This article originally ran as part of the Friday File for the Irregulars on January 12. It has not been updated or revised since then, though I’ve left the original reader comments appended and have also added an extra update comment at the bottom of the article.
–As Published on 1/12/18–
I’ve been working on putting together my Annual Review of all the stocks in my Real Money Portfolio for you, dear Irregular, but I’ve gotten such an overwhelming number of questions about the latest ad from Dr. Kent Moors at Money Map that I’m putting some of that annual review on hold so I can quickly address this pitch for you.
Here’s the headline that so many of you have been asking about today:
“Shocking Move by DOE Unlocks New $7 Trillion Energy Sub-Niche
“The race is on. Insiders are swarming. And now, a tiny $2 million startup has harnessed a patented technology that could ignite a 59,845% revenue-surge”
The ad is from Dr. Kent Moors for his Energy Inner Circle ($1,950/year), and on top of those stories about incredible revenue growth he’s got lots of breathless language about the Saudi’s taking this company over imminently, making you buckets of money.
So what’s the story? Let’s check the clues a bit…
“At the center of the frenzy, holding all the aces, sits a tiny $2 million startup
“This company didn’t even exist 18 months ago.
“It’s small, less than half of one-percent the size of Exxon.
“In fact, they barely cobbled together $2 million in revenue last year!”
OK… what else?
“And here’s the best part: This is pure ground floor.
“It’s happening so fast – and with such unstoppable momentum – that only a handful of Wall Street’s savviest players have been able to secure a position.”
Feeling that profit-lust rush to your head yet? Careful, copywriters are good and building the excitement… let’s see if we can add a dose of reality for you. First, to run through some of the other key clues, and Moors’ forecast (how can we come back and check the results if we don’t know what he’s promising, right?)
So we get some wild projections that this “$2 million company” could grow its revenue by 59,850%…
“This site is located along the Gulf Coast on the Calcasieu River, a proven natural-gas oasis…
“And this tiny $2 company has joined forces with engineering titan, Bechtel – to develop this acreage into the world’s premier natural gas export terminal…
“This one-of-a-kind facility will have 96 miles of natural gas pipeline, so as natural gas is pulled from the ground, it can be delivered directly for liquefaction.
“The facility will also contain 20 liquefaction units, each expected to produce up to 1.38 million tonnes of LNG per year!
“That’s a total of over 27 million tonnes of LNG per year!Are you getting our free Daily Update
"reveal" emails? If not,
just click here...
“At current Asian prices, that comes out to $12.7 billion!
“Remember, this is a $2 million company.
“Even at a mere 10% CAPACITY, that’s over $1.2 billion… a staggering 59,850% revenue surge!”
And he runs through a hypothetical cash flow example that leaves him with what he says is “a very conservative projection of $524 a share” for a company that is currently trading at about $10 a share.
And, of course, he says “time is of the essence” …
“… insiders are in an absolute frenzy…
“They’re putting their personal wealth into this tiny $2 million company like there’s no tomorrow.
“In fact, they’ve already grabbed up two out of every three available shares for themselves, and folks who hesitate could miss out on this deal completely.”
And the folks in charge have apparently generated huge returns in the past…
“For example, the Chairman of the Board guided his first company to 20,000% gains…
“The Vice Chairman sold his first company to Royal Dutch Shell for $70 billion…”
That would be BG Group, which helps to narrow down things a bit. This is, as some of you have no doubt already guessed, the LNG startup Tellurian (TELL).
And yes, insiders do own 2/3 of the shares of Tellurian… but that’s not because they’ve been “grabbing them up” — there haven’t been any insider purchases since the reverse merger that brought Tellurian public back in February (they took over the old listing of Magellan Petroleum)… those insiders got their shares at dramatically lower prices, mostly in the $5-6 neighborhood most recently if I’m following the right daisy chain of insider purchases and convertible bonds and other fundraisings that they did before the merger (including large investments from Total and GE). Insiders have generally been selling, in fact, though in very small amounts.
So what’s the business? Well, here’s how Moors describes it:
“The tiny $2 million company has harnessed a PATENTED scientific process that shrinks natural gas by 600-fold…
“And converts it into a liquid form!
“I’m telling you, this technology is Nobel Prize-worthy!”
That may be so… but notice the word he used: It has harnessed a patented process, not that it owns the patents. This doesn’t seem to be a technology company, and it’s unlikely that they have some unique technology in the natural gas liquefaction realm that makes them stand out from other companies who are developing liquefaction (gas-chilling, really) facilities.
There are a few major engineering companies who are capable of building big natural gas facilities for importing or exporting liquefied natural gas (LNG), including Bechtel, which is the firm Tellurian is working with, and I’m sure their technologies are slightly different, but as far as I know no one “owns” the patents on liquefaction or gasification to an extent that they can exert any leverage on these facilities (gasification, as you might guess, is what happens at the other end, when it leaves the tanker and gets put into the customer’s pipeline).
More from the ad:
“And now, this tiny $2 million company can take America’s $7 trillion bounty of cheap natural gas…
“And whip it around the world, in a moment’s notice, to the highest bidder!
“We are talking profit margins I’m projecting to be off-the-charts…
“And the upside potential is truly staggering…”
That may eventually be true, I suppose, though it requires some imagination — the first wave of their LNG project, which they call Driftwood, is projected to begin commercial operations in 2023, so that “in a moment’s notice” stuff would be happening many years in the future, and they first have to raise about $15 billion to build it, according to their investor presentation. They do have an interesting-sounding plan, on paper, to increase their profit margins by essentially pre-selling a lot of the production to a major partner, but this is a huuuuge project.
Looking at Tellurian’s January 2018 investor presentation, they indicate that their Driftwood project will have a very low cost per tonne, and will have a massive capacity similar to the planned capacity of Sabine Pass — larger than even giant projects like the Gorgon field in Australia. Which is impressive sounding, to be sure, but also means the capital requirements are truly phenomenal… and it’s probably worth remembering that most of the huge global LNG projects have faced dramatic cost overruns over the past decade. These are huge, expensive and complex engineering and construction projects.
The hype is laid on pretty thick, even referencing Rockefeller…
“What John D. Rockefeller did with oil, this tiny company is doing with liquefied natural gas…
“And the upside could be tremendous…
“Now, by vertically-integrated, I mean the company CONTROLS every aspect of the business….
“This tiny $2 startup owns every significant aspect of the supply chain. Yep, just like Rockefeller…
“They own the land.
“They own the drills.
“They own the wells.
“They own the liquefaction modules.