I like to mix things up a bit, cover different newsletter “gurus” and their teaser picks and try to put a good variety of folks under the Gumshoe microscope — but Byron King’s latest ad has caused so many questions to come pouring through the floodgates here at Gumshoe HQ that I feel like I have to cover it for you today … even though I wrote about some different Byron King teaser picks for the Irregulars in the last Friday File.
So what’s the latest pick? The ad I’m seeing over and over now is for a huge Israeli oil find — and no, it’s not Zion Oil and Gas (ZN), which is perhaps the most well-known little Israeli oil company (in part because of the story they pitch, about using the Bible to direct their search — they haven’t found oil), or the companies behind Israel’s now-well-known giant offshore gas field in the Mediterranean (that’s mostly Noble and Delek, who share the Leviathan field). So who is it?
Here’s what the intro to the ad says:
“In this exclusive presentation, Byron King releases exclusive information regarding a mammoth $27 trillion oil discovery has been found in a huge Israeli ‘Oil Vault’. It could be the second largest ‘Oil Vault’ in the world…
“And ONE tiny, little-known Canadian company recently won the rights to a sizeable piece of Israel’s massive oil find….
“The Beginning of the End for Money-Grubbing OPEC…
“Israel discovers what could be the 2ND LARGEST ‘Oil Basin’ in the world… officially giving OPEC the ‘middle finger.'”
“According to the World Energy Council, Israel’s massive oil discovery could ultimately yield as many as 250 billion barrels of oil … worth over $27 trillion.”
There’s even a surprising quote from the Wall Street Journal (surprising, at least, for those of us who are accustomed to thinking of Israel as among the least-blessed countries in terms of natural resources):
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“… this could turn Israel into one of the world’s leading oil producers.”
Man, if we think the fight over borders and security between Israel and its neighbors is bad now … just wait and see how bad it gets if it turns out the land is actually worth something.
He quotes Dr. Vinegar, who used to be at Royal Dutch Shell and is now with Israel Energy Initiatives, as saying that this might give Israel oil reserves that are second only to Saudi Arabia — and far larger than the remaining reserves in the Saudi Ghawar field.
We’re told that the oil was unreachable until fracking made this oil discovery, which is “under Israel’s sacred ground,” accessible at a reasonable cost.
And yes, as usual, there’s a “tiny Canadian company” in the profit crosshairs over this, according to Mr. King:
“I was ecstatic when I uncovered ONE tiny, little-known Canadian company that recently won the rights to a sizeable piece of Israel’s MASSIVE oil find.”
It’s a company that has a market cap of under $75 million (which, since the ad has been running for a couple days, has probably changed — it doesn’t take much attention to spike a tiny stock), with a stock price under 85 cents per share. And that has a $2.76 billion oil find.
Notice that $2.76 billion? Yes, that’s much, much smaller than $27 trillion … though it still sounds quite impressive compared to a $75 million market cap.
There have been two major oil and gas stories from Israel in the last couple years — the first was the discovery of the Leviathan field, found and being exploited by Noble Energy and Delek, which itself was just the most recent iteration of several discoveries in the eastern Mediterranean, where commercial gas production has been underway for six or seven years. The next gas field coming online is the Tamar field, and it’s expected that production from the Leviathan field and other potentially larger finds in the Levant basin, most of which is in Israeli waters, will proceed apace.
But that’s mostly natural gas — which is obviously important, and could bring Israel some energy security and even turn them into an energy exporter in fairly short order … but it’s not as sexy or profitable as a big oil discovery would be, given the relative pricing of those two commodities.
So the second attention-getting story was that Israel can possibly become a major oil shale player — which is where the story of the $27 trillion and the 250 billion barrels of oil comes from, the stories that really headline this ad.
This is not shale oil that’s extracted by fracking, as we find in the Bakken — flipping those words makes a big difference. This is oil shale, oil that is not trapped by rock layers but that is actually embedded in the rock (that’s probably not exactly accurate, this is just the best way I can describe it). It’s an important distinction — oil shale is found around the world, including huge potential reserves in Colorado, Russia and elsewhere, and the latest oil shale discoveries in Israel put them in the top tier of potential, estimates that I’ve seen say they have the third largest oil shale field … but no one is going out of their way to explore for oil shale, since it hasn’t been particularly feasible to extract it in commercial quantities.
Companies keep trying, and this general idea has been teased before particularly for those Colorado projects, which have been attempted since the 1970s with no real success, but so far no dice.
The problem with oil shale is that the only way you can really separate the oil from the shale is with heat — so most projects have been designed to superheat the shale either underground or after mining it, to extract the oil, which is obviously both very technically challenging and very energy intensive. To my inexpert mind it seems sort of like the Canadian oil sands, only more difficult and extreme, and no one has so far decided that it’s worth turning the Rocky Mountains into rubble in order to extract the oil trapped in the rock via mining, so “in situ” solutions have been the focus of study and pilot projects.
This is very different from shale oil, which has been relatively easy to extract thanks to new horizontal drilling and fracking technologies, and which has turned North Dakota into a booming state ripe with oil millionaires — shale oil is more like shale gas, it’s in there and liquid, you just have to figure out how to release it from the less permeable rock that traps the hydrocarbons, which is what high-pressure fracking does — it blasts holes in the rock and the proppants hold those holes open, and then the gas and/or oil can escape up the drill pipe.
As far as I know no one has talked about hydrofracking in Israel, this big 250 billion barrel find is all about oil shale, the hard stuff.
So which company is King pitching here? Well, when we get into the details it turns out that King’s promo was a bit, well, disingenuous. That’s fancy talk for “misleading.”
Because when he teases the specific company details, here’s what we learn:
This small firm’s Israel position is just a small part of their portfolio, they apparently have oil and gas interests in Colombia, Brazil, Argenitna, the United States, and Canada.
And they have just 15% of this giant Israeli oil field, which King says is estimated by USGS at 1.7 billion barrels.
So what happened to that 250 billion barrels and 27 trillion dollars, you ask? That’s where it’s a bit misleading.
Because King mentions that the properties around this company’s project also have a ton of natural gas. He said USGS estimated 122 trillion cubic feet alongside this tiny Canadian company’s holdings.
Which means that this stock is not at all involved with Israel’s way-in-the-future oil shale potential, that “maybe as big as Ghawar” oil shale field with potential for 250 billion barrels that’s largely located to the southwest of Jerusalem, and which was what got us excited about the $27 trillion stuff.
No, this one is involved in a small portion of the offshore Israeli licenses covering the Leviathan field and the rest of the eastern Mediterranean — an area that does, indeed, have estimated technically recoverable but undiscovered oil of about 1.7 billion barrels, according to the USGS. And that, also according to this same USGS estimate from last year, has about 122 trillion cubic feet of natural gas. Note that this is what the USGS thinks should be there and recoverable, not what has been found — and the folks at the USGS don’t have to worry about their share price if they’re wrong.
So that means for this teaser we’re looking at a little company that does indeed have a 15% share of some offshore oil fields in the eastern Med, a company called Brownstone Energy (BWN in Toronto, BWSOF on the OTCQX, the high class section of the pink sheets).
Brownstone is a global company, though a teensy one — their two core assets are shares in licenses offshore Israel and blocks in Colombia. The Israeli stuff is all offshore, and it includes two blocks in the deep water where they have a 15% working interest that are between the Gaza Strip and the huge Leviathan discovery, along with some others that are closer to Leviathan and on which they have far smaller working interest (less than 1% for the two most exciting areas, which combined, they say have over 7 trillion cubic feet of risked gas potential), and a 6.75% stake in the Samuel block that’s immediately offshore in shallow water.
They believe that either their Colombian assets or the Israeli assets could be “company makers,” though they appear to be further along with the Colombian blocks — and with the joint ventures in both of these countries they have been able to get experienced operators on board to do much of the work and keep their costs relatively low. They also have joint ventures in Quebec, Argentina, Brazil, India, Oregon, and Colorado — so the teaser matches that as well, though those projects are either so small or so preliminary that they aren’t even included in the latest corporate presentation.
The company has some pretty good connections, particularly because their Chairman and CEO is also the founder, Chair and CEO of the natural resources venture capital firm Pinetree Capital, Sheldon Inwentash (Pinetree and Intenwash together held about 15% of Brownstone shares as of last year). And I like the general idea of working in the prospective Israeli and Colombian energy patches, as well as the idea of having joint venture partners in these kinds of projects, but I don’t actually know much more about Brownstone Energy than that — interesting, but I don’t know that they’re particularly close to announcing huge news (there is continuing exploration going on in most of their major blocks this year, both seismic and some drilling) … and I do know that they aren’t anywhere near Israel’s 250 billion barrel oil shale assets.
Which is probably a good thing, given that the huge oil shale field will be many, many years from development even if they can get a pilot project to work — the pilot is apparently underway now, but unless I’ve misread the articles on this it sounds like it will require heating the rock for two years before they produce anything. That oil shale stuff, by the way, is being done by that same group mentioned in the teaser, Dr. Vinegar’s Israel Energy Initiatives, which sounds like a government agency but is in fact the Israeli oil shale pilot project owned by Genie Oil & Gas, which itself is a division of the mostly-telecom company IDT Corp (IDT). Phew. The basics of that oil shale project (and the big picture for the offshore blocks) are touched on in this article, if you’re curious to know more.
Brownstone’s latest investor presentation goes into the details of their Israeli and Colombian assets pretty well, and according to the latest quarterly report their balance sheet looks quite clear and they should have enough cash on hand to cover their planned exploration costs in at least one of those countries this year, though probably not both. It wouldn’t be surprising to see them raise some more money soon — particularly if King’s recommendation helps their share price to stay elevated, though there are also some near-the-money warrants expiring over the next year or so that could bring in additional capital.
So … are you excited about Brownstone Energy? Prefer other ways to play the oil and gas potential of either Colombia or Israel? Let us know with a comment below.