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July 16, 1997
David Morris
Ray Dirks Research / National Securities Corp.
We recently spoke with David Morris, CFA, and CPA, who is an analyst at the legendary Ray Dirks Research, a division of National Securities. In this exclusive interview David Morris reveals what could be the next "ten-bagger"…
S-L: Tell us a little bit about Ray Dirks Research.
DM: Ray Dirks is the research arm of National Securities. National's a 50-year-old firm. It's a publicly traded firm. It trades under the symbol NATS on the NASDAQ. There's around 250, 300 registered reps in the firm, spread out over the 50 offices. The headquarters is in Seattle, with major branches are Spokane, Chicago, and New York.
S-L: Ray Dirks Research is legendary on the Street for picking some of the really all-time big winners - stocks which have gone up a literally a hundred-fold. David, tell us about some of your recent hits, and which stock you think could be the next big winner?
DM: At my previous firm, I wrote up Soft Key International (NASDAQ: SKEY). That did very well. I believe my write up originated at $3-1/2. The stock eventually went to the equivalent of $40. I wrote up a company called Bio Dental (NASDAQ: BDTC) at that firm, and it went from $1.00 to $7.00. Another success I had at the previous firm was a company called ATC Communications, which I wrote up at $3.00 and went to $25. It's since come down. But it should do well again.
I've had some successes bringing in corporate finance clients to my previous firm and to this firm. I'm here a year. I brought in a company called Eurotech(OTC BB: EURO). It hit an adjusted high of $13; I started with it at an adjusted price of $1.00. Another company I brought in, which another analyst wrote up, was Employee Solutions. That went from $10 to the adjusted price of about $80. And I've had several losers, which I will not go into at this time!
S-L: David, give us the next big winner that we could see move 500-1,000%.
DM: Well, Titan (OTC BB: IMPN)($1 1/8 July 16) can certainly move 500 to 1,000 percent over a period of time. Titan trades for $3-1/2 a share now. It was formerly known as Oil Retrieval Systems. It owns 40% of a company called Oilex, (OTC BB: OLEX) on which I have recently written what I consider to be a major report on a micro-cap company. I was attracted to it because of its reserves. Oilex is trading for $0.50 cents on the OTC Bulletin Board right now.
S-L: David, tell us a little bit about your background.
DM: I've been an analyst following principally petroleum stocks for about 25 years now. Prior to that I was with Mobile for a while. I'm both a CFA and a CPA. I look for some real gems among the very, very small companies. That's how I came to find Oilex, which seemed to have an unusually large amount of proven, producing and probable reserves in the ground. Plus, their projections for production and earnings were also quite attractive to me. So I did some research on the company, and came up with a rather lengthy research report.
DM: Oilex has assembled proven, producing and probable reserves of 27-1/2 million barrels of oil, and 20-1/2 billion cubic feet of oil. I obtained the engineering reports which made those estimates. Oilex has 27 million outstanding shares. So if you valued each barrel of oil in the ground at a dollar, the stock is still worth double what it's selling for. I mean, a dollar is absurd. Wall Street will normally value oil in the ground at $6 a barrel.
Oil in the ground is normally worth 9 or $10 a barrel, depending upon the producing life of the reservoir. You would want to give at least $3-4 a barrel to Oilex's reserves. The gas is worth another $10 million, besides the oil. But that's just Oilex we're talking about. And it doesn't, if you've read my report, give effect to the potential acquisition of Geronimo, and it doesn't give effect to the combination with Titan.
S-L: Tell us a little bit more about that transaction…
DM: Titan manufactures the swabbing units, which are mobile units that go out into the field and perform a swabbing operation -- which takes only about 10 minutes per well, and greatly enhances the production of what was believed by usually their former owner to be a fully depleted oil well; at least in the sense that the former owner believed that no more oil was economically obtainable from the well. It's not as simple as that. You just don't go in with a swabbing unit and expect to find more oil. There are certain other steps which Oilex management has seen fit to introduce to its operation. That'll also contribute to enhancing the production and the oil obtainable from each well.
S-L: Now, Titan (OTC BB: IMPN) essentially will take control of Oilex?
DM: That's correct. The attraction would be the ability to have sort of a first call on the swabbing units as they're produced. Oilex is going to need a great deal of them. But Oilex management fully expects that the demand for these units is going to increase geometrically as we move forward, as the price of oil increases. Don't forget, we're talking about today's price of energy, which is about $19 a barrel. As we move on and the price gets higher, stripper production becomes that much more attractive and that much more economical to go after.
Titan has also recently announced the acquisition of certain of the wells of Rife Energy. They will acquire 650 wells of from Rife; with 84-1/2 million barrels of oil in place. Yes, this is more stripper production. The engineers have carefully analyzed the ability to obtain a great deal more oil from that production than anybody else has till now. The reserve estimates -- I know they're a little hard to swallow -- but the reserve estimates were made by T. Haas Petroleum engineers, and they're a well reputed firm as far as I know.
S-L: What are the reserves?
DM: 84 million barrels of oil in place. On that, we would figure probably about a 40 percent recovery rate, if T. Haas is correct.
S-L: So bottom line, David, what would that imply that Titan should be trading at right now?
DM: Well, I didn't want to get into that exactly. It's a little too high. But let's just say, I think the company is worth anywhere from $10 to $20 a share, based on the reserves they have in place right now; that we estimate based on the new recovery method will be recovered. I would say it could be worth anywhere between 10 and $20 a share. If you just gave $2 a barrel, you would have $160 million worth of oil in the ground, with 13.5 million shares outstanding. That's well over $10 a barrel.
S-L: The obvious question then is: Why is the stock, trading at these low prices? And what would it take - what would be the trigger to get it to your projected prices?
DM: That's my favorite question. And it's the key question in this whole analysis. This has been primarily a blue chip market. Very, very few micro-cap companies, particularly Bulletin Board companies have done very much in this stock market environment. That's number one. Number two. Stripper production is always on a "show me" type of basis. There have been very few oil companies who have been so to speak "paid in advance" by the market for acquiring large amounts of stripper production, secondary production.
Now, what will it take to make the market realize that he's got it and it's going to work? The announcement of a few months of production with the methods that Oilex and Titan management have been talking about at their recent seminars, meetings if you will, with Wall Street brokers and analysts.
S-L: So we can expect that as Titan continues production that the price of the stock should rise in step?
DM: I think so. I consider this to be quite an interesting speculative buy, with a lot of upside potential. It's not for everybody. You've got to consider it risky. We don't want to sell the stock to widows and orphans.
S-L: Will your "Buy" on Oilex pass through to Titan now that Titan is picking up the Oilex assets?
DM: Absolutely. When I said there are 84.5 million barrels of oil in place, all I was talking about for Titan was the Rife Energy acquisition. I wasn't talking about the 27-1/2 million barrels that Oilex holds. I wasn't talking about the 20-1/2 billion cubic feet that Oilex holds.
S-L: So for investors, the play right now is Titan?
DM: At the current price, yes. You would buy Titan at the current price. Because there is essentially no premium or no discount for buying Oilex. Titan has less shares and has more oil in place. Of course its shares sell for six times the price of Oilex. But basically there is no premium at the current time. The play would be Titan.
S-L: What about the possibility of going onto NASDAQ and off the Bulletin Board for Titan?
DM: Well, it's excellent. They meet the requirements right now, as far as I could see. If their price holds around 3-1/2, they meet the current requirements. Those requirements could go up to $4 soon. But I believe that right now they would qualify.
S-L: That could be another trigger for moving the stock. Obviously once it gets into a more liquid marketplace, we could see the value realized. What do you think the future for Titan holds? Looking past this acquisition, the next 12-18 months.
DM: If these processes work, as I believe they do, the future's outstanding. It's an outstanding speculative play. Again, you have to say that they're unseasoned stocks. But nevertheless, what they have on a fundamental basis, and as we all know there are other factors in the market; but on a fundamental basis, you practically can't miss if these processes for recovery work. And don't forget, they're not through acquiring either. They could announce other acquisitions, of acreage, of companies at any time in the future. So this is a long way from the end of the story.
S-L: So essentially there are several catalysts in place which could really get the stock moving.
DM: Well, that's pretty obvious. But to me, I like to feel secure. To me the major catalyst is the announcement of production. When production results come in, the market will know that they've made the first step towards proving to the public that these recovery processes work.
S-L: This production that you're talking about, when is the earliest that we can expect something like this to happen?
DM: Very shortly. I would say within the next month to three months. It'll be up to the market to say how many months they want to see before they start paying up for this. But I think that'll be an ongoing process; where you'll see the prices move up. I was going to say "gradually," but I don't know how gradual it'll be.
S-L: Thanks for your insight!
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
LITIGATION RELEASE NO. 15950 /October 27, 1998
SECURITIES AND EXCHANGE COMMISSION v. STARWOOD MEDIA GROUP,
INC., and JACK MARKS a/k/a JACOB MESTECHKIN, 98 Civ. 7659
(RO) (S.D.N.Y.)
The Commission sued a New York public-relations firm
and its owner for disseminating information about stocks on
their website, Stock-Line.com, without fully and accurately
disclosing that the featured companies had paid for the
touts. Jack Marks, formerly named Jacob Mestechkin, heads
Starwood Media Group, a small firm in lower Manhattan.
Starwood also publishes a monthly print version of the
internet site, Wall Street Reporter, which is distributed
free of charge. The Commission's complaint alleges that
Starwood's publications do not accurately describes the
compensation arrangements with featured companies, as
follows. At least three of the featured companies have paid
consideration to Starwood Media, in cash, stock, or options,
exceeding $10,000 in value. The three companies are a
start-up motorcycle manufacturer, American Quantum Cycles,
Inc.; a golf-course developer, Golf Ventures, Inc.; and a
technology personnel firm, Infocall Communications Corp.
The stocks of all three companies trade on the Over-the-
Counter bulletin board.
Stock-Line's disclosure, buried in a mislabeled
linkage, understates the amount of compensation received for
the touts, and fails to disclose Starwood's receipt of
potentially valuable options. The disclosure in the Wall
Street Reporter is also misleading in stating the featured
companies either "have purchased or may purchase" investor
relations services, when all companies have paid to appear
in the journal. According to the Commission's complaint,
Marks was on notice of the disclosure requirements, and
persisted in his unlawful conduct even after consulting an
attorney on the legal basis for a competitor's disclosure of
specific amounts of stocks and options from featured
companies. The Commission is seeking permanent injunctive
relief and penalties based on the alleged violations of
Section 17(b) of the Securities Act.
Without admitting or denying the allegations in the
Complaint, defendants Marks and Starwood have consented to
the entry of an order permanently enjoining them from
violations of Section 17(b) and requiring them to pay a
civil penalty of $15,000.
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