Speculative Investment in Difficult Economic Times
With the uncertainties of the "fiscal cliff", the Greece and Spain economic crises and other challenging events on the forefront of many investors' minds, it is often the speculative stocks that lead the way down when uncertainty hits the markets. These often lucrative investments are often abandoned first in the favor of larger and more stable stocks or even gold, bonds or cash depending on the investors' preferences. The exception to this rule may be those speculative companies with imminent or near term catalysts. I have uncovered such a possible candidate in which I have decided to open a speculative long position. Investors interested in this company should know in advance that this is strictly a speculative position until more events unfold that may more fully validate its potential.
A Speculative Investment Candidate
Last Tuesday, an after hours announcement by North American Oil and Gas Corporation (OTC:CLDDD) provided news that could move the company's then $0.89 share price to well over the $1.00 mark and beyond. Now trading at $1.06, just shy of its 52-week high of $1.10 from earlier in the day on Friday, the company's 1-month chart has been on a bullish tear with no resistance in sight as it is trading in what investors call "blue sky", a point beyond any technical resistance. The company announced that it had completed a merger with Lani LLC, a private oil and gas company operating in the San Joaquin Basin of California. The newly created entity, named North American Oil and Gas (OTCQB:NAMG), announced that it had already agreed to a partnership with Avere Energy Corp., a Delaware corporation and wholly-owned subsidiary of East West Petroleum. Not all terms were divulged in the agreement in which Avere would provide $2.5 million to the collaboration with East West Petroleum providing another $500,000 as a private placement.
A Speculative Geology? Resoundingly "No"!
NAMG now holds primary interests in roughly 5,000 gross acres (3,500 net, I will have to research the difference between the two) with much of the acreage in two areas called Tejon Extension and Tejon Main, just southwest of Bakersfield, CA. The company had previously announced on November 30th that it had spuddled (begun drilling) the Pass Exploration 77-20 exploratory well in California's San Joaquin basin. The press release had also noted that this was the first of two planned and will go down to 7500 feet to test the Tejon properties' potential. Digging deeper, a September 4th press release by NAMG in which it announced an initial partnership with Lani gave an indication of the property's potential. The Joaquin Basin is the site of one of Occidental Petroleum Corporation's (OXY) successful projects in 2009, one in which the company is still reaping the benefits of 150 MMCF/D (million cubic feet per day, usually natural gas) and 7500 BPD (barrels per day) liquid petroleum products. With natural gas now selling at a wellhead price of $2.71 per thousand cubic feet, this equates to $406,500 per day.
For a geographical representation of the proximity of Occidental's property relative to the Tejon properties, the following picture is worth a thousand words:
Has Occidental been lucky enough to tap into some of only a few properties with natural gas and oil? Or is there enough left for NAMG to profit from? Apparently Avere sees enough potential to sink $2.5 million into the partnership with NAMG, which says much initially. Through more research we will see the potential for the company's success as the local geology is favorable to produce much petroleum and natural gas. A good starting point for interested investors is a website profiling the Joaquin Basin, the geographic region comprising the Tejon Extension and Tejon Main. First, I visited the portion of the website on the "Oil Geology of the San Joaquin Valley". The site speaks of the reasons that the region contains petroleum deposits, using prehistoric and current geography to make its points. Most importantly for our purpose is the phrase near the bottom of the page stating "The Buttonwillow and Tejon depocenters source the oils of the San Joaquin Valley, and the Delta (Rio Vista) depocenter sources the gas of the Sacramento Valley." The accompanying map on that page is very informative for those wishing to view the geography of the region. Pertinent to the following research on the region is the statement on the page "Middle and Lower Miocene shales of the Monterey Formation deposited in the Tejon depocenter."
Although the San Joaquin Valley s website is very informative, interesting and has great pictorial representations of the geography and history of the region, I wished to find more objective and modern information about the area's potential. The most informative and solid information available on the region is likely through the United States Geological Survey, often referred to as the USGS. I visited the USGS analysis of the San Joaquin Basin and found of wealth of information that appears to validate the NAMG and Avere Energy Corp. collaboration. In the section titled "Resource Summary" is the USGS's estimation of the wealth of resources in the region. The paragraph estimated totals of 1.8 trillion cubic feet of natural gas, 393 million barrels of oil and 85 million barrels of total natural gas liquids for the five regions of the San Joaquin Basin. On another page of the survey on the region, interested investors should consider the statement "The most favorable combination of thick, deeply buried, organic-rich Antelope shale occurs near the Tejon depocenter."
Based on my preliminary analysis of the San Joaquin Basin region, and even more specifically the Tejon properties, the area appears to be an abundant region for natural gas, oil and natural gas liquids. Even NAMG's PR announcing the merger with Lani made note of the potential in the properties with the statement "The acreage position is situated between the Tejon North and Tejon Fields which together have surpassed 100 MMBOE (million barrels of oil equivalent) of oil and gas production." Interested investors are advised to perform much additional research through the many chapters in the USGS analysis of the San Joaquin Basin and the San Joaquin Valley Geology websites.
An Alternate Investment Possibly to Benefit from Ongoing Success in the San Joaquin Region
From an investment perspective, there appears to be two investments for different types of investors. For the more conservative investors, Occidental Petroleum has had a great deal of success in the region at least since 2009 and possibly earlier. The company is well established, is making solid revenue and is a much safer investment moving forward. The company is currently paying a $0.54 dividend quarterly and is currently trading at a technical dip chart-wise which may be construed as a "double bottom", a positive event often followed by a rebound to higher levels if supports hold. The 52-week range for the company's common shares is $72.43 - $106.68, a wide range in which the current value of $75.37 appears to be a favorable entrance for either a technical bounce from the double bottom or in hopes of a return to higher levels. Investors interested in Occidental may find a near-term entry in the very near future. They should use their own investment style, but are advised to have a stop limit in place to guard against excessive downside in the event technical supports fail.
NAMG is a speculative investment that may pay off nicely with great upside potential if events unfold favorably for the company in the coming days and weeks. The company's common shares are currently trading on the OTC Bulletin Board with no real chart history for investors to rely on for technical analysis. The company's ticker will change at some time in the very near future to (OTCQB:NAMG) as per the statement in the company's merger filing "On or about December 6, 2012, the Company's ticker symbol will change to "NAMG"." Common shares are up substantially over the last month with a 52-week range (really only a month as this was a shell entity before the merger) of $0.25 - $1.10. The investment is certainly not for all investors. There is more risk here than with Occidental due to the OTCBB listing of the company's common shares which leave them open to less liquidity and a greater propensity for share price manipulation.
The company is still a development-phase entity with no current revenue, so stock offerings or other means of financing are necessary to fund its operations until the company begins generating its own income. However, the $3.0 million in funding NAMG has already secured via the collaboration with Avere Energy could go a long way to securing a solid start for this newly-trading oil and gas play and will likely be enough to fund the full prospecting of both wells. If additional financing is necessary to continue operations after it has made its assessment of the two Tejon properties, then that financing would likely be favorable with solid revenue potential backing up its financials. Interested investors interested in opening a position in NAMG should perform additional research not only on the USGS evaluation of the region but also other sources of information confirming or debunking the area's promise in its petroleum resources. More information on the merger between Lani and North American Oil and Gas Corporation is available on the recent 8K filing from November 20, 2012. I also recommend the company's website which is still a work in progress, but with good information available nonetheless.
Additional disclosure: I am long CLDDD.OB The former ticker CLDDE.PK was in effect before the merger and now no longer is relevant. Could you please add CLDDD.OB to your system's tickers? Is there also anyway to tag NAMG.OB as this will be the ticker symbol that it switches to imminently? Per the merger notification, the ticker change to NAMG.OB would be on or around December 6th, 2012. Thanks again! CF