Geothermal is back! Paul Mampilly is circulating his “Ocean of Energy Under all 50 States” pitch once more, so it’s time to take another look. His ad is almost exactly the same as it was when we first covered it in March, 2017, but I’m sure the story must have changed a bit along the way.
Stock promos about geothermal projects are rare these days, but they really got hot (sorry!) early on in 2007, which was also Stock Gumshoe’s first year of publication. I have some fond memories of what was in many ways a “bubble” in a small number of heavily touted geothermal stocks, which were benefitting from super-high oil and gas prices that drove interest in “renewables.”
A few of those “geothermal juniors” survived, though they mostly all merged with each other, and some of them have come back to life in recent years, and there are a few real geothermal businesses in the US and elsewhere around the world that do make money, so what sort of pick is Paul Mampilly making now as he tries to reinvigorate investor enthusiasm in the geothermal space?
Now, the big picture from Mampilly that gets the ad going, referring to a simplified copy of that map (the map is from 2008-2009, incidentally, not a lot of study has gone into updating it since):
“You see, the colors of this map reveal a huge untapped energy reserve that spans across the entire United States.
“A relatively unknown energy that is under the Empire State Building in New York City … beneath the roller coaster rides at Disney World in Orlando … below the Sears Tower in Chicago … and under the shiny lights of the Las Vegas Strip.
“And this energy is so expansive and untouched, the Earth Policy Institute recently reported that there’s ‘50,000 times more [of this] energy contained in the first six miles of the Earth’s crust than in all the planet’s oil and natural gas resources.’
“That’s enough energy to power the United States for the next 30,000 years.”
That’s true as a scientific notion, though not necessarily as an economic one — in mining parlance, I suspect most of that geothermal potential would be classified as “inferred resources”, not as “proven and probable reserves” … we know the heat is there, but it’s not so easy to produce it economically except in a few places, like the Geysers in California, or in Iceland, where there’s good infrastructure and access to geothermal resources fairly close to the surface… and geothermal plants are not cheapto build or maintain, so they have to compete with the price of electricity generated from solar panels, or natural gas plants, or nuclear power.
New technologies continue to advance for geothermal production, making it feasible to generate electricity in slightly less perfect spots than the Geysers, and at lower cost, but that doesn’t mean you can make money by just plunking a drill bit into the ground anywhere that shows orange or red on that map.
Geothermal power has been a hot topic more than once in the last 50 years, and it may be that we’re at an inflection point where more money goes into geothermal — past inflection points for geothermal have come because of rising oil and gas prices, or because of strong tax incentives for renewable energy. Or, perhaps, we could also be at such an inflection point for utility-scale solar or wind farms that geothermal will have trouble competing… I don’t know, I just want to raise the possibility for you to make sure you’ve got enough skepticism on hand to counter the hype of “power the world for 30,000 years.”
And then the meat of the tease:
“And here’s the really exciting news … I’ve discovered a little-known company that is at the forefront of it all. They have the game-changing technology that harnesses this energy and converts it into electricity.
“Make no mistake, this relatively unknown Midwestern company is positioned to disrupt the entire energy industry … it could be bigger than ExxonMobil, Chevron and Shell Oil combined … and make investors John D. Rockefeller-type fortunes.
“Those who invest in this company now will have the chance to mint millions … and all it takes is an initial stake of just $50 if you would like.”
You should NEVER go into an investment looking for John D. Rockefeller-type fortunes, of course — and that kind of thinking, touted so breezily in an investment newsletter ad, is corrosive to rational thought.
They do not, of course, guarantee that their small company will be bigger than ExxonMobil, Chevron and Shell combined, but just the mentioning of it makes us stop worrying about whether we’re paying 50 times earnings or 10 times earnings for a stock — it doesn’t matter if it’s a little expensive if it’s going to be the next global monopoly, right?
And yes, as the teases note, Warren Buffett has invested millions in geothermal energy — though he did so quite indirectly almost 20 years ago, through the fact that Berkshire’s large utility operation owns ten geothermal power plants in the other substantial operating geothermal site in the US, the Salton Sea in Southern California (there have sometimes been plans for possible expansion at that site, but they haven’t actually built a new generation project there since 2000 and have been making less money from Salton Sea in recent years, so much so that they’ve opted not to expand).
More from Mampilly on the specific company being hinted at:
“At the center of it all is an innovative company in the Midwest … with over 80 patents to harness this fuel’s power.
“Shareholders in this $2 billion firm include institutions like Vanguard, BlackRock and American Century, and it has deals lined up in some of the biggest energy-consuming countries in the world, including: China, France, India, Japan and Russia.Are you getting our free Daily Update
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“And I believe, if everything falls into place, its stock will hand early investors the opportunity to make as much as five, 10, even 20 times their money in the months ahead. That’s millions of dollars for those who want in, starting for as little as $50.”
So who is it? Well, they haven’t updated the ad to include the changes to the company over the past two or three years… but thinkolator sez Mampilly must still be teasing Ormat Technologies (ORA). And yes, that’s despite the fact that the references to “Midwestern” are not a good fit for Ormat, which is headquartered in Nevada — that’s been an oddity of Banyan Hill copywriting for a couple years now, referring to companies in Utah and Idaho as “midwestern,” so I guess now we can add Nevada to that list of “midwestern” states.
Ormat is no longer at $50 like it was back in January of 2017 — it was already up to $58 a share when we first covered this ad, with a market cap now of about $2.9 billion, and now, after a rough 2018 and a very strong 2019 so far, it’s at about $75 and $3.8 billion.
Ormat is certainly the largest pure-play geothermal stock in the US, and they are both a designer and builder of geothermal power plants and equipment, and an operator of a few facilities (the revenue over the years has been roughly 1/3 from products/sales — engineering, equipment and construction; and 2/3 from electricity sales from their operated facilities… though that is shifting more to 1/4 and 3/4 in the past year or so).
They’ve been around for a long time since being founded in 1965 to build high-efficiency turbines, and they were probably the easiest and least speculative geothermal investment you could have made back in 2007 and 2008 (though the valuation was tough to swallow at the peak back then as well, when it briefly had a trailing PE of 80), though it was the junior project developers like US Geothermal and Polaris and Sierra and Ram Power that were more often teased and touted by newsletters (ORA shares are now slightly above where they were at the January 2008 peak —