The ad that we’re feeding into the Thinkolator today is from Bob Czeschin for his Penny Oil Speculator, and it’s about finding opportunities in “penny oils” that he thinks will “go berserk” when oil rises significantly… as he seems to think is inevitable, given that oil is currently well below the price that most major producers outside of Saudi Arabia need for profitability.
The “13 cents to $1.61” headline isn’t about one of the stocks he’s teasing today — that’s an example of one he’s taking credit for riding in the past, when that was the profit opportunity in BNK Petroleum a few years back….
Here’s the promise from Czeschin:
“The last time oil rose more than $10 a barrel, my subscribers rode …
* Hurricane Hydrocarbons from 57¢ to $11.40
* Ultra Petroleum rose from $1.89 to $37.85
* Coastal Energy went from $1.43 to $18.04
* BNK Petroleum zoomed from 13¢ to $1.61, and …
* Antrim Energy shot up from 48¢ to $7.54
“A mere $1,000 in each of these stocks when I recommended them would have put $75,900 profits in your pocket. Now’s the time to do it again!”
So that’s his idea — oil’s going up, and he thinks he has the “penny” oil stocks that will rise dramatically when that happens. If you think oil will recover there’s certainly some logic there — tiny explorers and producers are likely to be the most levered to oil on the upside, just as they’ve in many cases been catastrophically levered to oil on the downside. Of course, if oil doesn’t recover, well, the pain is likely to continue in that sector — one gets the feeling that a substantial number of companies are just holding on by their fingernails, hoping the ground comes back up to reach them before they have to let go.
What, then, are the stocks he’s suggesting? Well, he’d tell you for $1,875… but let’s see if we can identify them using the clues provided in the ad. Here’s just a wee bit more of a tease for you to get your blood rushing:
“$60 to $90 a barrel sounds like a reasonable equilibrium range for oil. Russia, Brazil, and Mexico become profitable again. The oil sands and shale become marginal — where some producers can make it, and some can’t.
“But $60 to $90 oil also means oil is going to double or triple soon.
“So if you ever wanted to ride a 13¢ stock like BNK Petroleum to $1.61, now’s the time to jump on board. The train is leaving the station””
And now let’s check out the clues — what hints does Czeschin drop about the first one? Here you go:
“One of them is generating so much cash even at $30 oil, it’s hiked dividends twice, while other oil companies are slashing spending on everything from drilling to essential maintenance.
“There are two key reasons why this company is doing so well. First, it enjoys low production costs — just $20.71 per barrel….
“Second, it developed new technology that solves a key problem that’s bedeviled shale oil producers…. What I’m talking about is the typical shale well’s steep decline rates — often 40% to 75% in the first 12 months. The new technology effectively cuts that decline rate in half, to 22%, and stabilizes it….
“… this pipsqueak is still ramping up production and has another 162 high-probability drilling locations that ensure future production growth, and a robust dividend yield.”
So who is it? Thinkolator sez this is Granite Oil Corp (GXO in Toronto, GXOCF on the pink sheets). Which is very, very small, though some folks wouldn’t call it a penny stock — it has a market cap around C$250 million at about C$8 a share (or roughly $160 million and $5.50 in US$).
And Granite does have operating cash flow and the company is just about at break-even on the income statement as of last quarter, which was their first quarter as an independent company — Granite and Boulder Energy (BXO in Toronto) were formed when DeeThree Exploration split into two companies in May of 2015. Boulder, the riskier and more exploration-focused one, has been a disaster… Granite, the cash-flowing and dividend-paying one, has done relatively well and continued to increase the dividend as production has risen.
And yes, they do say that they have cut the celine rate to about 22% using enhanced oil recovery (injecting gas, as I understand it), and that they have 162 drilling locations in their inventory. And I’m sure the stock will rise sharply if oil goes up dramatically, though I don’t know precisely where it’s likely to go. This is more of an industrial story — they know the oil is there, it’s relatively inexpensive to extract from the particular reservoir they’re hitting, it all depends on how much they invest in production, how they manage costs, and what the end price is… this is not an exploration story where they’re about to discover a huge new reservoir, so it’s not likely to post 1,000% gains in a hurry.
I also don’t know what the threshold for pain is at Granite — they have a relatively modest amount of debt and have been able to service it just fine (and pay a dividend and invest in new wells) to this point, but I’m not sure how far out into the future they’ve hedged some production or when they might start to get into trouble if oil stays in the $20s or $30s for a long time (or falls lower, as most folks seem to think is unlikely but which is, of course, eminently possible — remember, $30 oil used to be thought “impossible”).
But they’re sure doing better than most so far, and they pay a 5%+ yield. It will probably be a while before we know any more about their operations, they aren’t likely to report their fourth quarter results until the last week of March. They make a point of explaining their “investment proposition” to investors on their website, so you could browse through that here if you’d like more of the story. Last quarter’s results are here if you’d like a bit more detail.
Sound interesting to you? Have any perspective or opinion on Granite or their predecessor DeeThree to share? Let us know with a comment below.
And there are two more of these “penny oil” stocks that I’ll sniff around for if there’s interest, but for now I’ll leave it at that — meetings beckon, if I find anything else that catches my eye I’ll share in a future piece. Thanks!