David Pescod's Late Edition: “Our $100,000 Gung Ho Portfolio”
Well it’s about that time—actually it’s about a month late, but twice a year we have to step up to the plate and see if we can’t come up with something exciting and pizzazzy. We call it “Our Gung-Ho Portfolio”, but it’s every thing about “Gung-Ho” and nothing to do with “Portfolio”. All the stories we talk about are the kinds that we think can afford a “Speculator” some “Excitement” and by that we mean it also has the potential to offer sleepless nights, as well. As far as “Portfolio”, once again we have to emphasize that while this collection of high risk stocks might represent our own holdings, the average person should (once again) realize that is offers a great deal of risk! But, anyway here we go!
1. Connacher Oil and Gas (T-CLL) $2.12 -0.05
We have written about CLL no less than 16 times and we own a lot. For a “newbee” will you be able to buy it in a correction under $2.00?
It was back in May when we started coverage on Connacher Oil and Gas and I do mean coverage. We have written up this story no less than 15 times since Kerry Sully discovered it at the COPIC Conference. That is where the oil and gas guys get together to show their locations, their plays and get a chance to tell their stories.
Connacher, way back when oil was about $35.00, decided to pick up 68,480 acres of a project about 60 miles south of Fort McMurray to be called the Great Divide. They own 100% of it and whether they have one pod or four economic pods, we’ll know that with time, but the dream is to have the one pod with the 10,000 boe/d SAGD operation up and running by the fourth quarter of 06. Now, that is a lot of oil!
Our guide on this story has been Kerry Sully. Sully used to be the head man at Ranchmen’s Resources, which was a fairly sizable Canadian oil and gas company until he sold it to Total Energy for huge profits at the time. Since then, he was suppose to be retired and playing with his grandkids in Vancouver...in fact he has been anything but retired. He is still trying to get some offshore drilling done in Guyana with CGX Energy
and has been part of a very successful story with Birch Mountain Resources and then of course, he has been trying to find some stocks for us and he has been doing very good at it, also.
What’s different about the Connacher story between now and back in May? First of all, there is a much higher oil price. Oil was $35.00 back then and now it is closer to $65.00 and all of a sudden heavy oil, which is a pretty dull, boring, gucky subject, with very little sex appeal, has become overnight very sexy. It is in a nice dependable country—Canada, with nice dependable economics—it is in Alberta, and with the recent acquisition (at a huge premium) of Deer Creek, many heavy oil companies are suddenly the talk of the town.
Since Sully told us that we had to have this the stock it is just shy of a quadruple, but we suspect that there is a bunch left. Not only should we see a lot of oil and gas production by the fourth quarter of next year, we should see the excitement as the project develops. The next four to six months should be kind of quiet as there is still issues with the EUB and government authorities to get out of the way before work actually starts.
There is also leverage here, because you may have a second, third, or fourth economic pod at the Great Divide, suddenly you have not 10,000 boe/d, but 20 or 30 or even 40,000 boe/d. And, hopefully there are no more shares issued as you can use cash flow from the producing pods to fund additional production. Plus, if you have a reserve life of 25 years plus, there is always thought down the road that sooner or later an Income Trust could be very generous.
Management, which is led by Richard Gusella, has a long history in the oil and gas patch—but not without some challenges -- witness Carmanah Resources.
This looks like a story that has a lot of traveling left to do and we suspect next month when U.S. Vice President Dick Cheney visits Fort McMurray once again heavy oil will be attracting some attention.
One thing about Connacher we admire is the leadership of Dick Gusella. These days with so many oil executives having trouble sitting down on their wallets, you can still find Gusella in the office at 7 in the morning and still there at 6:30 in the evening taking any investors calls.
Connacher Oil and Gas (CLL)
www.connacheroil.com
2. Oilexco Inc. (T-OIL) $3.70 -0.10
Kerry Sully also has some comments on Oilexco. “It is interesting (he says) to see how methodical they are in the exploration of the North Sea.” The fact is that Oilexco, which was creating a lot of excitement in Canadian circles with their exploration, is getting ever closer to production. Cash flow usually attracts a different kind of crowd.
While we see widely different expectations of what that cash flow could be—as little as $1.50 to as much as $4.00 a share ... it’s what they are doing now that could change those figures dramatically.
The person we call “The Calgary Cowboy” is someone who has known Oilexco’s President Arthur Millholland for a long time. He suggested that Millholland is that kind of a genius that you bet on and just assume that sooner or later he’s going find something significant. He also loves what they are doing in the North Sea. He suggests that the analogy is that of a pirate ship roaming the North Sea plundering the best assets to be had.
The only difference is that it is not a pirate ship they have, but a drilling rig in the incredibly hostile North Sea, where you have enormous waves and wind. The oil and gas sector has been winding down for years in the North Sea and Oilexco has managed to tie up for two years, one of the few drilling rigs left that can operate in those hostile surroundings.
They are going from one lease owner to another saying, “Lets see your data and then maybe we can do a deal or joint venture”. Thanks, C.C.
Oilexco Inc.
www.oilexco.com
3. TG WORLD ENERGY (V-TGE) $1.05 n/c
“The Lottery Ticket”
Over the last decade we have learned that whenever Canaccord’s VP, Corporate Finance Clive Stockdale gets excited about an oil and gas story, we should be paying attention.
If you can remember back when Ultra Petroleum was $1.00 a share, the technology that they were using was totally new and management was in a state of flux, money was not all that available and gas was only $3.00 mcf he suggested that Ultra at $1.00 was something you had to have. Now that is the equivalent of $80.00, he can say how right he was.
But, his specialty usually is finding the small junior explorer with a high impact play, that people are going to sooner or later get excited about. If you can get in early and remember to take some money off the table when everyone is talking about it, you usually will do okay.
Last fall, he said that we had to be in International Frontier and Pacific Rodera for their Summit Creek B-44 play in the Arctic back between $0.70 to $0.80 and they hit $2.00. Nice call.
TG World Energy is probably like that…..only possibly much bigger. At one point there was hope that TG World Energy would be drilling as early as August, but now it looks like it could be in December or January and what they have is enormous.
One of the few areas left in the world that is delivering big discovering are the big rift basins in Africa and guess who has one of the biggest chunks?
Six or seven years ago, when oil wasn’t the flavor of the day, they were tying up concessions in Niger with “18 million acres of land”. On this rift basin there is potentially up to 30 targets, each one of which could be between 100 million barrels and a billion barrels.
Recently, a deal has been done with CNOOC the massive Chinese oil and gas company, where by they are committed to spend $55 million to carry TGE on much of the initial work.
They don’t have one of the best web-sites in the world, but there is just enough there to give you a taste of the potential enormity of the discoveries there. The chance of any one of these hitting, of course, is just one in ten—if that on some of the raw exploration, but they have so many targets that over-time the odds are better then at first sight. One way or another, we just believe that come Christmas, this will be one of the stories of the day and people will have heard about it…...Thanks, C.S.
TG World Energy
www.tgworldenergy.com
4. CORRIDOR RESOURCES (V-CDH) $2.26 -0.23
“Possibly The Riskiest!” ... “Possibly The Biggest Return!”
Well, it might have been Kerry Sully who brought Corridor to our attention first, but there is one analyst who has to get a lot of credit for Corridor’s on-going intrigue and that is Jennings Capital oil and gas analyst Andy Gustajtis. While almost all other oil and gas analysts have ignored this story in the Maritimes, Gustajtis has helped bring it to people’s attention and also get the company funded.
Over much of the last decade, when everyone else has been giving up on finding oil and gas in the Maritimes, Corridor has been picking up leases from Cape Breton Island to P.E.I to many other places.
There are four significant plays, that if they hit could create huge interests in this story. In a few weeks they will know whether they have anything of interest in Anticosti Island on a play that was drilled in the area by Shell years ago, with mixed results at a time when oil was much lower, along with a very intriguing partner.
Hydro Quebec is a big player in the resource sector with unlimited pockets. Their hopeful target is 100 million barrels, but odds are only one in ten.
The McCully prospect in Sussex, New Brunswick is something that they have been working off and on for the last three years. One thing about exploring for gas in New Brunswick, is that most of the equipment you need is a long, long way away in place like Calgary, or someplace important like Edmonton. Soon the fracing equipment will be in the W.B, and excitement starts!
Now they have gone about 9 out of 10 on their exploration wells and if they can get to 20 million cubic feet a day of production, they can justify a 20 mile pipeline to the Maine and New England Pipeline.
The potential size of this play is a trillion cubic feet. Yes, you heard that right, one TCF.
What really gets us excited, is underneath that McCully deposit is another target in the Dawson Settlement Sands. The seismic, which hopefully will be improved upon shortly suggests that the deeper zone could give five times the size. Yes, five times that size. Hence you can understand our interest.
One other project that they’ve got that would have to appeal to people, although they would have to be people with patience, is their Old Harry Prospect. See the map. It is in the Gulf of St. Lawrence, in an area that boundaries between Newfoundland, Quebec and undoubtedly the Feds are creating a little bit of a problem and The Old Harry Prospect maybe one of the few genuine exploration plays left offshore eastern Canada. The potential is suggested to be as big 2 billion barrels, unfortunately that could be years away.
Those are four very significant plays in this little junior, three of which we should know about over the next 4 to 12 months whether we are on to something or not and it probably has the most risks of all the stories we have mentioned, as there is the chance that all four of these plays could be big disappointments. ON the other hand should any one of these plays work out, particularly the Dawson Settlement Sands the upside is significant. Thanks, A.G.
Corridor Resources
www.corridor.ns.ca
5. TERRA ENERGY (V-TTR) $2.30 n/c
“No You Don’t Know The Management!”
While oil is at $60 to $65 a barrel and you just know that the oil and gas companies are making big revenue, what doesn’t get as much press is that the costs have also gone through the roof. If you want some land from a land sale, prices have gone through the roof, and if you need some experienced labor—well if you can find them he is not cheap and as far as supplies, you are going to pay through the nose.
But, one thing many investors have been doing over the last 10 years is watching as some successful management teams build a junior oil and gas company, sell it off to a Trust or someone else and then start all over again.
Some of these Exploreco’s run by well known management teams are trading at huge multiples to asset value. They can’t afford many misses!
Then there is Terra Energy. Hardly any analysts have written this company up and I am sure most people have never heard of management, because they have spent most of their careers running private companies. But, here they are trading at near asset value, with 45,000 acres and the bulk of it northeastern B.C. an area of Canada where you can still pick up significant and important stretches of prospective land.
As analyst Terry Dorward of Wolverton Securites in one of the very few analysts who have written up Terra right…. “they have five different plays and should their exploration plays work out each one could increase production by 1 to 3,000 barrels a day.”
Considering that the company today is just under 3,000 barrels a day, the next 6-12 months could be very, very exciting. Thanks, G.C.
Terra Energy
DISCLOSURE:
Oilexco Inc: Canaccord Capital covers this stock and has a Speculative Buy rating on it. (Speculative buy: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria.
“Our $100,000 Gung-Ho Portfolio”
Company/Symbol/Amt Invested/ 52-week H/L
1. Connacher Oil and Gas (T-CLL) $20,000 $2.60/$0.28
- As one analyst puts it, this is probably “one of the cheapest ways to play the hottest game in the oil patch in North America—the “Oil Sands”. It is probably due for a correction, but then oil is probably due for a correction as well and that is something that happens in the fall. This stock could easily go quiet for a few months and then drilling this winter will prove how many pods are economic…..or not and then work starts to commence to build the project. Production is expected by the fourth quarter of next year and the cash flow then, can be used for leverage to build a second pod or a third or whatever. There is always the concept of Trusting.
2. Oilexco Inc. (T-OIL) $25,000 $4.40/$2.04
- Oilexco becomes a different story over the next 12 months, as it goes from being an exploration stock to being an oil and gas company with cash flow, which is truly a different animal. The question, though, as you get estimates of cash flow being as low as $1.50 and as high $4.00, what multiples do you use. Do you go as little as 3 or as high as 5 or 6 or you can come up with targets all over the place, but we tend to go on the aggressive side, as we have a feeling that over the next 12 months (plus) there is a lot more oil they could be finding and we assume that they have already found quite a bit.
3. TG World Energy (V-TGE) $10,000 $1.40/$0.11
- Find a play that could have a huge impact down the road and get in early and cheap and make sure you sell a bunch of it when it does attract attention and results imminent, because one has to remember that exploration odds are 1 in 10, and you know what that means...
4. Corridor Resources (V-CDH) $10,000 $3.20/$0.85
- The results coming out in the next few weeks on Anticosti Island, we’re not too hopeful for, but through much of September fracing and follow up work will tell us whether the McCully prospect has 20 million cubic feet of production to justify a pipeline or not. If it does, we will start seeing some very pretty cash flow numbers (very quickly) and then hopefully within 3 to 6 months they will drill the big target, the Dawson Settlement. Analyst, Andy Gustajtis, suggests that while he continues to survey the landscape for a strong story that could have the impact of an Ultra Petroleum, Corridor is the best he has been able to come up with so far. He suggests, that a combination of their assets “has the potential to change folks attitudes towards the energy potential of eastern Canada. We own a few Corridor and then you will watch closely, because when news starts coming out in September-October, we may need a whole bunch more from our cash.
5. Terra Energy (V-TTR) $15,000 $2.49/$1.06
- They are doing about 3000 barrels a day and should exit the year at 4000, so unlike a lot of Exploreco’s these days, they actually have value and might even be under valued, but then management is not known. With five high impart plays that are mainly in northeastern B.C., anyone of which could increase production by 1 to 3000 barrels and all we need is one to hit. But if two or three hit…...this could be a very exciting for them, and us.
6. Cash $20,00
- There are a few other plays developing in the background, so it’s nice to have cash on hand. But, if McCully’s Dawson Settlement Sands looks as if they’re working out—this all goes to Corridor ...
DAVE’S DITTY:
GOD LOVES BLONDS ANYWAY:
A blonde finds herself in serious trouble. Her business has gone bust and she’s in dire financial straits. She’s so desperate that she decides to ask God for help. She begins to pray…”God, please help me. I’ve lost my business and if I don’t get some money, I’m going to lose my house as well. Please let me win the lotto.” Lotto night comes, and somebody else wins it. She again prays…. “God, please let me win the lotto! I’ve lost my business, my house and I’m going to lose my car as well.” Lotto night comes and she still has no luck. Once again, she prays. “My God, why have You forsaken me? I’ve lost my business, my house, and my car. My children are starving. I don’t often ask You for help, and I have always been a good servant to You.
PLEASE let me win the lotto just this one time so I can get my life back in order.” Suddenly there is a blinding flash of light as the heavens open. The blonde is overwhelmed by the Voice of God Himself...“Sweetheart, work with ME on this….Buy a ticket.” |
