With oil having been cut in half over the last six months, it seemed like as good a time as any to hear from someone with a little optimism about oil — and there’s not a lot of that going around at the moment, other than general chatter about how this is a “historic” (if vague) opportunity…
… everyone in the great investment punditocracy wants to be able to take credit for putting their flag down and saying “this is it, this is the bottom” even though they don’t really want to risk all their money on a particular price point ($50? $40?) just in case it turns out that, well, $20 oil is the bottom, and it doesn’t come for a couple years. We all have to be careful about what is really a “known” and what’s just a “gosh, that has to be true, right?” And no, there is no “known” about what the “right” price for oil will be in six months — everyone is guessing.
Some are guessing with more information than others, but they’re still guessing about a future that is full of almost completely unpredictable variables (Chinese growth rate, global economic growth, car sales, terrorism, unrest, Saudi reserves and capacity, OPEC cohesion, petrostate political implosion, efficiency gains, etc. etc. etc.)
I’ve had plenty of investments in oil-related stocks — and still have several — and I sure didn’t see oil falling by 50% in six months. Of course we tell ourselves that we’re ready for losses, and we know that investments in equity are fundamentally at risk… but a drop in half for both of the world’s most traded commodities (oil and iron ore) in one year is a little crazy, particularly because it comes at a time when the global economy is not in full-on collapse and is, though jerky and troubled in spots, at least doing OK on average. Most people are still just shaking their heads, thinking the same thing they did when oil fell to $80, then $70, then $60, then $50… “it can’t go down forever… right?”
Which brings us to our teaser pitch of the day — this one’s from Chuck de Castro for his Penny Oil Speculator, which has been around for a while but is fairly low profile… no free articles or daily free e-letters like most of the publishers use to get your attention, just the newsletter (published under the same umbrella as Bob Czeschin’s Oil and Energy Investment Report).
And de Castro is telling us that, for oil stocks, this is an opportunity like 2008 (when, if you’ll recall, oil fell from about $143 to $33 in less than six months)… and it will have a “bounce back” like 2008 as well. Here’s how he puts it:
“This is an opportunity for you just like 2008, which was the previous big decline in oil prices. And you could’ve quadrupled your money in about two years.
“Back then, I gave an all-out buy signal for nine oil stocks. Eight of them rose over the next year and a half. One fell.
“On average, if you had bought those nine stocks, you could have quadrupled your money (384% profits). And that includes the loser.”
Now, it’s hard to base a lot on one historical example — and over the last 20 or so years, there really aren’t any others. Before 2008, we thought it was wild when oil bumped up or down by 25-30% or over a month or two because of war (Gulf War 1) or terrorism (9/11), but those kinds of large moves were pretty quickly corrected and had a real geopolitical connection to oil as a scarce resource that was sourced largely from an unstable part of the world.
That was before oil really became a financial asset, hoarded on tankers by Wall Street folks and speculated on by day traders, and, of course, it was before the US got back in the game as a growing oil producer. So yes, oil stocks came back strong in 2009 and thereafter when the oil price recovered — but that was also a recovering global economy and there were a lot of other things going on, including the resumption of “normal” economic activity that let oil drillers borrow money and pay their bills and drivers use the ATM to get cash to buy gas… there were a lot of normal “take for granted” economic activities that didn’t quite feel “safe” or guaranteed in late 2008, if you’ll recall.
Anyway, I’m getting off track again… the point was that we were lookin’ for de Castro’s stock pick, yes? So what does he tell us about it?
“$50 oil is creating the opportunity for you to buy low-cost, fast-growing oil stocks at 50% off
“Where the money was made in the 2008/2009 downturn were with small companies with large holdings of oil that produced oil cheaply — well below $50. So they were profitable. It’s the same today.
“A tiny company that can produce large amounts of oil for $30 a barrel is still making good money. And if its stock is getting hammered by panic selling in the oil patch, so much the better! You get in cheaply and ride it up.
“When oil goes back up to where it was, the company’s profits will double, triple, or even quadruple and carry the share price along with them.”
OK, so that’s what he’s looking for — what did he find?
“One such company is using modern drill technology to bring a huge European oilfield to life at $28 a barrel….
“The oilfield is so rich that their cost is just $28 a barrel. So $50 oil isn’t slowing them down a bit. They have an ongoing string of great quarterly results.
“Production just exceeded 21,500 barrels of oil a day — up 18% from the same period a year ago.
“Earnings are up 31%; an amazing feat with oil down $55 in six months.”
So who’s that? Well, he throws in a few more clues, including the he thinks they can add another 160 wells this year, more than doubling output, and that they have nearly 1,000 “high -probability drill sites” so they’re not running out of work to do.
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And, of course, he notes that the stock is down 56% in six months. So who is it?
Well, the Thinkolator is all fueled up (only $2.40 a gallon these days, improving Stock Gumshoe’s thinkolation margins considerably), and when I got it all fired up the answer came out awfully quick: This is Bankers Petroleum (BNK in Toronto, BNKJF on the pink sheets), one of the all-time great “discovery” windfall stocks of the mid-late 2000s as they re-found some huge fields in Albania and showed early investors to gains of something like 50,000%.
Of course, that’s not going to