Given the massive mailing list reach of Agora, Chris’ publisher, you’ve almost certainly been sent this ad for his Mayer’s Special Situations newsletter — it’s all about a tiny stock (of course — they’re always tiny) that can make you massive gains by virtue of the oil they’re going to suck away from Iran’s massive Zagros Oil Field.
Or at least, that’s the short spiel. This is one of those accursed videos that lacks a real transcript, so I have to actually pay attention to Mayer’s voice for the whole time (I know, I know, if you hit “cancel” you get a transcript for many of these videos — but not all of ’em, dangit).
The basic pitch is that he’s got a special report that he thinks is worth $795, just one of the many earthly delights that you’ll enjoy after you subscribe to his newsletter (the letter is $497 — which, naturally, is “on sale”). This is his “upgrade” letter, the one that he sells (he’s not alone, every publisher does this) by telling folks that there are more exciting, less liquid investments that he loves … but he just can’t recommend them to the great unwashed (that being, subscribers of his regular, less expensive newsletter).
Here’s how he pitches it on the order page:
“How You Could Make 4,599% Gains From Iranian Oil Without Dropping a Single Bomb! One tiny British Columbia oil company has just discovered $51 BILLION worth of oil in underdeveloped Southeastern Turkey… north of the world famous Zagros Oil Field in Iran. I could “steal” millions of barrels of oil from Iran and see gains of 4,599% off this booming stock.”
I sometimes like the stocks that Chris Mayer recommends, and I always like to unravel a good secret — so let’s see what clues I can dredge from the video and what plain and simple answers I can possibly provide (following a fair chunk of Gumshoe blather, of course).
Ready? Very well.
So we know it’s a BC company, and that they’re drilling for oil in Southeastern Turkey, and that the implication is that the fields they’re exploring in that area are connected in some geological way with the big Iranian oil field, so if they can extract the oil from the Turkish end they may be “stealing” from Iran.
Oh, and if we “act quickly” we can get in for “a fraction of the market value.” Naturally.
More clues, please?
We’re told that it’s under $3.50 a share.
And that the oil reserves might be worth more than 50X the market cap, based on today’s oil prices.
It’s on the northern edge of the Zagros oil belt, which is the formation that includes the big Iranian oil field.
That there are 600 million barrels of oil in this massive belt, according to a leading consultant — not sure if he means this is the potential of this specific company, or of the whole formation.
And he says several times that the oil could be worth $51 billion, and that it’s essentially a steal in the hands of a BC penny stock (I don’t think he actually used the word “steal”, but I’m not willing to sit through the “video” again to make sure).
Mayer goes on to tell us that this stock could soar 40-fold and still be grossly undervalued, and then we get some more specific clues that might actually be useful:
Michael Dell, T. Boone Pickens and George Soros are, we’re told, “quietly” building positions.
There has been $5 million worth of insider purchases from the chairman “recently” with his own money.
And “you don’t have to send your money outside the US” — so it’s presumably either US-listed or easy to buy on the pink sheets.
Beyond the Turkey/Iran connection, Mayer also uses the “in-the know insider” pitch — and especially emphasizes his insider buying. It’s all built on the history of the Chairman of this teased company, who is some kind of whiz-bang genius at building oil companies.
Apparently, a few years ago, this savvy oilman billionaire saw Texas getting more competitive and with fewer opportunities for new discoveries, and he sold out of the company he had built from nothing and went on a worldwide search for a “game changing oil discovery.”
And this dude, we’re told, has made money over and over in the business. I think I heard right when Mayer said that he turned a $500 loan into a billion dollar drilling company, and he has been involved in the oil biz for three decades … and not only that, but he also sold at the top of the historic oil spike in 2008.
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So the linchpins of this argument from Mayer are that there is big corporate insider ownership from a guy who’s worth following, and that he bought at some time in the recent past (“in the last few months”), and that the oil field is in Turkey but might be able to get you some revenge against Iran by “stealing” their oil.
Mayer is focused enough on this insider buy that he even cites H. Nejat Seyhun, who did the most notable insider trading study a number of years ago (short summary? Yes, insider trading is good, particularly when you see buying from several C-suite executives, and when these folks buy it — on average — predicts upward price movement within 6-18 months. And insider selling means little).
And then we get one more tiny clue toward the end of his spiel, a clue that lets me be pretty confident about the stock he’s teasing.
That clue? This company is also currently drilling for oil and gas in other parts of Turkey, and in Morocco and Romania.
So … drum roll, please! This must be: Transatlantic Petroleum (TAT in NY, TNP in Toronto)
And while it may be a “penny stock” according to the definition used by some folks (priced under $5 — it’s just under $3 at the moment), that definition also means that something like Citibank is a penny stock. Hogwash. This is a billion dollar company, so it’s even a stretch to call them “small” at all. Still, lots of folks at Agora use that sub-$5 definition for “pennies,” so the clues still fit fine.
So … what is there to know about Transatlantic? Well, first of all, that the clues are a good match — they do have several assets in Turkey, and are also drilling for oil and gas in Morocco and Romania (they also actually just expanded into Bulgaria, FYI).
And behind the company there is a Texas billionaire — not a guy I knew of before, but his name is Malone Mitchell. He did found an energy company in Texas, starting with just $500, and turn it into a massive business (it was called Riata, later it became Sandridge Energy, and he sold off $1 billion worth of Sandridge in 2006 and 2008). More interestingly, he is touted by the company for his expertise at building vertically integrated companies — he built an oil services company, Lariat Services, as well as Sandridge, and cut costs and boosted flexibility as a result … and he’s apparently trying to do the same thing with Transatlantic Petroleum. At Transatlantic the services division, which also gets revenue from third parties (and therefore diversifies the revenue stream) is called Viking International.
The main field that’s teased as the “stealing from Iran” one is the Selmo Oil Field, which they own 100% of and which is a producing field. They report proven and probable reserves for this field as 19.7 million barrels, though there is a report that estimates that there is 600 million barrels in place in this field (this oil was discovered almost 50 years ago, 85 million barrels have already been produced). They say they’re cutting costs and using directional drilling and fracking to enhance this asset. The company’s current production from this field, according to their most recent investor presentation, is 2,400 barrels/day.
The other major asset in Turkey is in the Thrace Basin, which apparently has potential for significant unconventional gas production — apparently there has already been some successful drilling and fracking there, and Transatlantic’s acquisition of the property will close sometime this quarter.
You can make your own judgment about whether this is “revenge” on Iran — the likelihood seems to be, from my extremely limited reading on this (and my even more limited geological expertise) that this oil field and the Zagros Belt that fuels Iran’s oil wealth are fed by the same geologic formation. That same Zagros Belt, by the way, also encompasses most of Iraq’s oil fields. I have no idea whether increased production from Selmo will impact potential production from Iran or Iraq in some distant future.
If you’re interested in more detail about their Turkish production and exploration, or in their exploration in Romania or Morocco, it’s worth checking out their presentation — you can find it here on their website, along with a newer presentation about their recent acquisition in Bulgaria. There’s also a pretty concise history on their site of Mitchell’s involvement and “entrepreneurial” ownership as he bought effective control of Transatlantic a couple years ago.
And yes, Mitchell did put another $5 million into the company recently — back in October, to help fund one of their acquisitions, and investment vehicles that he controls have funded other projects for Transatlantic, and Michael Dell, T. Boone Pickens and George Soros have apparently also invested alongside Mitchell, though from what I can tell Soros has lightened his TAT holdings recently. There are also several insider buys from officers last Fall at prices right around where it trades now, so that’s generally encouraging.
So … is this something you want to buy? Well, I confess that I find the story intriguing, and I was considering adding this one to my portfolio as a little exploratory position as I research it further and try to get a better handle on the valuation — but since I’m writing about it today I can’t do that, so I’ll “cool off” for at least three days and decide if I’m still interested.
I like that they’re focusing on countries with relatively friendly tax and royalty policies, and countries that are strongly motivated to produce more oil and gas from their own territory (one of the things TAT emphasizes is operating in countries that are heavy net importers of energy, further greasing the wheels for domestic exploration and production). I also like the vertical integration, having capable drilling assets should help them with costs and flexibility as they pursue new exploration targets, and it doesn’t hurt that their controlling shareholder has a history of success with a similar strategy in the U.S.
That said, I don’t know enough about them to be able to tell you whether the current price is a great one — it’s right around $2.90 right now, I don’t know if it should rightly trade for $1 or $10 or if it’s fair right where it is. They don’t have any profits to speak of yet, though they are expected to be marginally profitable in 2011 (according to Yahoo Finance they’ll be earning two cents this year if you ask the four US analysts, 12 cents if you ask the Canadian). So they’re probably not going to lose money unless they do more aggressive expansion than the analysts expect, and they don’t have enough debt to worry about (just about $70 million in net debt, they could easily borrow more if it was to finance near-term production, and not have that be worrisome against a billion dollar market cap).
But you wouldn’t look at their cash flow generation from their one producing oil field and see a bargain — you have to assume some pretty substantial value for their exploration assets and their services subsidiary. Not that some value isn’t there, I just don’t know what it is — I will readily stipulate that George Soros, T. Boone Pickens, and Chris Mayer all know more about the company than I do. And while it is a newish company in the current iteration, and possibly a “penny stock” depending on how you define that term, it’s also not a completely unheard of company — it even got a push from a Motley Fool article last March, though the price has remained quite stable for much of the past year, bouncing up and down but never really losing sight of $3.
So … this seems almost certain to be Chris Mayer’s pick for his Special Situations folks — and I’m intrigued, but don’t own shares. It’s your money, though, so what matters is what you think — excited about this “revenge” on Iran story (OK, that seems like a wee bit of a stretch), or just like the potential of their Turkish and other exploration projects? Let us know with a comment below.
And if you’ve subscribed to one of Chris Mayer’s newsletters, your fellow investors would be delighted to hear what you think — his Capital and Crisis is pretty highly ranked by our readers (click here if you’ve subscribed and can review that one), but we have very few (mixed) reviews of his pricier Special Situations letter, so please click here and share your opinion if you’ve ever subscribed to Mayer’s Special Situations. Thank you!