Karim Rahemtulla is pitching a newsletter called The Resource Millionaire — I haven’t heard of this one, but it looks like it probably is just their replacement for the Oil & Energy Confidential service that he launched last year and that has disappeared from their website. So perhaps that one didn’t catch on, despite Rahemtulla’s claim that he is “easily the most influential independent resource expert on the planet.”
Or maybe it was just too pricey — his previous letter claimed a list price of $4,500, this one says it will be priced at $2,500 but is “on sale” now for $695 (and the “money-back guarantee” is now for 14 days, down from 60). The pitch we looked at when that previous letter launched teased Noble Energy (NBL) because of its discovery of gas offshore Cyprus, and Eurasian Minerals (EMXX) for one of their high-grade gold discoveries. NBL has done pretty well, beating the market by a little bit, EMXX has been a disaster over the last year (no surprise, given the climate in the sector — it’s dependent on folks building gold mines and generating royalties for them).
So what is Rahemtulla teasing this time around that has folks so intrigued? He says he has a “compass” that points him to where the next big oil profits will be made… and he teases one in particular:
“As you read this, please understand that the compass just pointed toward a swatch of land ready to burst at the seams with oil.
“It’s among a slew of expected gushers this summer, with gains that could easily run north of 893%.
“Of course, virtually no one – outside of oilmen, drillers, CEO’s and geologists – realize that this is about to happen.
“However, with just a quick skim of the last 25 years of industry data, it’s clear this compass could’ve pointed to virtually every oil fortune in recent history.”
What is this compass? Well, it seems to essentially be, “Karim scours data about energy exploration and production and pinpoints the stocks that are going to spike up because of big discoveries or beginning production,” leveraging what he says are incredible connections in the industry. But yes, it sounds better when you call it an “insider’s compass.”
And yes, for those who are pausing to read between the lines, you could also just say “every great fortune made from oil was made by someone who discovered or produced a lot of it.” Golly.
Here’s how he says you get rich:
“As long as you buy shares alongside 1) reports of new discoveries, or 2) reports that oil is gushing from the ground… Well, millions of dollars in petro-profits could be yours for the taking.
“Investing at the onset of either of these two critical events is the easiest route to the biggest profits.”
So apparently, buying oil stocks as they make big discoveries or start selling a lot of oil is a great way to make money. Go figure. Here’s more:
“If you buy an oil company during a time when the compass is idle, you’re at a significantly heightened risk of losing money. Yes, the compass is that sensitive.
“Why? Because oil stocks tend to decline during costly periods when economic feasibility studies are being done… Or when there’s bureaucratic red tape to cut through… Or when management is raising more capital.
“The compass can’t point to a gusher when the drillbits aren’t spinning, right?
“History bears this out time and again.
“Odds are, though, by the time you hear about either of the two events that can trigger the compass, it’s already too late to profit.
“What you really need is someone who’s mastered the compass, like me.
“Heck, just a few days ago, an inner circle of my best readers had a chance to witness the full glory of the compass in action.”
What is that “full glory?” It’s the stock Rahemtulla referred to above and keeps teasing for a while as he recklessly throws around that $14 billion number for the potential value of their “discovery” … here’s more on his “mastery of the compass” …
“I was in the Orlando airport when the insider’s compass locked-on to a small independent oil driller trying to manage the prospect of owning a real gusher.
“Tiny companies don’t typically have such “super wells” on their properties.
“The stock was only trading for $3 when the needle started moving. So I immediately took the long journey to the company’s property.
“This particular ‘hot zone’ sits on one of the most remote stretches of land anywhere in the United States.
“It took over 20 hours of flights and seven hours of all-terrain driving just to reach this 96,000-acre outpost.
“Boy was it worth the trek, though.
“The land is oozing with an estimated six billion barrels of oil, making it one of the most prolific energy caches in the world.
“Heck, the recoverable reserves alone are more than double that of the next largest oilfield in all of North America.”
Don’t get too excited about that six billion number just yet, that’s got little connection to the specific stock he’s teasing. So what’s the stock? We get some more clues:
“You see, directly adjacent to the property resides big-oil goliath, Conoco Phillips (COP), which is already producing copious amounts of crude.
“BP (BP) is also nearby. In fact, it’s adding two more rigs to its booming operation, and plans to invest another billion dollars into the project.
“Imagine enjoying all of the same upside of a $50 driller, like BP, yet only having to pay $3 for shares.
“Well, thanks to a sweetheart deal with a silent partner – one who’s funding the entire exploration effort – this rising star has muscled its way right into the world’s new epicenter of oil profits.”
And yes, Rahemtulla throws in a few more hints — just to make sure that the Mighty, Mighty Thinkolator has plenty to chew on, no doubt:
“How confident was I that this company would announce a major discovery in the same vein as the heavyweights?
“Enough to recommend that my readers buy the stock.
“You’ll recall that news of a major discovery is one of two catalysts that will always drive share prices higher. (The other catalyst is news that oil is gushing from the ground.)
“Well, like clockwork, the company just announced its 3D seismic results.
“The results confirmed a large drillable target and potential oil reserves as high as the company’s most optimistic estimates.
“The compass had struck again!
“Within hours of the news, shares of this $3 stock were up over 30%.
“I believe that’s only a preview of what the insider’s compass indicates is a much bigger move toward $30….
“In all my years in the trenches, this is the most uniquely profitable scenario the compass has ever pinpointed.”
But it’s not just the 3D seismic “discovery” that’s exciting, apparently:
“Just days ago, the company quietly announced the results of an independent property analysis done by the highly regarded oil council, Netherland, Sewell & Associates.
“The third-party analysis confirmed the presence of as much as 325.3 million barrels of oil, of which 14% to 42% is recoverable.
“Let’s say only 14% is ultimately recoverable, well… at today’s prices, that’s $4.7 billion worth of oil!”
OK, so the Thinkolator can confirm for us that this is Royale Energy (ROYL), a tiny little $50 million oil explorer on Alaska’s North Slope. You can see the press release for that Netherland, Sewell & Associates analysis here from about two weeks ago. And in it you’ll note that yes, they do say the original oil in place (STOOIP) high scenario is 325.3 million barrels — though the “best guess” scenario is 77.5 million and the low scenario is 17 million (the dream scenario, with 42% recovery and the high-end “oil in place” number, is where you get the wildly optimistic $14 billion value).
If Rahemtulla had used the more depressing low-end scenario of 17 million barrels and 14% recovery that would give you about 2.5 million barrels worth roughly $250 million (and you wouldn’t be sitting there drooling about a $50 million company discovering almost $5 billion — or $14 billion — worth of oil). The earlier excitement that caused the stock to spike 30-40% back in May was the initial announcement of the “target” discovered on seismic, which you can see here.
There’s also probably a substantial amount of potential natural gas to be discovered, which is worth a lot less on Alaska’s North Slope than oil is. And this is all going from the 3D seismic data, these are not resources or reserves or discoveries and we can’t really begin to firmly understand the potential until they sink some drill bits next Winter (drilling on the Alaskan tundra is generally confined to winter, when they can use ice roads and ice drilling pads to minimize environmental impact).
Royale won these leases in Alaska just over two years ago, and the leases they won were described as being focused on unconventional oil and gas — bringing the “shale revolution” to the North Slope, in effect, to tap the source rocks that created the giant oil field at Prudhoe Bay. Other, presumably more expensive leases in the area were focused on conventional plays, and there has been some production on the North Slope for many years, including some sizable oil fields that are dwarfed by Prudhoe Bay, but Royale and the private explorer Great Bear Petroleum were looking to get a bargain on unconventional stuff.
I assume it’s quite a bit too early to say whether they did indeed get a bargain — the company has been around for decades as a small independent producer of (primarily) natural gas in several basins around the country, and they’ve consistently operated their assets as farmouts and joint ventures to help to dissipate the costs, and the stock has shown a lot of volatility in the past as it has made big moves based on discoveries or regulatory approvals — most recently it has touched $6-7 a couple times over the last several years, first when they got approval to operate a large gas well in California and then, just about two years ago, when they won their North Slope lease to get exposure to Alaska. Since then it’s been seemingly in a bit of a holding pattern, which is something Rahemtulla touches on with his “compass” shtick — the idea that companies surge when there’s a discovery, then drop, often for years, when they’re spending money and trying to develop the discovery, then surge again when they begin production. It’s certainly not always as clean or predictable as that, but initial discovery, drilling results, and early production rates certainly all can have a big impact on the price of an operator’s stock.
The most recent news, from May, was that the company had identified a substantial drillable “target” from the 3D seismic, so there’s now some hope for a conventional reservoir discovery as well — they’ll be drilling two conventional targets as well as evaluating the “unconventional” shale potential (I think we probably need to stop calling it “unconventional” now, given the prominence of shale in our energy landscape).
Royale already has a partner for a big chunk of the Alaska acreage, as teased, with that partner apparently funding the 3D seismic and the first two wells that will be done over the coming winter — the rig has already been booked, so it’s largely a matter of waiting now. There could easily be additional 3D seismic interpretation results released over the next six months, but unless their number crunching turns up more big “targets” that they want to shout about my guess is that the next big move in the stock won’t be until they’ve drilled the first well. The company seems to be in stable financial shape, they have enough money to meet most of their obligations for at least the next several months, and it seems their (undisclosed, I think) partner is paying for the (expensive) Alaska drilling, I don’t know the details of the deal and what Royale’s upside might be if their partner discovers something fantastic, but as of now they are not profitable and seem to be in need of some substantial increase in scale to reach any kind of consistent profitability — they’ve booked the occasional profit of a few cents per share over the last decade, but most of the time their operating costs have overwhelmed whatever gross profit they might have achieved even in the years when high gas prices or jumps in production helped them out.
Rahemtulla isn’t alone in expecting big things from Alaska for Royale, but it’s certainly not a widely-covered stock — there has been some chatter on SeekingAlpha about ROYL, including a few fans who were excited about the Alaska lease back in 2012 like this guy, but it wasn’t until they released that third-party assessment of the potential 325 million barrels and the “targets” for the winter’s drilling that the stock started rising again a few weeks ago. Their other natural gas operations don’t appear to me, from a look at their last quarterly filing, to be particularly exciting or profitable.
So it’s hard to argue (from what little research I’ve done, at least) that the company is growing into any kind of fantastically profitable discovery and production engine that can build on itself because of the acumen or expertise of management or their unique assets, since they’ve had ample opportunity to grow for two decades but are still a tiny little $50 million unprofitable natural gas producer… but that doesn’t mean they can’t make big discoveries that change the course of the company and bring a windfall, which is what Rahemtulla seems to be teasing here.
If so, I think any big excitement would be likely to come sometime well after November, which is when the drilling season begins — I don’t know how long it will take them to get results from their first well, and the company’s website is very out of date so you pretty much just have to go by their SEC filings, but I’d guess that the big “lottery ticket” win for ROYL at this point would be that they and their partner find a large conventional reservoir in their North Slope drilling, and that they find it right away since they’re probably not going to have the money to drill more than two wells in the next year.
Certainly Alaska is hoping that the new leases in the North Slope will create some big discoveries to help fill their pipelines (and fund state government) as Prudhoe Bay production declines, so the regulatory environment should be pretty friendly for them… but presumably they do have to find a large amount of oil first to make a big investment in production worthwhile. But there’s not a lot that appears to be driving interest in the stock outside of Alaska (let me know if you think I’m wrong about that), so it’s hard to see a lot of room for the stock to soar before this drilling is done unless there are just a lot of speculators buying in and hoping that it announces great news at some point over the winter. The good news, then, is that patience might work just fine … I can’t get myself worked up to rush into anything on this one, it looks like there’s time to sit for a spell and get familiar with the company before (if) you decide to run off and buy shares.