Identifying the “Gulf Coast Vaults,” part II

By Travis Johnson, Stock Gumshoe, June 24, 2009

Well, if you’re a loyal Stock Gumshoe reader (and really, who wouldn’t be?), you may have noticed that I looked into an ad from Taipan’s Safe Haven Investor that teased us about the untold riches just waiting for us in the “Gulf Coast Vaults” … but I only got to the first “Vault Target” company (that article is here if you want more background, or need to catch up with the rest of the class).

So today, let’s see if we can identify the other two “Vault Targets” that will make us rich, shall we?

Vault Target #2:

“Target #2 is known throughout the industry as one of the best natural gas owner/operators in the business today.

“That reputation is what makes me so comfortable forecasting a more aggressive potential gain of as much as 304% by this time next year for those who get in now.

“This company was recently valued at $800 million with ZERO debt on its books. It also has proven natural gas reserves valued around $1 billion.

“Motley Fool recently agreed with my enthusiasm for this stock and described it as having: “Strong sales and earnings growth, high margins, and high returns on equity – a potentially winning combination…”

“I couldn’t agree more. And with a potential sharp rebound for the gas industry on the horizon, this stock could potentially triple your money if it’s in your portfolio before the boom.

“With natural gas briefly trading at a “wellhead” price of $4.19 today, imagine how much your shares of this company would be worth if natural gas zooms back to its $10.82 high in June of 2008…”

OK, well that’s not an exhaustive bucketful of clues, but I can throw out a guess. I think this is probably …

Contango Oil & Gas (MCF)

This is a stock I actually wrote about a couple years ago, when Chris Mayer was teasing them as a miraculous company, and for a while after that they were among the best performers on the Stock Gumshoe tracking spreadsheet (which reminds me, it’s long past time to update that again).

They did have a market cap of about $800 million a few weeks ago, though it’s a bit lower now (the shares have dropped about 20% or so). And they do have “around a billion” in natural gas reserves, based on a reserves number of 356 billion cubic feet.

And finally, the Motley Fool did several times include them in articles that screened for companies that have “Strong sales and earnings growth, high margins, and high returns on equity” — though that doesn’t exactly limit the company to a tiny cadre, the Fool updates that article every few weeks with a new list of companies that match the screen.

Contango is essentially an investment company — they subcontract out all the production, and at the moment they’re not doing much drilling or production, but they do have the reserves, and a respected management team, and perhaps they’ll be a good bet if gas prices recover substantially. They are, at the least, nimble — they sold off a big chunk of shale resources not long ago, which is why their share price collapsed for a spell, but they own at least one significant offshore well that’s producing, and some other places where they could probably profitably drill.

Still … the match might be considered somewhat tenuous on this one, let us know if you’ve a better idea, or if you like Contango Oil and Gas.

Moving on, then …

“Vault Target #3:

“As great a potential for gains as the first two companies I told you about are, our third target is where we could see the biggest return of all.

“This small natural gas exploration and production company could supercharge your portfolio with gains as high as 598%!

“It is currently trading for only around $2.35 a share, which means the opportunity to grab a big chunk of this potential winner for pocket change is staring you squarely in the face.

“This company does things a little bit differently. Its main focus actually lies in the eastern United States, far from the “Gulf Coast Vaults.”

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“Unconventional? Sure. But potentially genius? You bet.

“This company is one of the only players in this part of the country and the potential gas goldmine that awaits it is staggering.

“Already its core assets include 77.9 billion cubic feet of proven natural gas reserves. And it is a do-it-all operation, moving 90% of the gas it discovers from the well to the pipeline.

“That keeps customer costs down and makes this company a joy to do business with.

“Because of its outside-the-box approach to gas exploration, this is a bit more of a speculative play, but with the share price so low, you’re risking very little — with so much more to gain.

“Once natural gas prices begin their inevitable ascent back up the market tickers, this company could absolutely explode in value.”

I was actually looking at an interesting company that sort of matched these clues, a little firm by name of Corridor Resources (CDH in Toronto, CDDRF on the pink sheets) — they have about that level of “core” reserves (77.5 bcf, actually, for their producing natural gas asset) and they did build a midstream system to connect to the Maritimes and Northeast Pipeline that supplies Boston, but they’re in New Brunswick, Canada, not in the “eastern United States.” And the price is right at C$2.35, though of course it’s a bit lower in greenbacks.

I actually find this little guy intriguing, they’ve got some other promising properties in the maritime provinces (here’s an article on their shale gas plans), but unless they’re pulling my leg it’s probably not the stock being teased.

So what might be a better match? I’m still hacking away at this one, but it’s getting late in the day so I thought I’d at least let you see what I’ve got so far. I’ll let you know if I come up with a better solution. You’ll do the same, no?

And, of course, feel free to let us know if you have strong feelings one way or the other about Corridor Resources, or Contango Oil & Gas, or natural gas prices in general … it’s summer, folks are lolling on the beach, the site is slowing down a bit, and we could all use a bit of strong feelings, of any kind.