I wasn’t intending to write about this particular teaser pick that’s circulating from Dr. Kent Moors for his Energy Inner Circle … mostly because he doesn’t get deep enough into any clues or specifics to let us really focus on a particular company for you.
But everyone’s asking, so I figure we should at least give you a chance to chat about it if you’re interested (and I can make some guesses). So what’s the deal?
Well, Moors says that thanks to a big deal that was signed just a couple months ago his “gag order” has been lifted and the possibilities for South American oil and gas riches are really opening up. Here’s a bit in his words:
“I’m here today to tell you about what I believe to be one of the most important oil deals to come along in over a decade.
“The fact is this deal is one of the keys to unlocking an oil and gas reserve worth more than $175 trillion.
“That’s over 10 times the size of the U.S. GDP in a single year.
“So how do I know so much about this deal? I was one of the people who helped broker it.
“Today, this deal is nearing completion. And it’s going to change the dynamics of oil on a global scale….
“Just weeks ago, on July 16th, one pivotal event kicked this ‘super shift’ in oil into high gear.”
The “pivotal event” was the signing of a shale oil accord between Chevron and the state-controlled YPF (that’s the Argentinean oil company that was seized from Repsol, a Spanish oil company, by the Argentine government). Repsol is still hollering “foul” about that, but it didn’t keep Chevron from jumping in. And I can’t imagine Moors is talking about either of those two companies, his theme is that this is just the enabling deal that will bring South America back into oil prominence (along with a couple other developments, like a big Ecuadoran oil refinery and a large North/South gas pipeline being built, and increased cross-border energy cooperation among big players like Argentina, Brazil, Colombia and Venezuela.
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More on that theme:
“All the big players in oil right now are looking at South America.
“The Chinese, the Russians, the U.S. and others are all making deals and jockeying for position.
“The reason is this:
“There’s A LOT more oil in South America than anyone ever thought possible.
“Couple this with HUGE foreign demand and a large number of fast-growing South American economies, and you’ve got a recipe for red-hot energy profits.
“Now just to be clear, I’m going to be able to show you dozens of ways to play this boom…
“It’s not just the usual oil majors that are going to reap the benefits. It’s also:
- Small drillers
- Pipeline companies
- Oilfield services firms
- Over-land and over-sea shippers
- Environmental and risk management firms
- Distribution hubs, ports and dockside facilities
- Natural gas and petroleum liquids processors
- And so much more…
“As I’ve been saying…
“There’s one super-urgent play I see developing on this global “super shift” to South American oil.
“However, to grasp this company’s potential you’ll need to understand some of the political changes and unlikely new alliances this newfound energy wealth is fostering.
“Brazil, for example, is reaching out to its neighbors – and extending significant capital to forge new cross-country transportation routes for oil and gas to the ultra-lucrative Asian markets.”
And really, that’s about all he gives by way of clues — it looks like he’s setting this up as the idea that will be behind a handful of recommendations in the South American oil space as he sees the formation of a new oil power that he calls “SOPEC.”
Any more clues at all? Well, sort of … here’s what I could glean from the pitch:
“However, my most urgent play on this incredible “super shift” in South America…
“The one I’ve been saying that you’ve got to get in on RIGHT NOW…
“Isn’t any of these things.
“It’s an under-the-radar powder keg of an investment that got its fuse lit on July 16th of this year.
“That’s when a new energy mega-deal was inked between a major U.S. oil player and Argentine state-owned oil interests.
“That’s the second major catalyst signaling the rise of SOPEC…
“And ushering in a whole new world of money in energy.”
And more on that July 16th deal …
“The “lit fuse” moment happened July 16th of this year.
“That’s when an Argentine state-owned oil company signed a 50-50 partnership agreement with American oil major Chevron.
“The goal of this accord was this:
“To immediately begin tapping into the vast energy reserves locked in the Vaca Muerta shale.
“Now, as I’ve been promising…
“I’ve got a way of playing this South American “super shift” that’s miles away from the obvious move (like buying Chevron).
“A play that’s poised to soar on the strength of this July 16th mega-deal.
“But I repeat: If you want the biggest gains from this play, you’ve got to move on it RIGHT NOW.”
Presumably if it’s “miles away from the obvious” then he’s also not talking about buying Chevron’s partner, YPF (YPF), which did shoot ahead on the strength of that deal and is up 40-50% since … but that’s a possiblity. It’s the obvious play on this Argentinean shale gas, it’s clearly got better ties with the government than most companies, and it’s big and profitable — roughly an eight billion dollar market cap, and it trades at about 10X earnings.
What about if he’s really looking for something that’s less obvious? Well, Argentina seems to be allowing some profit again for private oil companies — they’re allowing exports of up to 20% of production to relax the impact of their price controls for companies that are doing meaningful investment in oil production, or something along those lines, so maybe that and the Chevron/YPF deal will spark further development in that same area?
This is all Moors says to give any hinting about his teased pick:
“Let me GIVE you my hottest, most urgent pick on the “Rise of SOPEC” right now.
“It’s a somewhat under-the-radar South American company, one that a lot of folks don’t realize they can play on safe, familiar U.S. exchanges.
“There’s definitely some “smart money” action brewing on this company right now, though.
“In fact, its shares are up 40% in just the last 120 days – a pittance of where it’s headed.
“No doubt much of this action is coming from in-the-know energy insiders looking to bank some hefty “sure thing” profits on the side.
“And if you move fast, you can join them for the BIG returns to come.
“As SOPEC’s fortunes rise as swiftly as I believe, you could be looking at a score of six times your money.”
So … that does kind of sound like YPF (YPF), which is a South American company that’s listed in New York and very actively traded, and I suppose it’s “somewhat under-the-radar”, though not as much as it was before that deal was made.
Well, it looks like Vaca Muerte is a hot zone of potential shale production … but if we’re talking just about that area then there aren’t really any other South American companies that are US-listed beyond YPF. He could easily be talking more generally about some other South American company that’s going to profit from the general development, though, but YPF has gone up by 40% in 120 days, so on that, at least, it matches.
Any other potential plays? Well, there are a lot of Vaca Muerte plays — but not many pure plays or other companies that are heavily levered to that particular development. Big, familiar, North American companies like ExxonMobil (XOM), EOG Resources (EOG), Apache (APA) lead that pack, but EOG is the only one that’s up by 40% in recent months and they’re certainly not South American … and there are some South American/Canadian companies that have substantial exposure like Azabache (AZA.V in Canada, AZBCF) and Madalena Energy (MVN.V, MDLNF), both of which are teensy.
And there are some other solid South American oil companies that have fairly wide exposure in different countries and that have gone up by roughly 40% in the last four months — I certainly haven’t scoured them all, but probably my favorite among the relatively small ones is Gran Tierra Energy (GTE), which is profitable and reasonably priced (forward and trailing PE in the 10-11 neighborhood, much like YPF) in Colombia and does have a bit of Argentina exposure, though not primarily in the Vaca Muerte region. GTE’s a $2 billion company, and they’re really Canadian, not South American, but well, just throwing some names out there to get the guessification going for you.
So what do you think? Excited about YPF now that this deal gives a spurt to the Vaca Muerte region, or do you have any other favorite South American energy plays, or a better match for Moors’ tease? Let us know with a comment below.