Shameless Saturday tout, ggggg
Canadian David Pescod's Market letter:
FALCON OIL & GAS (T-FO) $1.64 +0.14
There are some moments in your investing/speculating career that stay
with you for forever. For us, it was almost eight years ago that we joined
a bus load of brokers, analysts and oil and gas guys to tour the acreage
that Marc Bruner and crew had put together for what was then the infant
Ultra Petroleum.
We must have traveled for an hour on that bus and we were still on
Ultra’s land holdings. It was huge! You just had the feeling that if this
concept worked, it could be enormous. It has worked out, to a greater
degree than anyone would have suspected at the time. But not all of
those there from day one have benefited. The crew of Bruner and Allan
Laird (the engineer who helped pioneer some of the new technologies for
fracing and developing the deep wells at the time) weren’t around to enjoy
the good times.
While they were masters at putting a huge land position together with a
new concept in gas plays (basin-centered gas plays are now pretty much
accepted in the oil and gas business) but at the time, Bruner’s interpretation
and meetings with Ben Law, were considered ahead of their times.
While they might have been masters of finding the new theories on gas
and putting together enormous land packages, one would have had to
have said they were, shall we say, “management challenged”. The new
technology at the time involved big bucks and suddenly there was a bigger
staff than was needed and lots of money being spent. You get the
drift. It was sad to see, but established management led by Mike Watford
was brought in and they cut staff, vended off some interest in some of
their plays and basically saved the company.
Since then it has been one of the success stories that could have
changed a persons lifestyle. A dollar invested back then is worth roughly
$130 today. That’s why one plays the game of trying to find the next one.
Low and behold—who is at it again, but the “Dynamic Duo” of Bruner
and Laird. This time the place is Hungary and the play is called The Mako
Trough. Once again, we are looking at basin-centered gas as the theory
that two wells currently being drilled will prove to be so...or not. Along for
ride is the aforementioned Ben Law, the fellow with the U.S. Geological
Service who first coined the concept of basin-centered gas and has become,
over the last few decades, the recognized expert on this kind of
play. He is their consultant.
For some background on this play, one has to realize that what Europe
has experienced this winter, is totally different from North America. While
we have had one of the warmest winters ever, Europe had one of the coldest
and suddenly the European countries have discovered that Russia
can’t supply all their needs. A new and huge discovery in Hungary at a
time of very high gas prices would be welcome by the Continent. And of
course, if it is a basin-centered gas play, it could be huge. Make that enormous.
For those who want to understand more deeply what a BCG play is, email
Sandra at sandra_wicks@canaccord.com and she will send you
what Jim Letourneau calls one of the definitive looks at this type of play,
written by Ben Law. We warn you that there is lots of technical words
involved that you might find hard to get through, but the gist of these
kinds of plays is a gas play under big pressure, usually deep, that has a
big benefit—no water. They tend to be huge—if one well of this type
comes in, you would expect hundreds if not thousands of additional
wells to come on as well.
We spend some time again with Jim Letourneau of the Big Picture
Speculator and award-winning hydro-geophysicist. We ask him today, if
he would call this the “Play of the Year” in the oil and gas business. He
talks for awhile about the big plays out there world-wide that he is aware
of, and suggests that Encana has a very significant BCG play in the Columbia
River Basin. But as far as he’s concerned, Falcon Oil and Gas, has
the “Play of the Year” and he is a believer! He tells us it’s currently his
biggest holding.
“The size of the prize is just huge—it’s enormous” he says. They
have the huge land position to build on should this ever work out. How
huge? Well, there’s some absolutely enormous numbers being used on
this play and let’s be blunt. One TCF is an absolutely enormous amount
of gas. Most people these days are lucky to find 100 BCF, but Letourneau
says he wouldn’t be surprised if this play could come up with 10
TCF to 100 TCF’s of gas. Once again, that’s out of this world! Everything
about this play has numbers you wouldn’t normally relate to. Especially
the land holdings—570,000 acres of land with 100% working interest,
Laird tells us. In other words, 900 sections or 25 townships!
Allan Laird tells us that on their deep well, they aren’t looking for the
usual intercepts you find in the oil and gas business of 5, 10 or 15 meters,
he’s suggesting that there’s the possibility you could find a full kilometer
of intercepts on this hole. Some others suggest it might even be
bigger than that. And of course, that’s the good news for those who love
fairytales. Part of the bad news is that maybe their management skills
(or lack of them) are once again, dodging this story.
For a company that has absolutely no cash flow or revenue to show
for itself at this stage, with the current financing they are working on,
they now have almost 400 million shares outstanding. That’s simply
embarrassing. One has to worry that while these people who can find
incredible plays and may have done that again, the concern is that it
could somehow be mismanaged. Is there a strong enough board to
make sure that should a good story be veering off course, to bring in a
Watford or someone else to get things back on track?
The market valuation approaching three quarters of a billion dollars,
this stock is more than priced for perfection, and simply has to come up
with some huge results on these first two wells. Mind you, should they
come in, Letourneau adds that after a while, this would simply become a
mining operation, because once they found the fairway, it’s just simply
trying to drill 50 to 100 wells a year for a long, long time.
So hear we go folks, we’ll call it the “Play of the Year” for the oil and
gas business over the next weeks, awaiting for results of the wells, but
as we’ve explained, this is for rampant speculators only or for those that
are pretty confident that this is a BCG play.
Personally, Mike, I think his pot shots at "management" are
to a large degree unwarranted. But,then again, Laird and
Bruner went to school on Ultra and learned some tough lessons.
But, Watford is a jerk that fell into a sweet deal with
historically high gas prices
Lew |
