Now that’s a good tease — a tiny oil stock catches attention right away, since with oil prices having recovered we’re all pretending that we were never scared of what $30 oil would do to our energy investments. And $1,000 to $144,400, well, that just speaks for itself, no? I’ve got $1,000, and I’d much rather have $144,400.
So shall we figure out what the heck this is?
The teaser ad is from Colin McCabe of the Elite Stock Report — and of course, he would dearly love it if you’d subscribe to his newsletter. Apparently it’s $200 a year. You can subscribe if you like, I’m all for checking out whatever interests you … but if you just want to find out what this stock is, read on — I’m sure the mighty Gumshoe can figure this one out.
First, the pitch: The basic argument here is that the rising price of oil will create a demand imbalance, because so much of the supply from expensive sources (like deepwater rigs and oil sands projects) was taken offline, or exploration postponed, when oil prices collapsed last year. That imbalance will create a spike in the oil price (beyond what we’ve already seen, apparently), and will be a huge boon to those who have early-stage projects in high-cost areas. After all, when prices rise it’s the high cost producers who see the biggest boost to their bottom line, they go from money-losers to profitable producers almost overnight.
So here’s how this company is teased:
“A few hundred miles north of the Montana border, a tiny oil company has made a massive 2.25 billion barrel oil discovery…
“Independent analysis concludes the discovery is economically viable, capable of producing 56,000 barrels a day…
“And a pre-feasibility study determined the stock is worth $19.39 a share… yet, right now shares are trading for less than $0.50.
“Simply put, this is the greatest profit opportunity I’ve seen in years.”
Nice, eh? But there’s more!
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“You see, this company is sitting on part of a vast oil discovery that is larger than the entire state of Florida. It contains more oil than the sheikdoms of Kuwait, Bahrain, and Dubai… combined. And it could satisfy all U.S. demand for the next 100 years.”
Then they start to talk just a little bit about exactly where this company’s land is — and yes, this is an oil sands company. The “north of Montana” bit should probably have told us that, no? And they quote that same old CBS story about the oil sands, which reflects the conventional wisdom that this source of energy will eventually be the largest foreign source of oil for the United States.
“And this tiny oil company… whom almost no one knows about… is smack-dab in the middle of it all.
“56,000 barrels a day… for 18 years
“This company’s beaten the majors to the punch, scooping up a massive swath of land in the heart of a huge oil zone that could fuel America for decades to come.
“Its property package — totaling over 100,000 acres — sits right next to Shell’s enormous thermal complex, where over 7 billion barrels of oil have been discovered. This facility currently pumps out 12,000 barrels a day, and is the crown jewel of Shell’s operations…
“But 12,000 barrels a day is nothing…
“The tiny company I’m telling you about has made a monster 2.25 billion barrel discovery of its own. And one of the most respected independent engineering firms in the business — whose clients include Chevron, Exxon, and Shell — estimates it could be capable of producing 56,000 barrels a day… for 18 years.
“A pre-feasibility study confirms this stock is worth $19.39 a share
“A pre-feasibility study completed by the same independent engineering firm confirms this company has a value of $1.2 billion at $65 oil. That works out to a whopping $19.39 a share.
“Let me repeat: $19.39 a share… that’s a 4,748% increase from today’s price.
“But you know what? $19.39 a share may be far too conservative…
“You see, the engineering firm based their study on only about 20% of the company’s massive land base.
“There are still tens of thousands of acres left to explore. And most of this land is in the SAME area over the SAME deposit with the SAME geological setting. So the likelihood that this company is sitting on a far greater amount of oil than we now know (possibly double) is extremely high.
“And it gets better…
“Every $1 increase in the price of oil adds $1.29 to the share price…..
“at $95 oil, each share could be worth a staggering $58.16.
“That’s a massive 14,440% increase from where the stock is trading today, enough to turn a $1,000 investment into a $144,400 windfall.”
OK, so I’ll admit — I’m jaded from reading these promises every day, but I still can’t help but do a little bit of drooling when that kind of return is dangled in the face of my decrepit portfolio.
So what is the stock?
Well, you may have noticed that the real clues were not exactly legion — but this is what we have: Worth $19.39 a share according to the feasibility study, could produce 56,000 barrels a day for 18 years, priced under 50 cents, has a project near producing Shell mines.
Throw all that into the mighty, mighty Thinkolator, and I can tell you that this must be …
Strata Oil and Gas (trades over the counter in the US at ticker SOIGF)
Now, before I get any further let me warn you: There are a lot of Stock Gumshoe readers, and volume, though already up about 200% from the recent average, is very low — so be aware that if the price shoots up it’s probably just because lots of folks heard about it here (or from Colin McCabe) and are driving the price higher. That doesn’t mean the stock is any better today than it was last week, or that the move in the shares is necessarily sustainable — caveat emptor. Or maybe caveat commodator, or however the ancient Romans would translate “investor.”
Who is Strata? They are a small exploratory oil sands company with properties primarily in the Peace River area (that’s the smaller oil sands zone West of Athabasca), near some producing properties, including Shell’s. The map of their properties is here. They’re not producing anything right now — and in fact, from the lack of word from the company it doesn’t seem like they’re doing much of anything. Maybe they’re just sitting on their assets, hoping for better prices and a buyout or a better opportunity to raise money to begin producing oil, I don’t know … their annual report is delayed but should be out later this Summer, so soon we’ll at least know what they were doing last year.
And their pre-feasibility study for their main project (called Cadotte), which was released over a year ago, did put the “net present value” of the property at $1.2 billion. If you divide that by the number of shares currently outstanding (not counting the warrants and options), you get … exactly $19.39, per the teaser.
Of course, you may not be comfortable with the assumptions that went into that pre-feasibility study — you can read Strata’s press release about it here, or get the official SEC filing of the full study here (it’s a long one).
So … will Strata turn into a barnburner for your portfolio? That’s tough to say — from what little I’ve learned so far it seems that these guys are very new players — the corporation used to be a software company called Stratabase, and it was only four years ago that they changed their name, and changed their focus to oil and gas exploration, and two years after that they made their big oil sands discovery.
The big things that seem likely to move the stock are a significant move in the share price (many oil sands projects are on the verge of profitability now, with oil near $70 — if it spikes further they get very profitable, if it falls the producers are in real trouble.); a takeout by a reserves-hungry oil major or an oil sands competitor; or a real step toward production on their Cadotte project, which would probably require some dramatic new level of financing. They haven’t issued any financial filings for about a year, as far as I’ve seen, and they recently filed an extension for their 20-F (annual report), so we should see that in a matter of weeks. They do have a huge accumulated deficit from acquiring land, and since they’re not producing they have no earnings. It looks like they’ve been financing their exploration and acquisition projects through share sales, and they do have those assets that should remain valuable as long as oil is expensive.
So whaddya think? Like this speculation, or do you prefer the bigger oil sands players, or other energy investments? Or do you think oil’s about to fall? Share your thoughts with a comment below, if you please. And if you’ve ever subscribed to the Elite Stock Report, by all means, please click here to review it for us. Thanks!