₪ David Pescod's Late Edition January 22, 2008
TIMMINCO LTD. (T-TIM) $12.82 +2.62
ANGLO MINERALS (V-ALM) $4.03 +0.43
ARISE TECHNOLOGIES (T-APV) $1.90 +0.16
OILEXCO INC. (T-OIL) $11.13 +1.21
The way we see it, there are three ways the world can go coming up. One of which is that the United States does go into a recession and then for those of us in the natural resource field, things may not be so good. While much is being said about the stimulus package to get the American economy going, the beaten up and way-in-debt average consumer might just take his tax credits and pay off debt, which doesn’t get the consumer spending and the economy going.
A second possibility like in the 1970’s, we could see stagflation. We could see high commodity prices which would be great for the stocks we follow, but the bad news would be, if we do have higher inflation and higher interest rates, many of the natural resource stocks would be re-priced and you would need a higher “E” to get the same “P”.
A third possibility is like the Business Week headline that suggests we just don’t need to worry about what happens in the States anymore, because China, India, Brazil, Russia and the like, have economies that are growing and China now has a middle income class bigger than the entire population of the United States and maybe if they start spending, who needs the American consumer.
That’s always a possibility, although judging from the activity of their own markets over the last few days, even they don’t believe it. Having said all this, we still wouldn’t be surprised to see all the beaten up stocks with their charts around this piece, see close to new highs at year end….or not.
CGX ENERGY (V-OYL.U) $3.59 +0.45
BRIDGE RESOURCES (V-BUK) $1.04 +0.08
ENERGULF RESOURCES (V-ENG) $3.00 +0.56
This was the absolute last thing one needed to see on your desk, the day after you-know-what. In a market like this, with portfolios battered and bruised, the last thing you needed was a report on your desk that appeals (bigtime) to your sense of greed.
At a time like this in the market, all of a sudden our emotions are going like the window washers in a bad storm quickly between fear, greed, fear, greed, fear, greed.
It’s at a time like this that Malcolm Shaw, the affable oil and gas guy with Wellington West decides to publish a report called, “Nine Stocks with Big Potential Catalyst for 2008.” Yes, we have already covered a couple of them such as CGX Energy with its huge holdings and prospective plays offshore Guyana, but it’s already had a run and we suspect the easy money has been made for a while. Some time next year when they start drilling…
Energulf Resources we have written up several times as well and we suspect again that some of the easy money has been made there. But how about some targets that Shaw gives to some of the companies and their different plays. And in no order (except for alphabetically):
Africa Oil Corp. is operating in Somalia is currently trading at $5.24 and he gives a Blue-sky potential target of $50.00. Yes folks, that’s a ten-bagger!
Bridge Resources currently yours for a mere $1.05, he gives a Blue-sky potential target of $20.00 and for some of their plays, he actually calls them low-risk.
CGX Energy currently yours for $3.50, he has Blue-sky potential should they hit on some of their big plays next year offshore Guyana of $25.00.
Energulf Resources which should start drilling on their Kunene project offshore Namibia any day now, should they hit, Shaw gives a target of $20.00. The risk level, needless to say, is high (maybe one should say very, very high).
Groundstar Resources is a company that has high impact blocks in Egypt that he tells us also has a high quality management team with good connections and could see a target of as high as $20.00.
Heritage Oil which is operating in Uganda on a very promising appraisal program and not cheap at $45.00, he gives a potential target of $150.00. He also warns us though that this is a bit of a scary area of the world where troops from both the DRC in Uganda aren’t currently going at each other, but he describes the area as “still tense.”
TG World Energy is a story that we had covered a while ago because of their high risk/high reward plays in Niger, which has so far been very disappointing. But he points to a portfolio with 110 million barrels in net unrisked potential on the Alaskan North Slope where they are now drilling. He gives TG World a potential target of $10.00.
Western Zagros Resources is a pure-play on Iraq’s Kurdistan region and he points out that they are spudding a well on a billion barrel target at the end of the first quarter of 2008. Needless to say, the politics and everything in Iraq is more than a little bit scary, but should they hit in what is now called Kurdistan, he gives a target of $30.00.
Xcite Energy is involved in a heavy oil play in the North Sea and has a 100% interest in the Bentley Field where test results are pending. An upside target of $7.00 is doable he suggests.
Shaw suggests the portfolio approach to these high risk plays of course, but when we ask him our favorite question, if he could only buy one, what would it be? He suggests Bridge Resources. While the key there is their North Piper Prospect which they currently own 100% interest in and he wouldn’t be surprised to see them farm-out 50%, he thinks this could be a half a billion barrel target.
Meanwhile, to give the company some downside production, their 100% working interest gas condensate discovery (the Durango field) should be on stream by October of this year pushing out 30 million cubic feet a day and 1000 barrels of oil.
There is a great package look at all of the best of the high risk/high reward plays out there and for those that still have some greed left after the last few brutal weeks, is probably must-reading. For a copy, just send Deb an e-mail at debbie_lewis@canaccord.com and Malcolm says we can send it out to you in about a week or so but in the meantime, Wellington West clients can simply contact their brokers.
Shaw emphasizes that of his nine picks, these are all “Go Big or Go Home” type plays in that they have very little or absolutely nothing in the line of production, should their major plays fall through.
So the risk is extraordinary high.
He also doesn’t own all nine stocks, but he tells us that he is a shareholder in Bridge Resources, Energulf Resources, Groundstar, TGE World Energy and has a small holding in Xcite Energy.
Be careful! Have fun!
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