Keith Kohl and the $1 “Petroplex” Stock

Can we figure out which stock Kohl is teasing? Um....

By Travis Johnson, Stock Gumshoe, October 23, 2014

This article originally appeared on August 14, neither the article nor the ad I cover here have been updated or changed, but the ad is rolling again and generating questions from readers so we’re lifting it to the top of the page for you.

—-from 8/14/14—–

I didn’t look at this pitch right away, since my memory of Keith Kohl’s “Petroplex” story from January was pretty strong and I assumed he was just re-touting the same stock — but no, he’s got something different this time.

And just to warn you up front, this is one of those rare occasions when I might not be able to give you a definitive answer — the clues just aren’t quite specific enough to be absolutely sure. But the Thinkolator and I will do our level best.

The basic spiel is that the “Petroplex” is returning — that’s an old name sometimes applied to the Midland area and the Permian Basin in West Texas, home to many huge oil producers in decades past but thought “dried out” for years… until the last few years, when horizontal drilling brought the explorers back to Midland as they developed ways to get at the Cline, Wolfberry, Spraberry, Wolfcamp and other shales (there are too many names, too many different depths and areas, but there are thick, oil-filled shales in the Permian Basin). Back in January the clues were also a bit thin but we concluded he was probably teasing Callon Petroleum as his $8 “Petroplex” stock… now, he’s gotten even tighter with the clues and he’s pretty much just telling us that he’s touting a $1 “Petroplex” stock that holds the key to Permian riches.

So… can we figger it? Or do we have to open it up to the great Gumshoe faithful to throw their guesses on the pile? Let’s see.

Here’s the intro from Kohl, in case you missed the ad:

“New Oil Shale Field Could Be Largest Ever Discovered in the U.S.

“Project ‘Petroplex!’ …

“Hundreds of drill sites are being cleared… crews are moving in… and initial wells have been so prolific that Forbes Magazine recently said, “They’re producing more oil than the pipelines can handle….

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“The Petroplex peaked in production between 1973 and 1974, as predicted by Shell geologist M. King Hubbert.

“At its height, it was pumping out over 1.7 million barrels per day.

“When it peaked, it marked the end of American oil domination and ushered in OPEC… and for the next 40 years, OPEC would have a stranglehold on the world’s energy economy….

“A lot of things have changed — and quite dramatically…

“Thanks to the American revolution in hydraulic fracturing (or fracking, as it is popularly called), the Petroplex is about to regain its stature in the global oil market.”

OK, so plenty of folks agree with that — and production is climbing dramatically in the Permian, led by many of the big domestic producers you’ve heard of (Occidental, Apache, Chevron, etc.)… and lots of oil folks have been trying to gather up acreage anywhere close to Midland for the last several years.

So which one of the (presumably smaller) companies is Kohl teasing for his Oil & Gas Trader service?

Well, this is what he tells us by way of clues about his special report, “Profit from the Petroplex: The $1 Driller That Will Help America Reach Energy Independence”:

“If history repeats itself (and it almost always does), this $1 Petroplex driller should be trading 10 times its current per-share price in a few months….

“I want to tell you about one company that has been there since the beginning — and is already selling its Petroplex oil to the market.

“It controls nearly 20,000 gross acres of the Petroplex — enough land to blanket the entire city of San Francisco three times.

“As you read this, the company is selling its oil into the market.

“No wonder insiders have been buying the company’s stock all year.”

Obviously, the stuff in the email about this teased company having “a stranglehold on its production” is ridiculous — no one has a “stranglehold” on producing oil in the Permian basin, which is full of drillable inventory and has lots of infrastructure, and certainly a tiny little company with less than 20,000 gross acres doesn’t have a stranglehold on anything… except perhaps for their own acreage (Pioneer Natural Resources has roughly 900,000 gross acres, several other biggies like Apache have hundreds of thousands of acres in the basin). But that doesn’t mean it can’t be an interesting company.

If we can figure out which one it is, that is.

And, more generally, he says this about what kinds of stocks he’s looking for:

“The successful trading strategy I’ve learned throughout the years investing in energy stocks is that the time to buy an oil or gas company drilling in a new shale formation is when:

1) Production is just starting;

2) Initial wells are showing great results; and

3) The mainstream investing public knows very little about it.”

So… are we ready to guess? $1 stock with “almost” 20,000 gross acres somewhere in the Permian basin. “Gross acres,” by the way, refers to the whole land area on which they have an interest — “net acres” incorporates the percentage interest (so if a company had a 50/50 joint venture on 20,000 acres they would have 20,000 gross acres and 10,000 net acres).

And guess it will have to be on my part, I’m afraid, the Thinkolator — mighty as it is — can’t be definitive or even close to it this time around. So I’ll just leave the Thinkolator in the garage to spare it the embarrassment and give you my guess: I think this might be Lynden Energy (LVL in Canada, LVLEF on the pink sheets).

Lynden is a stock that has come up before both here and elsewhere — it was teased by Frank Curzio for his Phase 1 Investor letter last year (don’t know if they still recommend it, they might have stopped out when it dipped early this year or changed their minds) and it’s been recommended in the past by Keith Schaefer for his Oil and Gas Investments Bulletin (he said in an interview recently that he still likes it, and is looking for catalysts from their current drilling or possible asset sales).

And yes, it’s trading around a dollar (it’s been between 70-90 cents for most of the past two years), and showed a bit of a price spike on relatively high volume trading over the last couple weeks (which often indicates, in the absence of other news, that a newsletter might have recommended the stock or it got other media attention). And they do have a bit under 20,000 acres of gross acreage (~16,750 gross acres — was close to 19,000 before they did some small asset sales to Breitburn over the last couple years) in the Midland Basin and production from the Wolfberry Shale there — though, in one chink in the argument for Lynden as a match, they have another 104,000 gross acres on the Eastern Shelf that most would probably consider part of the Permian (if not the midland) basin at their Mitchell Ranch project.

If you’re curious about this one, there was a pretty good and thorough “pro” piece on SeekingAlpha about it a little while ago that’s now freely available — that author argues the stock could triple to close the valuation gap (per acre) with other stocks in the area.

And yes, there has been some insider buying as recently as this Summer — mostly by the Chair — and JVL Advisors (Jon Vincent Lovoi, who runs several energy funds) has increased its holdings a bit over the last year or so and is nearly a 20% owner. There’s also been some insider selling and option exercise/sales (from the other execs), but overall there’s been more buying.

Lynden has some investors quite impatient given the long time it’s taken them to get results from Mitchell Ranch, which is their largest area and where the potential for larger returns might come from if there’s some great production — but there is perhaps a catalyst coming in those ongoing drilling projects. You can see their latest update in this press release, essentially no results released yet but they have drilled one well through several potential pay zones and have a couple more wells drilling now or to be drilled in September. So something seems likely to happen in the next few months — speculation from Keith Schaefer has been that they might sell their relatively steady Wolfberry production and Midland Basin acreage, which is something like 6,000 net acres, to focus on the potential of Mitchell Ranch, but I imagine they’d want to prove up Mitchell Ranch first if that is indeed their intention. All of this is partnered with CrownQuest, which is the operator.

So it should be an interesting couple of months for Lynden Energy — they’ve already run up a bit, whether because of that Seeking Alpha article or because of possible attention from Keith Kohl or just because of anticipation about their drilling results, I dunno. But that’s my guess — if you’ve got a better one, I throw myself at your mercy and leave it to you to describe your guess. Enjoy!


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alastair macdonald
Member
January 17, 2015 2:50 am

Hi men,

Here we are January 16, 2015, and Lynden is trading at 36 cents, down from its high of $1.20. So there you are, investors. The great millionaire stock has been stomped on big time. One thing that Keith Kohl, the cool cat of carting profits to the bank; did not discern, was that he could not and did not read the signs of the times, that there was a coming glut; an enormous over supply of shale gas and oil of all kinds.

so if yuou poor soul bought Lynden at $0.90; you have a three fold loss on you hands!!!

It may bounce again, but so will others as well. and a PE is not a good guide on its own.. You need to find the EV: FCF ration. Tells you if there is a decent am amount of cash in their account because otherwise, with investive accounting; a good clerk can make the PE look perky. ( through big depreciation, asset write downs; spread capital expenditure; deferred this and deferred that………and so on)

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briand7035
Member
briand7035
July 2, 2015 11:13 am

Just a quick note, if a stock is at .90 and then is at .30 you have a 67% loss (rounding off) not a threefold loss.
Conversely if a stock goes up from .90 to a three fold gain you would be at $2.70 or a 300% rise or a three fold gain (yet only a 200% profit subtracting your original capital)
But we knew what you meant lol..
Living in Texas myself and having a number of clients in the all areas of the oil business (exploration, pipeline, midstream, upstream, etc), when this oversupply plays out and prices stabilize and start rising again, all the companies will again do well. as part of the supply chain we ridethe roller coaster right along with them.

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👍 22
TheMerlin
Member
TheMerlin
July 7, 2015 10:17 am
Reply to  briand7035

What you say is true…and you will need a 200% gain to get back to even.

Robert Rupnik
Guest
Robert Rupnik
January 20, 2015 6:17 am

Hi folks.
Anybody interested to investing into functional oil field farm in Brasil?
103 pumping jacks in operation.
Total price of plot + Contracts + Concession = 50 Million USD.
If yes, find me on FB and send to me an official request.
Robert

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wkho noze
Member
May 26, 2015 12:07 am

sgest u look at dwog deepwell oil and gas they finally gota deep pocket backer

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WA1
Guest
WA1
May 28, 2015 7:19 pm

I wonder, if this is the same stock as previously being touted?
As a typist/writer/former software engineer, I write my own copy. But not everyone does. It is just possible, that KK, hand-wrote his copy, and it was transcribed wrongly? A $7.00 stock could, particularly if a continental was transcribing, be mis-interpreted as a $1.00 (I visited France one time, and asked a doorman to write down the entrance fee, and was shocked when he wrote his figures, until I realised the one he had written, I had thought was a 7.)
If so, AREX (Approach Resources) has 20,000 acres, has close to $200m in the bank, and has through good management/recycling, lowered D&C costs by almost 50% (from $9m down to $4.8m per well)
Their annual accts just hit the web, two weeks back, and with less than 50m shares, at current prices ($6.00-7.00 range) and a price that once was close to $40, if the oil price recovers, I suspect so will their share price, and each well producing circa 150boed, per shale region, even at $60, they are making $1k+ revenue per well per day. But their acreage, sits right in the sweet spot over the 5-tier oil-cake. Perhaps Travis could you look into it and come to a judgement?

W.

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Milan
Member
Milan
January 16, 2016 9:06 pm

LVELF is worth about 28 cents. I didn’t pay for that newsletter!

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Adama Diao
Guest
Adama Diao
April 29, 2017 10:26 am

hey Keith thanks for the tips , nut no need for me to subscribe . i have figured it out,: the stock you are alluding to is no else than Eathstone Energy sitting at $13.47 today.

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