their investment case radiates optimism thanks largely to that big increase in production hitting now — but, of course, an investment case is supposed to make you feel optimistic. You can get a bit of an overview of analyst sentiment and forecasts from the FT here, and it’s probably not all that surprising — there’s still not a huge amount of optimism in Tullow shares, given relatively low oil prices and their substantial debt burden, but the outlook has improved over the past year and the expectations are that the company can start growing revenue next year after the restructuring and cuts they’ve made to deal with the current lower-price environment for oil.
I’d guess that Tullow is a pretty decent choice if you want to play international oil production with leverage to higher prices — it is likely to go up a lot faster than ExxonMobil if oil goes to $100 again, but that risk goes both ways, too. It is an operating and producing company, and it is likely to soon be profitable again (or at least cash-flow positive), perhaps by next year, but it is not big and stable like the largest multinationals — the opportunity really comes here if oil recovers and hits a bull market again, because there’s a decent chance that Tullow could snap back in that kind of profit-lust environment given their pretty small size and their potential to make more discoveries and increase production. Over the past five years, to provide some comparison, ExxonMobil (XOM) is up about 18%, Statoil (STO), the Norwegian multinational that, like Tullow, has relied on a big deepwater exploration portfolio, is down about 27%, and Tullow is down by about 83%.
I like what they’ve done to reset the company to some degree, though that’s just a preliminary assessment (I haven’t really scoured their filings), and it’s good that their cash flow is on the verge of improving, but this is no longer the market-darling mid cap frontier explorer that got everyone excited in 2011, it’s now a small cap with a somewhat challenging balance sheet but some pretty exciting new production hitting the books and a decent chance, if oil exploration sentiment improves, of bouncing back pretty strongly… but if oil stays low or there are more troubles with production at their big offshore projects, particularly in Ghana, the performance could easily be disappointing.
So that’s what I’ve got for you today — interested in any of these “MEGAFIELD” ideas from Christian DeHaemer? Have more info or background to add to our understanding of Papua New Guinea LNG, or Africa Oil in Kenya, or Tullow in the offshore basins of the Atlantic? Let us know with a comment below.