“All the Way to Poland to Find the Most Exciting and Profitable Gas Stock of 2011”

By Travis Johnson, Stock Gumshoe, April 4, 2011

Today’s tease is from Ian Wyatt, who has his name on so many newsletters that I don’t know how he finds time to sleep, let alone watch Dancing with the Stars like any good red-blooded American (kidding! if there’s one thing I don’t want to see on TV, it’s reality). The letter he’s pitching now is Small Cap Investor PRO, which will run you about $200, and one of the teases in the ad is that he’s found the world’s best oil and gas stocks under $5.

Including, as you can imagine, one that has a Poland connection … thus our headline for today. So what’s the story?

Well, the basic story is one we’ve seen before — Polish gas. No, this has nothing to do with kielbasa and pierogies, we’re talking about Polish shale gas, natural gas that’s trapped in shale layers not unlike the huge gas reserves that have turned the hills of Pennsylvania into an energy colossus yet again. Shale gas is becoming a larger story in Europe, where the fracking and horizontal drilling that makes shale oil and gas production feasible is just beginning to play a large role, thanks in large part to the US companies who are exporting the technology and trying to get an early foothold in the unexploited oil and gas reserves, particularly of Northern Europe.

And while the story is playing out in several countries, including Germany and France, Poland is arguably leading the charge and seems to be getting the most investor attention. The last time we saw Polish gas teased was from Bob Czeschin and Chuck de Castro, whose focus was mostly on BNK Petroleum … that was back in mid-January, and the stock is up a bit at near $5.

The big picture stuff about Vladimir Putin, the fear that Europe has over their reliance on Gazprom, and the need for domestic energy supply in Europe and the massive gas reserves (an estimated 48 trillion cubic feet) in Poland are all pretty much the same as in that teaser, and indeed of other “break Gazprom’s monopoly” teasers we’ve seen in the past — but the focus is on a different stock.

So … who is Wyatt touting?

“The company made a very smart move at the right time that gave it access to Poland’s best shale gas plays.

“In 2010 it acquired another exploration company. The acquisition gave it access to drill in about 79,000 acres in the high Baltic Basin region, one of the most fertile regions within the shale gas discovery.

“Estimates are this could result in around 1,000 to 12,000 commercially viable wells.

“As the company completes these wells over the next few years, the potential boost to its shares could be 100% to 600%.”

The shares are under five bucks — or “well below” $5, in his words.

Which tells us who this probably is … but then we get another clue that seals the deal:

“The Report will tell you all about this dynamic, North American company and how you can load up shares before Wall Street learns about the company’s potential.

“In addition, the Report will tell you more about what’s happening right now that makes this stock ready to gush profits. For instance,

“· Get the inside scoop on its liquefied natural gas exploration wells in the South Pacific (Poland isn’t the only game in town) giving it access to huge energy hungry markets. China, Japan and Korea are already lined up for delivery!

“· The Pacific natural gas opportunity is so inviting even Exxon is investing in it by building capital intensive processing facilities.

“· In fact, even if you discount the company’s operations in Poland, its stake in Pacific drilling could mean an upside of 300% on the stock.”

So … whozit? The Thinkolator is already primed and ready, so it takes only a quick rinse cycle on those clues to tell us that this must be …

LNG Energy (LNG in Canada, LNGYF on the pink sheets — NOT the same as Cheniere Energy, which has the ticker LNG in the US0

LNG Energy is a small company, with a share price right around 50 cent, which is right about in the middle of their trading range over the past year, and a market cap of about $130 million. They have a complicated group of natural gas assets in the US, Poland and Papua New Guinea, some of which — particularly in Poland — are partnered with other companies.

Which gets us to the maybe-not-exactly-perfect nature of the match here: LNG Energy did complete an acquisition in 2010, but I can’t squish the math enough to make it look like 79,000 acres. They got net interest in some of BNK’s properties of about 87,000 acres in 2009, and then boosted that interest in 2010 through their acquisition of their partner (Kunagu Real Estate) so it’s now about 140,000 acres net to LNG Energy (out of a total of 730,000 acres). Reading any of their press releases is enough to give you brain freeze, here’s an excerpt from last March:

“LNG Energy Ltd. (“LNG”) (TSXV: LNG) is pleased to announce that it has entered into an agreement with Omag Beteiligungen AG (“Omag”) to consolidate its position in Poland and the USA by acquiring all of the oustanding shares of Kunagu Real Estate S.A., a private company which holds: (a) the remaining 40% interest in the Kaynes Capital S.a.r.l. (“Kaynes”) which in turn holds the 20% net interest in BNK Petroleum Inc.’s (“BNK”) shale gas exploration project in Poland; and (b) the remaining 40% interest in BWB Exploration, LLC (“BWB”) which in turn holds certain oil and gas leases in the Ardmore Basin in Oklahoma and the Black Warrior Basin in Alabama.”

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Ooof. So I can’t make the 79,000 number match up to reality, but with all the cross-ownership and complexity it’s certainly possible that it will match. The overall number that the company now claims is 326,000 net acres … but what does match is the focus on Polish shale gas and liquefied natural gas in the South Pacific — and, of course, the “well under $5” bit. There are a couple other companies that are working on both LNG in Papua New Guinea or Indonesia and in Poland, but the ones that come to mind are ExxonMobil (XOM), Marathon Oil (MRO) and Talisman Energy (TLM), none of which is small or even close to being under $5 per share. So I’ll leave out some possibility that I’m wrong here, but I think it’s a small possibility (if you’ve a better match, please shout it out with a comment below).

LNG Energy has several pretty big blocks of acreage in Papua New Guinea, which is where ExxonMobil is investing in a big liquefaction plant for LNG and where InterOil has made their huge Elk/Antelope gas discovery — it seems like the most promising piece they have is their smallest one, a relatively little parcel near InterOil’s big discovery, and they also have several larger parcels in the north of the country that have seen substantially less investment so far.

So there you have it — yet another gas play that might be of interest, though they’re going to have to raise a lot of money to expand much on their exploration (which is part of what’s keeping the share price so low — the company has already issued lots of stock for their various acquisitions, so perhaps investors have grown weary of dilution). They seem to have enough cash at the moment for their $15-20 million of required investments over the next few months, which will see drilling in Poland and seismic surveys in Papua New Guinea, but that puts them at pretty early days still for all of these projects… though results of the Polish drilling, in particular, could certainly help the shares if they’re particularly impressive.

Sound like your kinda fun? Let us know with a comment below. And of course, if you’ve a more delightful stock that gets us Polish and Pacific gas, well we’d be delighted to hear what it is.

Oh, and if you’ve ever subscribed to Ian Wyatt’s Small Cap Investor PRO, please click here to share your thoughts — we do have a few reviews of that letter over at Stock Gumshoe Reviews, but they’re all quite dated and we’d love to hear about your experience.


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