Most of you have probably seen the teasers rolling in from Dr. Kent Moors for The Energy Inner Circle, his new higher-priced and “more exclusive” service that provides weekly updates and buy and sell alerts about his “trigger list” of energy stocks.

Most of you have just forwarded me the email ads, which is fine and much appreciated, but I have had an unusual number of folks comment on the “swollen head” he seems to have as he touts his inside access to the “50 people in the world who control 90% of the world’s energy markets.”

Frankly, you have to dig to find newsletter writers who don’t sound like they have “swollen heads”, at least in the way they present themselves to us through their hype-filled teaser ads … the implication always being, why would I subscribe to someone’s letter if they’re not a lot smarter and wealthier than me? Though, to be fair, not many do this much status bragging in the first few paragraphs (visits to Windsor Palace, a second home in the Bahamas, etc.). And really, he’s a pretty new newsletter writer and seems to be trying to turn his academic and international energy consulting experience into wealth, so his status and connections are the key to what he’s offering.

I can’t tell you much about Dr. Moors’ credentials (if you want to see the less-hypey version, you can check out his site at Duquesne, where he’s got a day job as a political science professor), but I can at least look at some of the ideas and stocks he’s teasing in his ad letter.

Moors tells us that what he’s trying to do is prepare subscribers to profit from “super shifts” — like the Chinese push into shale gas technology, Venezuela’s expected move away from supplying US refineries. These “super shift” moves ripple through the markets and can cause profit-making catalysts for specific companies, which is what he’s looking for.

And there is one “super shift” that more of my readers have asked about than any other as they’ve forwarded this ad to me — they’ want to know what the “$40 trillion oil prize” is in the Monterey Shale, and which companies Moors is teasing that will be the beneficiaries.

Thankfully, Moors (or his copywriters, one assumes) throws a few clues on the pile for us to chew on. Here’s his brief description of the Monterey Shale as background:

“Super Shift #3: Breakthrough opens America’s $40 trillion oil prize

“Everybody knows California’s traditional oil production is declining at nearly double-digit rates every single year. In fact, current volume is less than half of what it was just a few years ago.

“Yet what most people don’t know is that California is sitting on untapped gas/oil reserves equivalent to 500 billion barrels of crude….

“It’s called the Monterey Shale. And unlike other shale-based deposits in the U.S., this one is mostly crude oil.

“In fact, it’s the ‘source rock’ for most of the state’s oil production….

“What’s kept it from being a superstar oil field is the very poor ‘recovery rate’ of Monterey Shale wells.

“Only around 10% of the crude available from each well can typically be brought to the surface.”

So that’s the back story — this oil has been there and known for more than 100 years, but until now it was too hard to extract. That’s where, as you might imagine, his “inner circle” comes in:

“But according to my Inner Circle contacts, recent developments in oil markets and drilling technologies could soon turn this under-tapped reserve into one of the hottest oil properties on the planet…

“One of these is called Managed Pressure Drilling (MPD) … a system of high-tech air injection that combines with a special ‘California Cocktail’ of acidized drilling mud to lift much larger amounts of oil from Monterey Shale wells.”

And he says that this MPD and newer drilling methods (horizontal drilling, etc., I assume) are the “trigger” for this super shift. In his words:

“MPD and other new technologies make tapping this mammoth domestic reserve profitable at just $80 a barrel…”

That still makes it pretty marginal according to my understanding of production costs — I think deepwater oil and oil sands can often be produced for significantly less, but I imagine those costs are rising, too, and if you think oil is going higher and staying higher (as Moors and many others clearly believe — he wrote a “cheap oil is over” article just yesterday), then $80 means these might be highly leveraged plays that could see very volatile earnings — that’s because high cost extraction is always more heavily levered to commodity prices than low cost extraction. (To simplify: If you have a gold mine that can produce gold for $1,200 an ounce, for example, the move from $1,300 to $1,400 an ounce means they double their profit — instead of making $100 per ounce they make $200 per ounce. If a mine produces for $300 an ounce, then the same move would only increase their profit by 10%, from $1,000 to $1,100. Investors lust for growth, so big percentage gains almost always catch the most attention.)

And finally, we get to the brief “tease” for two stocks in the Monterey Shale:

“In fact, I know of two stocks you could use to pour yourself a cocktail of profits from this suddenly accessible Monterey crude RIGHT NOW…

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“One of these has 10 billion barrels of oil ($814.5 billion worth) ready for drilling using MPD and other techniques on its 300,000 acres in the Monterey…

“The other holds 1.2 million Monterey acres – and is ready to pour $6.3 billion into new extraction efforts over the next 4 years.”

So … is that enough for the mighty, mighty Thinkolator to go on? Well, you might be worried, my friends, but have no fear. These must be:

Venoco (VQ)

and

Occidental Petroleum (OXY)

Venoco is active in several California energy fields — they have a big operation in the Sacramento basin to extract shale gas, and some offshore and legacy production in Southern California, but with low gas prices they are putting much of their capital investment into the Monterey Shale, and pinning their growth hopes on their large position in that area. And yes, they have claimed to have more than $10 billion of oil in place in their leaseholds, though I think that’s the “oil in place” number, of which even with advanced techniques they’ll presumably be able to extract only a small portion. You can see their latest quarterly report here, including updates on their drilling program and production.

The company is profitable and expects to remain so, but trades at a fairly hefty forward PE ratio (about 26), probably because of hedging losses and falling nat gas prices that analysts probably expect to hurt their revenue numbers, and they also trade at a negative book value per share thanks to debt and, I assume, probably a low carrying value of their Monterey Shale leases (yes, they do hold about 300,000 acres) since those resources are not yet fully defined and producing. Market cap is around $900 million, and they have about $700 million in debt and no cash to speak of.

As of a couple weeks ago there was a pretty big short position in VQ shares, roughly 15% of the float, so clearly some folks are betting that their position is a bit precarious, so it might be that some investors are more skeptical about the Monterey Shale — or just think that they’ll be hurt by low natural gas prices from their Sacramento production, or maybe there are other challenges for Venoco that I didn’t see in my ten minute tour of their filings.

And Occidental Petroleum you probably know, at least by name — they’re one of the “oil majors” with a market cap around $70 billion, though that makes them just a fifth the size of Exxon Mobil. Like most of the big oil companies right now, they have a “fortress” balance sheet, with no net debt, and they’re growing a bit more quickly (as would be expected) than the “even larger” giants like Exxon Mobil or Chevron — and with far higher profit margins, largely because they’re mostly a producer and don’t get into lower-margin refining and retailing.

OXY has made California one of their growth priorities, they’re drilling actively and added quite a bit of CA acreage this year (they’re already a huge producer in California and are active around the world — lots of US oil and gas production, but also oil production and exploration in Oman, Libya, South America … and soon Iraq, among other places). Like most exploration and production companies, they’ve been reacting to the low gas prices by looking for ways to allocate future capital to oil production at the expense of natural gas. And I have seen reports that they’re going to invest about $6 billion into increasing their California production, both conventional and shale, over the next four years, so that’s a good match (that’s about a quarter of their capital investment plan over the next four years, by the way).

OXY also looks reasonably inexpensive considering their diverse assets and their expected 10% annual growth rate (that’s the average analyst expectation), though they don’t carry the super-low PE ratio of an XOM or a CVX, both of which are actually expected to grow faster (or the higher dividend yield of those bigger players — OXY’s dividend yield is under 2%, though they have raised the dividend every year for almost a decade).

So there you have it — I have none of the connections touted by Dr. Moors, and I don’t know much about oil exploration or production, but from the hints and clues he throws out to us I can tell you that I’m pretty sure these are the two “plays” that he touts for the Monterey Shale. What do you think? Ready to plunk down some of your hard-earned money for a piece of Venoco or Occidental? Have a better oil idea? Let us know with a comment below.