by Travis Johnson, Stock Gumshoe | September 3, 2018 11:43 am
Kent Moors certainly has some talented copywriters plying his wares… we’ve been seeing his latest “buried treasure” pitch for about a week now, and today I’m finally actually finding the time to read it and get some answers for our beloved Gumshoe readers.
The ad is a pitch for Moors’ Energy Advantage (currently $299), Here’s the headline that got everyone excited:
“Buried beneath the Chihuahuan Desert, in the southwestern United States, lies an ancient TREASURE TROVE that’s being called…
“It could be worth over $1.4 trillion. And everyday Americans are discovering they’re entitled to a piece of it.”
The email introducing the ad went further still, mentioning something that sounds more official, like maybe there’s really some way that you could be entitled to “large portions” of that motherlode… here’s a taste of that:
“… while much about this fast-moving situation is still unknown, one thing is certain…
“This region is now sitting on top of the most valuable treasure trove in history.
“It’s so big, it’s earned an appropriate nickname from some in the press: “the motherlode.”
“And due to a few unique factors, including an obscure 1901 court ruling known as ‘the rule of capture,’ everyday Americans could be entitled to large portions of it.”Are you getting our free Daily Update
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I think we all know that there’s some fine print in there — we’ve yet to find something that you’re “entitled to” or can “enroll in” or “sign up for,” despite the best efforts of copywriters to make it seem like you’re about to get something for free… what I expect he’ll be telling us is that there’s a company that owns part of this “motherlode,” and if you buy shares you’ll be entitled to some of the rewards.
That’s not terribly shocking — this is an investment newsletter, after all, and they’re likely to tout investments… but it’s always disappointing to some of our readers to learn that, yes, the rules still exist: You can’t get somethin’ for nothin’, it takes money to make money, and there ain’t no free lunch.
But, of course, we do still want to figure out what Moors is talking about… just because something’s not free, and it’s being unreasonably hyped, doesn’t mean it’s automatically a bad investment… and the more we learn, the better the choices we can make.
The ad lays it on thick with the “buried treasure” theme — referencing folks who found gold coins in the desert, medieval artifacts under battlefields in England, and a copy of the first printing of the Declaration of Independence hidden behind an unremarkable painting at a flea market.
So that sets the stage, and our greed is primed: we’re already dreaming of stumbling across free riches. Moors goes on:
“A historic treasure trove has been discovered right here in the United States.
“It is so big, it could crown 100 new millionaires, every single month, for the next 11 years.
“And if you play your cards right, you could be one of them.
“Because help is needed to get this treasure out of the ground.
“And that’s where you may want to play a role in this story.”
We’re going to find out in a moment that “help is needed” means “you can invest money” … but let’s continue with the story. More from the ad:
“If you were looking to find the greatest buried treasure in American history, this desert would be one of the last places on your list….
“Yet, for some reason, a former banker in Colorado, who was living out of a suitcase full of clothes…
“Scraped together the little money he had and acquired this seemingly unwanted plot of land for pennies on the dollar.
“Which was all this former banker could afford….
“Four months later, while surveying the area, a group of geologists from the USGS determined that something very special was indeed hidden beneath the desert sands in this region.”
And what’s that “rule of capture” business? Moors brings that up after referring to Odyssey Marine Exploration (OMEX), which was an undersea treasure hunting company (it still is, though they’re now also focusing on finding and surfacing natural resources instead of just shipwrecks) — he says their big win, finding a Spanish treasure ship, was eventually nullified because Spain got all the gold back in court, but that this “rule of capture” means that problem won’t come around for this new “treasure hunter.”
Which, of course, is a straw man argument — because what this company is searching for is a buried natural resource, not a lost treasure. And, in fact, it’s almost certainly an oil company, since the “rule of capture” is essentially that, with some restrictions, you can pump out oil (or water, at least in Texas) from your property even if it might be flowing in from an underground oil field that extends beyond your property. First one with a straw in the ground gets the goodies.
So what is this little oil exploration firm? Here are some of the clues:
“… if shares in this tiny explorer follow the revenue surge I’m projecting, that’s what could be in store for you… a 136,235% windfall!….
“Insiders with this small exploration firm are already starting to covertly stake their claims.
“They recently invested $21 million. They’ve got serious skin in the game.
“Plus, institutional heavyweights like Deutsche Bank, JPMorgan Chase, BlackRock, Citigroup, Morgan Stanley, and Värde Partners have joined the adventure, kicking in a total of eight figures.”
Those kinds of “institutional buyer” clues don’t usually mean much, since you’d be hard pressed to find a stock that doesn’t have major ownership by at least a half dozen of the biggest banks and asset managers… but it might help with narrowing down our search a wee bit. What other clues can we feed to the Thinkolator?
“Through dumb luck, this former banker didn’t purchase a small parcel of land that was hiding buried coins, or ancient gold artifacts.
“This region was sitting on top of a different kind of treasure altogether.
“The largest oil deposit, not just in modern U.S. history…
“But that’s ever been found in this country.
“It’s 20 billion barrels of oil…”
That sounds like a lot, and according to Moors it’s record-breaking:
“According to the CEO of one of the largest energy exploration firms in the world, much of the oil in this region will only cost $2.25 a barrel to extract.
“This is the next great American oil find.
“It’s bigger than all that came before it.”
The basic narrative (we all need a “story” to get interested, right?) is that this banker thought that buying land near the established oil producing areas in West Texas might work, even though the oilmen were all convinced that those areas were dry because of old assessments by the experts.
Then this guy apparently picked up a little land when creditors forced a sale a couple years ago (oil companies were still suffering then, remember, with relatively low prices)… here’s how Moors puts it:
“So in June of 2016, when creditors forced a small company to put a 3,458-acre tract of land up for sale….
“There wasn’t much interest in it.
“Going off those dusty, old 1995 assessments, the oil experts thought it was worthless.
“And this banker saw his opportunity to strike.”
And then, not long after, the USGS published an updated survey of the land and came to that new 20 billion barrels conclusion, dramatically ramping up their assessment of how much oil could be recovered from this broad area of the country.
More from the ad:
“… once the USGS announcement was made, the banker knew he had to act fast.
“He acquired more and more plots of cheap land in the region.
“And his initial 3,548 acres grew to 15,000.”
Then we get some details of the “land rush” that followed:
* “RSP Permian paid $2.4 billion for a plot of land right next to this banker’s plot.
* Oasis Petroleum ponied up $946 million for their spot.
* Concho Resources cut a $430 million check to get in the game.”
So… any other clues? We get some hints about the management team that this banker brought on…
“The CEO is a geologist and entrepreneur with over 30 years of experience in American oil.
“He struck pay dirt while extracting the Barnett Shale of west Texas. And he helped grow his company nearly four times to over $27 billion….
“The Executive Chairman is also a Texas oil legend.
“He grew his first company from $30 million to over $3.2 billion in 4½ years….
“The Chief Operating Officer the former banker hired was another rock star.
“He cut his teeth at EOG Resources. He led the adoption of hydraulic fracturing techniques to open up the Bakken shale.”
That “$2.25 a barrel” number that Moors cites for the extraction costs, which is extraordinarily low, is an estimate by Pioneer Resources CEO Scott Sheffield for this kind of spot, mostly because the oil plays are “stacked” eight deep underground so that each of those layers can be accessed from a single rig.
I’m no oil expert, but we’ve been hearing about “layers” of oil zones in West Texas for years, so this isn’t a brand-new idea… but perhaps this company’s property is more prospective than others, let’s see if the Thinkolator can spit out a name for us.
So even though it’s Labor Day, I’ll haul the ol’ Thinkolotor out of the garage, fill ‘er up, and annoy the neighbors by running it for a few minutes. Shoveling in those clues, letting them get chewed and diced and pureed, and then we finally get an answer pouring out the other end… this is little Lilis Energy (LLEX)
I did go through and check the match, and it’s indisputable… down to the shape of Lilis’ acreage on the map matching Moors’ illustrations, and the bio of the Executive Chairman — that $$30 million to $3.2 billion in 4-1/2 years gain cited was Ronald Ormand’s work at Magnum Hunter Resources (MHR), where he was co-founder and CEO and apparently left near the highs, a year or two before they went bankrupt.
The story of Lilis Energy’s past few years is not quite as much “serendipity of a banker” as Moors tells it — there’s a nice Houston Chronicle story here that goes into more detail, but Ormand does seem to be the key operator — he came on to help lead the company as Chairman just as they were beginning to refocus on the Permian, and then took over as CEO after a series of odd events… Lilis CEO Abraham Mirman resigned after the SEC charged him with securities fraud for a penny stock scheme (before his days at Lilis), and Mirman’s successor only lasted eight months, so Ormand ended up running the whole show. There’s also been widely reported speculation that Lilis, given its tiny size in an area dominated by giants, is an acquisition target, so Dr. Kent Moors is not the only one with an eye on this company. (Perhaps he’s just one of the few newsletter pundits who reads the Houston Chronicle, I don’t know.)
This is a very small (market cap $340 million) oil and gas company that’s focused on the Delaware Basin in West Texas and Southeastern New Mexico, they’ve been ramping up their production and increasing their reserves over the past year or so and they are surrounded by other explorers and producers who paid a lot more for their acres than Lilis did. And yes, they did start out this journey in the Delaware Basin by merging with Brushy Resources in June, 2016 to acquire those core net 3,458 acres with exposure to the Wolfcamp formation.
The investor presentation for Lilis is worth a gander — they stress the value of their land and the undervalued nature of their assets by sharing the details of a bunch of nearby acquisitions over the past couple years, all but one of which was at a premium to the value implied by Lilis’ current market cap… and the one they’d really like you to look at is RSP Permian, which has the acreage right next to LLEX and was acquired by CXO at an implied price of $79,130 per acre, compared to the current valuation of Lilis of $15,187 per acre. Whether that means they want to be taken over, or just that they’re emphasizing the value of their current share price, I don’t know.
And the shares did jump up a couple weeks ago, in a bit of a delay following the second quarter earnings report — the actual earnings were worse than expected, but the company did guide to stronger production growth and, perhaps more importantly, announce significant cost savings expectations as they’ve made some deals to tie their production in to pipeline and also cut their water disposal costs, so it’s likely that some combination of a delayed reaction to that forward optimism, a little recovery in the WTI oil spot price from $65 back up to $70, and the attention of Dr. Kent Moors as he touted this stock to his subscribers all helped to drive the shares back up above $5.
So there’s your stock idea from the latest Kent Moors ad… and the markets are closed, so you’ve got plenty of time to let it percolate as you go out and celebrate the laborers in your life.
And no, owning stock in Lilis Energy wouldn’t “entitle” you to anything other than a ride on the trip that company is taking — if they increase production and discover more reserves, the shares will probably go up unless oil prices drop again… if oil prices fall sharply or they have some bad drilling results, they’ll almost certainly go down. They don’t pay a dividend and aren’t likely to do so soon. As you can see, the stock has done pretty well over the past couple years since the Brushy acquisition, though that’s against a very favorable backdrop of a 50% rise in oil prices:
LLEX data by YCharts
To me, a decided non-expert in the ways of small oil explorers, this one looks like a pretty heavily levered (they carry quite a bit of debt, presumably taken on to buy land and accelerate production) small oil company with a small but really nice property — which means it will probably be pretty volatile and jump up and down with oil prices and overreact to good or bad news from each new well. Beyond that, I’ll leave you to your cogitations and discussions — I’m sure a great many of you are far wiser in the ways of assessing oil companies than I, so if you see something great or God-awful in the world of Lilis, please let us know with a comment below. Thanks for reading!
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