Unclaimed fortunes, locked inside “Gulf Coast Vaults”

By Travis Johnson, Stock Gumshoe, June 23, 2009

Here’s the lead to this latest ad:

“$21,750* of YOUR Money Is Locked Inside the ‘Gulf Coast Vaults’

“So are the unclaimed fortunes of thousands of other Americans. But only the first 1,000 people who respond to this letter will get the FREE mandatory access code required to claim their cash. Secure your share below or risk losing it completely.

“*This is an average amount; yours could be larger.”

And if anything gets your friendly neighborhood Stock Gumshoe going in the morning, it’s a good ‘ol made up term — so “Gulf Coast Vaults” really caught my attention.

The ad is for Taipan’s Safe Haven Investor, which used to be run by Ann Sosnowski but is now helmed by Justice Litle, who seems to have a lot of hats on at the moment. The newsletter has not been kindly reviewed thus far, but that’s based on an extremely small sample (have you subscribed? Check out the reviews or add your own here).

So what are these “Gulf Coast Vaults?” And is there really an “unclaimed fortune” out there, just waiting for you?

If you’ve read this far, you probably already know the answer to that one … but maybe there’s a profitable investing idea in there somewhere. Let’s check, shall we?

Here’s some more of the sales pitch — and let me warn you first, it does get the drool glands going a bit:

“As many as 200,000 people could be reading this letter right now…

“But only the first 1,000 to respond will be granted the FREE access code needed to collect the money that’s waiting for them inside the ‘Gulf Coast Vaults.’

“I’m talking about money that’s already owed to them. Money that should be sitting in their bank accounts collecting interest. Or paying off mortgages and credit card bills. Or maybe even buying a new car or Caribbean vacation.”

So not only is it unclaimed money — but it’s exclusive, and you’ll be able to pay off your bills, and this money is already owed to you anyway? Man, who could resist that?

Aside from the skeptical Gumshoe reader, of course.

“These payouts come directly from what some experts call the ‘Gulf Coast Vaults’ — underground chambers overflowing with your hard-earned money.

“The president intends for these remote “Vaults” be emptied out, down to the very last penny. He believes it’s a vital part of our floundering economy’s recovery.”

Wow — so what are these vaults that are apparently filled to the brim with easy money?

“According to Bloomberg, the draining of these ‘Vaults’ could result in a ‘slingshot effect’ for your money: Sending your bottom line soaring at a fast and furious clip.

“This ‘slingshot effect’ enabled William B. of Lexington, KY, to receive a payout of $18,591 the last time the ‘Gulf Coast Vaults’ were emptied out…”

Well, my bottom line is more spreading than soaring, but I hope to make it to the gym later today. This still doesn’t make much sense, does it? We’ll keep reading.

“Once Barack Obama made the decision to declare war on the coal and oil industries of America, he needed an immediate bridge between the energy industry of today and the ‘clean energy’ industry of tomorrow.

“And the foundation of that bridge sits squarely inside the ‘Gulf Coast Vaults.’

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“I’m talking about a resource that’s better than cash right now.

“You see, locked away inside the “Gulf Coast Vaults” is a strategic energy reserve that’s being counted on to help clean up America and keep the power on at the same time.

“I’m talking about natural gas. The forgotten energy source in the midst of the controversy over coal and oil.”

Ah, OK — so these “vaults” hold natural gas, not cash money. Should we assume that the part about “unclaimed funds” is a “bald-faced lie?”

Quotation marks are wonderful things, no? Slap them around your words, and they get to mean whatever you want them to mean.

So this big picture argument is that Obama’s “war on oil and coal” will lead to much higher demand for natural gas, since nat. gas is often considered a “bridge” to cleaner energy — it’s cleaner to burn than other fossil fuels, and it’s cheap (so far) and abundant in the U.S. And of course, wind power and solar energy and geothermal and all the other whiz-bang alternative energy technologies are far, far, far from taking up the slack for electricity generation if we reduce the number of coal-burning plants.

So how does this moneymaking proceed?

“How the ‘Gulf Coast Vaults’ Began to Overflow…

“Unless you’re an avid follower of the natural gas industry, this may come as a surprise to you…

“One of the most prevalent forms of storage for natural gas in the U.S. is actually inside naturally existing underground salt caverns located primarily throughout the Gulf Coast region.

“Or as I like to call them… ‘Vaults.’

“So instead of using expensive aboveground storage tanks that are vulnerable to terrorists and weather, gas companies are pumping their excess production into these vast, airtight, secure and hard-to-find natural caves…

“Gas companies love them thanks to the ease in which they can inject and withdraw their gas supplies, compared to the long and painful process at man-made gas fields.

“And like I said, right now these caverns are bursting at the seams. Which is great news for you…

“That’s because a major part of the government’s $800 billion stimulus plan involves quickly consuming the gas in these salt cavern ‘Vaults’ — and there’s actually a simple way of playing this coming drawdown for huge profits.”

Ah, so now we’re getting closer to the part of the ad where they bring us down to earth, hint a bit more at the actual investment, and throw some reality in (and, hopefully, some maps or charts that make it seem extra real).

So what’s the “slingshot effect?”

The ad tells us that the total collapse in natural gas prices over the past year has led to huge storage buildup, lots of mothballed rigs and cancelled projects, and some truly suffering natural gas companies. But it goes on to say that when demand does pick up again, thanks to the increasing demand for clean energy, the stored gas will be quickly used and the companies won’t be able to ramp up new production quickly enough, so prices will jump.

“Now here’s where your chance at a HUGE payoff comes from:

“Energy companies can’t just stop and start their gas wells, rigs and drilling operations with the flick of a switch. Once these kinds of facilities are mothballed, they can’t just be dusted off and started up like the lawnmower each spring…

“So as the ‘Gulf Coast Vaults’ get emptied out, there’s likely to be a significant lag time before new supply flows come online from the bigger energy companies.

“And when this happens (it could be in just a matter of weeks), the best-positioned, most agile small natural gas players will make an absolute killing as gas prices rocket up — and they bring new supplies on line the quickest….

“Bloomberg projects that this ‘gas void’ will be:

“‘… setting the stage for [gas] to almost double as supplies drop faster than demand.’

“According to Stephen Schork, president of a Pennsylvania energy markets consultancy:

“‘The next big move for gas is obviously going to be up.’

“And in a recent survey of 382 energy company executives conducted by the KPMG Global Energy Institute, a majority of respondents named natural gas as one of the biggest would-be winners of President Obama’s new energy policies.”

So there you have it — your “unclaimed fortune” will come from buying stock in a small natural gas company and waiting for the “slingshot” of price increases as the “Gulf Coast Vaults” are unlocked and emptied and natural gas prices shoot through the roof.

“The perfect way to make money from this situation is to be invested in what I believe are the three best companies to own once the coming natural gas boom takes hold. I call them ‘vault’ opportunities.”

OK — so, do you want to send in your cash to get your “personalized access code?” (Also known as a username and password to access the newsletter online, I imagine) … or would you rather just try to figure out who these three “best companies” are?

Yeah, me too.

So what are the clues?

“Vault Target #1:

“Your first target is one of the best-run energy companies in North America.

“This will be our safest, most conservative target… but that being said, my projections call for a possible 102% return on this stock in as little as 12 months.

“Why am I so bullish on this company’s prospects? Let me count the reasons…

“Over the last 10 years it has designed and constructed five 100% owned gas-producing plants. It has developed over 900 billion cubic feet of proven gas reserves and generated $1.45 billion in revenue from its operations.

“But most importantly to you, it has paid out $800 million in cash distributions to its shareholders.

“And it is still issuing dividends every quarter to every shareholder, despite the rotten economy and slow natural gas market.

“Now that’s a company I’d want in my portfolio for the long term.

“Investment columnist Marc Courtenay of SeekingAlpha.com agrees, calling this company, ‘… a remarkable total-return energy trust.’

“With its consistent dividend paying out like clockwork, you’re already insuring for yourself a return on this company the minute you purchase shares.

“And with the crack management team this firm has in place, its next 10 years are shaping up to be even bigger than the last. Especially if natural gas plays as important a role in Obama’s new energy policies as experts believe it will.”

So who is this?

Peyto Energy Trust (PEY for the royalty trust units on the Toronto exchange, PEYUF on the pink sheets)

As you might imagine, it’s a Canadian royalty trust — for those of you unfamiliar with the beast, these are income trusts that buy up natural resources and deplete those resources, and they are exempt from corporate taxes as long as they pay out the majority of their free cash flow to investors. They have been spectacular income investments for many years, but they are also subject to political risk — the biggest risk is that the royalty trust will essentially cease to exist in 2011 unless Canadian law changes. That’s when these companies have to start paying tax as corporations, a change that was made to close a loophole that led to lots of operating businesses switching over to trust status, and lots of foreign investors buying up shares of the trusts, which then led to less taxes to the Canadian government.

There are many folks who believe that the government will change its tune and turn the trusts back “on” sometime soon, since they are such popular investments, but I have no idea if that’s really likely or not. Many of the trusts also have built up so much in tax credits over the years that they may be able to pay out big dividends for a year or two after the 2011 deadline, but some of them will probably just revert to being regular corporations that pay tax and have to reduce their dividends significantly. Or they’ll get bought by foreign investors and taken private, as has happened with several trusts.

Oh, yeah — and they’re a long, long way from the Gulf Coast. Their gas resources are in the Alberta basin (yes, in Canada — which unfortunately suffers from a terrible shortage of Caribbean resort hotels). Which brings up yet another political risk — Alberta’s provincial government, after a long period when they sat back and let the oil and gas industries grow without much interference, is now also stepping in and changing the regulatory framework, some of the provincial royalties have been changing, and credits have been rolled back, so there’s always some unpredictability to the business. That doesn’t mean it’s a bad investment, just that it’s not necessarily going to be as stable in the future as a look back at their solid long-term dividend history would indicate.

Want to read more about Peyto? Here’s the article from Courtenay, if you’re interested. And you should definitely visit the corporate website, their President does an excellent job with his monthly updates about the business, and their earnings releases are very clear. It does look like a compelling company, they are a low cost gas producer in a generally politically friendly environment, with long-lived reserves (14-17 years on the proven stuff), and they’re making a good profit even with prices depressed. I don’t know what will happen in 2011, but if you hold these shares you’ll probably continue to get a decent dividend (right now it’s 12 cents a month, for about a 15% yield) for at least a while longer.

Oh, and as with all Canadian trusts, be careful about holding them in an IRA — Canada takes out a withholding tax, but you can usually claim it as a foreign tax credit if you hold the shares in a taxable account. Some of these are also classified as corporations and eligible for the low US tax rate, but I’m not a tax expert or adviser, so please take care to understand the tax implications before considering an investment in any investment like this.

And we’ve run out of time today — I’ll fill you in on the other two “Gulf Coast Vault” companies tomorrow … until then, feel free to share your thoughts below: Do you like royalty trusts (Canadian? American? Otherican?) Think natural gas will really recover now that so many folks are looking for that recovery? Got a “Gulf Coast Vault” of your own? Let us know!


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