by Travis Johnson, Stock Gumshoe | February 6, 2014 3:31 pm
Several intrepid readers sent this pitch flying my way while we were digging out of our latest snowstorm, and I figured a nice little panic about an $82 billion “missed opportunity” ought to warm me up.
Phase 1 Investor, the big “upgrade” letter from Stansberry & Associates, usually gets our readers attention when they send out a new promotion… partly because the publisher has one of the biggest mailing lists in the world, and partly because it’s too expensive, at $5,000 (or “on sale” for $3,000) for most individual investors to seriously consider a subscription. And despite any evidence to the contrary, some investors persist in believing that more expensive newsletters automatically pick better stocks, which means these promos get even more attention.
The stocks Frank covers with this letter tend to be small and sensitive ones, usually in tech, biotech or natural resources, and they’re often quite illiquid … but they’ve almost always got a good story. So what’s the story this time?
The headline of the actual ad says that we need to “Buy this ‘Under $0.50’ Stock by February 15th, 2014” … which started to ring some memory bells in my head, and the lead-in from the email pitch got us interested thusly:
“You see, Frank has just unearthed what could be the most ridiculous windfall in the history of Phase 1.
“It’s a microscopic energy company – with a $40 million market cap. It currently trades for about 46 cents per share.
“Yet it happens to be sitting on a truly massive petroleum formation.
“We’re talking about an estimated 500 million barrels of oil[1]… and 7 trillion cubic feet of natural gas[2].
“The estimated net present value: $49 billion in crude oil… and $33.4 billion in natural gas.
“Yeah, that’s about $82 billion – some 2,050 times bigger than the company’s current market cap.”
Yes, $40 million is “microscopic” and we run the danger of helping Stansberry & Associates draw too much attention to the name just by writing about it here but, well, what are you gonna do?
I do draw the line at some stocks, some of the time — I gold[3]-newsletter/whats-lundins-february-gold-investor-stock/">unveiled a little $10 million market cap name being teased now earlier today, but I assuaged my guilt a bit on that one by limiting the article to the much, much, much smaller group of Irregulars (those are our paying members) … still, when you’re talking about a stock with a sub-$50 million market cap any yahoo with a blog or a twitter account can probably impact the price if he makes an effort, so, as always, be careful and think for yourself.
What’s Frank pitching now, then?
Well, it turns out that we were right to think it sounded familiar — this is a slight revision of a teaser that Curzio sent out last Fall and that we covered here about four months ago [4], and in fact the “presentation” still carries the “October 2013” date down by his signature, though they have updated the “Must buy by November 1” to “Must buy by February 15” … and they did add in a couple other edits to refer to their 2014 drilling program instead of the 2013 one … but this is still East West Petroleum (EW in Canada[5], EWPMF on the pink sheets), and news is still fairly slow in developing.
I own East West Petroleum shares — I picked some up when I wrote about them last Fall[6], largely because they had some catalysts coming in the form of drilling in New Zealand[7] and possibly the start to their Romanian drilling campaign that’s been delayed for a couple years, and the news so far has been fairly ho-hum in New Zealand and nonexistent in Romania so I’m still sitting on my shares and watching. Curzio’s attention drove it from 40 cents to about 70 cents very briefly, as he loaded on the enthusiasm and hosted a conference call with the company’s management, but it’s now back to about where it was in October.
And yes, it’s pretty disingenuous to say Curzio “just unearthed what could be the most ridiculous windfall in the history of Phase 1” when you’re talking about a stock that he originally pitched almost two years ago[8].
So, now what? I guess this gives me a chance to take another look at the stock, something I’ve been meaning to do anyway. Win-win!
East West Petroleum has two important assets: shares in wells that are now being drilled by TAG oil in New Zealand in the Taranaki Basin (that’s New Zealand’s core production area for onshore oil and gas, and the wells may not be gushers but are relatively low risk and in or near proven areas), and four blocks in Romania that are just about to be explored for gas. East West is buying in to the New Zealand stuff, paying to drill the wells to earn-in their 30-50% share, and the opposite is true for Romania — in Romania they’ve let Gazprom Neft buy in to operate the four concessions, with EW getting fully carried on costs for the first 12 wells and getting 15% share until there have been three wells drilled on each of the four concessions at a minimum investment of $56.6 million.
So in 2014, East West will be spending something like $12-17 million on New Zealand drilling and seismic, depending on whether they get through five or eight wells (three are conditional and planned for later in the year, five are more firmly scheduled) and nothing on Romanian gas. The New Zealand wells are all expected to break even over roughly six months, so there will be cash flowing in as well as cash flowing out … which tells me that they can easily cover their commitments with their cash on hand (about $16 million) and their revenue from the first few wells (should be several million by next month, recouping their costs within a few months of drilling) as long as they don’t have a big problem anywhere this year or make other big commitments. That’s not to say they won’t sell more shares and raise money, they could easily do so (and might want to do so to give themselves some more growth capital if the stock spikes up on some good news).
They have other projects around the world as well, including an unconventional oil/gas partnership in Eastern New Zealand, also with TAG, and small projects in Morocco[9], California and India[10], but none of those should have any real impact on East West’s books over the next couple years as far as I can tell.
The $82 billion and 500 million barrels of oil in the teaser pitch is, of course, a pipe dream — I suppose it’s possible that East West could reach those numbers from their combined exploration areas, but I’d happily take the “under” on that if we’re betting. Doesn’t mean it’s a bad stock at $40 million, obviously, since I’ve already told you I bought shares myself, it’s just not a lottery ticket. Going up a few hundred percent would please me just fine, we don’t need to see billions in value — and dreaming about those billions is probably bad for you.
East West’s producing and likely-to-produce-anytime-soon oil is estimated to be in the range of 2-13 million barrels in their lower-risk New Zealand Taranaki wells, and the big unconventional East Coast project potential in New Zealand, which may well be over 100 million barrels, won’t even see its first drill bit from the EW/TAG joint venture for probably three years. And I don’t know whether Romania might end up having trillions of cubic feet of natural gas in EW’s million acres of exploration blocks, but neither does anyone else — there’s almost certainly oil and gas in there somewhere, just as there is right across the border in Serbia, where their partner Gazprom Neft has already made discoveries, but we can’t really put any numbers on it yet.
The pitch talks about a 20-well work program for 2014, but that’s really more than they’ll do just this year — New Zealand is a maximum of eight wells this year, with probably a little less being more likely, and Romania is a possibility to drill three wells this year as they start what will be a 12-well work program, so that’s a total of 11 wells possibly in 2014. They only had the final 3/4 of their Romanian blocks ratified by the government in November, after extended delays, so there’s been little progress made at identifying drill targets, etc. — apparently seismic is underway now on the first block in Romania, the one that was ratified earlier, and that’s where the drilling of potentially three wells is expected to come in the second half of this year. Their partner has two years from this past November to drill twelve wells under the terms of the current agreement, though I suppose it wouldn’t be shocking if there were delays or extensions.
That’s enough to have me holding on to see how things go. They’re producing oil and gas in New Zealand, they have cash flow and some upside potential if the New Zealand wells end up being a bit better than expected (so far it strikes me that they’re slightly worse), and, since they have cash for their drilling commitment in New Zealand and get a free ride in Romania, the downside is relatively limited compared to other teensy oil explorers. I bought this one for the potential of a near-term (within six months) catalyst, but the fundamentals are solid and I’m now at least planning to wait out the next six months or so and see how the drilling in Romania goes.
So what do you think? Interested in this Frank Curzio[11] play from October that’s being refreshed now that the shares have come back down? Or is it all still too speculative for you? Either way, shout out your feelings to the world with a few words in the friendly little comment box below.
And yes, to avoid trying to profit personally from attention that we give to tiny stocks, I promise not to trade East West Petroleum for at least three days per Stock Gumshoe’s trading rules.
Source URL: https://www.stockgumshoe.com/reviews/phase-1-investor/82-billion-opportunity-disappearing-soon-frank-curzios-phase-1/
Copyright ©2024 Stock Gumshoe unless otherwise noted.
Any idea why this stock is sinking inspite of good drilling results from NZ? They are sitting on cash with zero debt at this point.
East West not trading that well because the NZ drilling season has not met expectations, at least my expectations.
Out of 9 wells drilled in the Taranaki Basin only 2 (Cheal E1 and Cheal 4) are flowing naturally and Cheal E5 is helped with pressured water : total stable production is around 650 barrel per day (195 net to EW). Cheal E2, Cheal E3 are still in “testing” and is taking a little bit too long to expect good production going forward. On Cheal G only 1 well out of 3 drilled is “in testing” and even this one is taking too long. Souther Cross was a dry well.
I think 650 barrel flowing naturally after 9 wells drilled is not a great result, hopefully the information available after the first drilling season will be very useful in order to get better results with the next season if any.
Positives: East West should have bagged 5m $ from Cheal E and now the 195 net production to them should bring 6m $ for the first 12 months so lets say up to June 14 they should have received around 7M$ revenues.
Given the nearly 17m $ cash , the inflows expected that should cover the 2014 capex I think stocks are cheap at 27m CAD without debt.
Next Catalyst will be when they finally release a more updated reserve/resource calculation that should be done with the next annual report and will take into consideration all new information from drilling.
I bought more at 27 cents but honestly so far the NZ drilling has disappointed me. Hopefully if some of those 3 wells under testing will get into production at a decent flow rate (lets’ say 200 barrels per day) the shares could already have some upside for that.
Any more comments are welcome.
Well put, I agree the NZ performance has been disappointing. I still own some shares and am basically just sitting on them at this point — the cash flow should be decent, there remains substantial potential upside from Gazprom Neft’s seismic and drilling to come in the next year as well as from more NZ drilling. The worst downside, I guess, is that results continue to be weak and the stock price just dwindles as they spend their cash flow on additional drilling, but unless they do a big fundraising (which seems unnecessary to me) they have several shots for things to improve considerably.
Still holding Travis?
Yep. They announced earnings today, nothing particularly surprising — NZ production dipped from earlier in the year, the only surprise (a small one) being that drilling in Romania won’t happen until next year (2D and 3D Seismic ongoing now). No urgent excellent news coming, but my opinion is still the same — plenty of opportunities for very good results in additional NZ drilling and in results from Romania, and they are producing enough oil in NZ that they apparently won’t have to raise any cash to keep going. Still being patient to see how it plays out, but I have been accused of being overly patient before.