The Next Oil Rush
Trading and Investing in Speculative Oil and Gas Stocks
Two Cents to Two Dollars – Can They Do It Again?
What does the ex CEO of a powerful Oil Super Major, a prominent European banking dynasty, a wealthy New York hedge fund manager and a Turkish Billionaire have to do with a promising, but little known, tiny oil explorer called Jacka Resources?
Read on, I will join the dots for you, and hopefully convey to you the exciting story and value proposition Jacka offers over the next few weeks and months. I have not seen a company score higher on the nextoilrush.com 16 crucial investment criteria for picking oil stocks since my hot tip of the decade in February 2012, which is currently up over 600% and still rising.
Jacka Resources: you heard it first at nextoilrush.com, put it on your watch list and thank me later.
Before we start talking about billionaires and oil major ex CEO’s, first a little bit about, Jacka – Jacka (ASX:JKA) first came to my attention a few months ago, after they acquired some oil exploration blocks with billion barrel potential in Somaliland, East Africa. Other assets owned by Jacka include:
- Tunisia: 15% share in an oil well, that will start drilling in January 2013, estimated 42 days to reach target depth (near term price catalyst)
- Nigeria: 5% share in an oil discovery that has already been declared commercial – Resource upgrade expected in December 2012 (near term price catalyst – coming any day now)
- Tanzania: Awaiting government approval on permits (near term price catalyst – Tanzanian oil and gas deals are red hot at the moment)
- Australia: 15% share in an early exploration project
In addition to these assets, this week Jacka announced a potentially company making farm in deal with Anglo-Turkish Genel Energy on Jacka’s Somaliland acreage. Genel Energy has free carried Jacka in a $50 million work program to drill one oil well, in return for 50% of the block, leaving Jacka with a 30% stake and no requirement to spend any money.
Who is Genel Energy you ask? Well, Genel Energy is a $3.7 Billion market cap UK listed oil explorer and producer (45k bopd) with $1 billion in cash to spend on aggressive expansion in the Middle East and Africa, but that’s not all…
Remember the former BP CEO, Tony Hayward? You would have seen him on TV constantly during the BP Gulf of Mexico Oil spill in 2010. An environmental (and PR!) disaster such as this demands a prominent scapegoat, regardless of who is directly at fault, and in this case the fall guy was the BP CEO. He is now the CEO of Genel Energy, his new pet project and chance for redemption in the oil game, and along with him come his political and industry connections, and an eclectic and impressive group of business partners and financiers which we will discuss a little later.
This deal done by Jacka to bring in Tony Hayward’s Genel Energy, AND get free carried on a $50 million work program in Somaliland, is extremely impressive. Not bad for a company with a market cap of less than $45 million.
I have recently taken a relatively large position in Jacka, and the stock price has been up as much as 45% in the weeks since I posted about it on the blog in late September. Aside from the catalysts I have already mentioned, I predict that there will be a very powerful catalyst that will significantly drive up the price in the lead up to December 31st 2012…
I will elaborate on this catalyst a bit later in the article.
- Here is where I called Jacka Resources
Jacka is still in the very early stages of its story, So if you missed out on getting in on my 1000% tip of the decade in February and are kicking yourself for missing out on the 600% plus (and rising) returns…
- Hot tip of the decade
…As far as my portfolio is concerned, Jacka is the next big thing, and I am expecting the stock price to be multiples of its current value over the next few months. In fact, I have identified several catalysts that should see the price rise substantially over the next 6 weeks.
Nextoilrush.com 16 crucial investment criteria analysis – Jacka is a screaming buy!
The nextoilrush.com 16 crucial investment criteria were developed to identify stocks with the potential for near term and sustained price rises. You can read more about the 16 guidelines here. In summary they are 16 criteria I have developed that must be assessed before investing in a particular speculative stock.
I have carefully analysed the Jacka story using these 16 crucial guidelines for investment in small cap oil explorers.
Jacka is literally off the scale, scoring top marks for each of the 16 criteria.
The last time a stock rated so highly was my hot tip of the decade, which is up over 600% since February 2012 (did I already mentioned that?). It’s safe to say I am very excited about Jacka Resources.
I am not going to publish all of my 16 investment criteria in this post (that would be giving away my secrets), but I will post a sub-selection of the 16 criteria (criteria 6, 9, 12, 5 and 10), and explain how Jacka rates on each
Nextoilrush.com Criteria 6: What is the Track Record of Management?
The current board of Jacka has an excellent pedigree. I want to draw your attention to the board’s previous project – Hardman Resources:
- Jacka management from Hardman Resources
Although many readers may not have heard of Hardman Resources, most people with an eye on the oil game in Africa would have certainly heard of Tullow Oil. Tullow acquired Hardman Resources for $1.5 billion in 2007
The acquisition was at $2.02 per share, not bad for a company that was trading at only a few cents per share a few years earlier!
- Hardman chart 2c to $2
Of all the penny stocks I have ever invested in or traded, my favourite (and the most lucrative) stocks are the ones that are run by a board of directors that has worked together in the past, on companies that have been acquired for eye watering premiums. A proven track record of steering a penny stock to being acquired for dollars is obviously highly desirable when reviewing management.
The same team that orchestrated the above acquisition with Hardman Resources is now trying to repeat that success with Jacka Resources, and you have a chance to get in on the ground floor this time. Don’t you wish you had purchased a few hundred thousand Hardman shares at 2c each when they started trading above $2!
The Jacka board have proven that they know what they are doing in the past with Hardman Resources, and I can guarantee that a takeover is the end game plan for their new $45 million market cap oil explorer. It’s a no brainer given the current scramble for East Africa by Big Oil after recent discoveries in Tanzania and Kenya.
I wonder if they can eventually get $1.5 billion for Jacka aswell? Is a 3800% profit too much to hope for? It should be easier taking into account inflation since 2006.
The strategy behind Hardman’s meteoric rise in the mid 2000’s was inking exploration JVs with bigger players, such as Woodside and ROC Oil, leading to an eventual takeover by Tullow. One of the factors in its success was taking stakes in smaller projects that were close to or currently producing oil, in order to fund further high impact exploration.
The management seems to be exactly repeating this successful strategy with Jacka, given its stake in offshore Nigeria about to move into production in mid 2013 bringing $20 million per year to Jacka, in addition to exploration JV’s with Chevron, Dragon Oil, Cooper Energy and most recently, Genel Energy.
Same board, same strategy, seems like an exact copy of Hardman Resources to me…
Nextoilrush.com Criteria 9: Are there Wealthy and Powerful backers…?
Hot off the presses this week – Tony Hayward’s Genel Energy farms into Jacka’s Somaliland Acreage.
There are a number of reasons why Genel Energy’s farm in to Jacka’s Somaliland blocks is a big deal…
As part of the deal, Genel Energy has free carried Jacka for a $50 million work program to drill one exploration well, in return for 50% of the block, leaving Jacka with 30% and Petrosoma (other partner) with 20%. Genel paying $50 million for 50% of the block, implies a total value of $100 million for the block, currently valuing Jacka’s 30% at $30 million.
Not bad for a $45 million microcap company!
Remember that this is a potential billion barrel oil block we are talking about here… Genel wouldn’t waste their time on anything less.
Genel’s CEO, Tony Hayward is an oil man with a lot to prove and ambitions to make a Lazarus style comeback in the industry. After the 2010 gulf of Mexico oil spill caused his unceremonious exit as CEO of BP, ending a 28 year career at the super major, Hayward has burst back onto scene with Genel Energy and an ambitious plan to aggressively create an E&P company focused on the Middle East and Africa.
It is an amazing achievement to rise to the rank of CEO in the cut throat world of big oil, and I would imagine the journey leaves one with a very impressive list of government and industry contacts. Hayward is bringing all of this to Genel Energy, which listed in November 2011, is currently producing 45k bopd out of Kurdistan and is capped at $3.7 billion… AND has just entered a JV with little old Jacka Resources in Somaliland.
Every analyst that had been covering Jacka had ascribed ZERO value to Jacka’s Somaliland asset due to the frontier nature of the block, and overnight it has been valued at $30 million by the Genel farm in.
Here is a video of Tony Hayward on Somaliland news talking up Genel’s and Jacka’s exploration plans in Somaliland (skip to 2:50 in the video, don’t ask me how I located this snippet of somebody speaking English buried in the middle of this Somali news report – at nextoilrush.com we go through great lengths to find this kind of information!)
Tony Hayward is not the only big hitter behind Genel Energy. Genel’s financiers are a pretty well connected and influential bunch.
With Hayward at the helm, Genel Energy is being financed by bad-boy turned business financier Nathaniel Rothschild, member of the famous European banking dynasty, the Rothschild family. Nathaniel Rothschild was once known for his partying ways but has proven to be a very shrewd businessman since turning to the straight and narrow a decade ago – perhaps another player with something to prove in this venture, given his rebellious youth. He seems to be doing pretty well according to reports that his recent ventures have seen him exceed all his siblings in terms of personal wealth.
Another financier of Genel energy is John Paulson, President of Paulson and Co, a New York based hedge fund that made billions by short selling sub-prime mortgages in 2007.
Another key player is Mehmet Sepil, the Turkish Billionaire entrepreneur who started Genel with Hayward. The original plan was that Genel extract and market oil from Kurdistan to supply Turkey, which is currently underway.
As you can see, Genel Energy is the pet project of a pretty shrewd bunch of players, and Jacka’s management has cut a deal to come along for their ride (for free!). That is a huge endorsement of the ability of the Jacka management team to close deals with big players – and they don’t get much bigger than this bunch.
Nextoilrush.com Criteria 12: Is there an identifiable near term catalyst for a price rise?
As briefly mentioned earlier in this post, Jacka has several news items due in the next 6 to 8 weeks that will act as a further short term price catalyst.
- Tunisia: 15% share in an oil well, that will start drilling in January 2013, estimated 42 days to reach target depth (near term price catalyst)
- Nigeria: 5% share in an oil discovery that has already been declared commercial – Resource upgrade expected in December 2012 (near term price catalyst – coming any day now)
- Tanzania: Awaiting government approval on permits (near term price catalyst – Tanzanian oil and gas deals are red hot at the moment)
I would expect the stock price to be well above its current levels by the end of 2012.
Tanzania is probably the most exciting out of the catalysts listed above, and news about Jacka’s exploration permits in the country is expected any day now. East Africa is THE hottest oil and gas region in the world at the moment, with Tanzania leading the charge, and giant oil companies rushing to secure exploration permits. You can read more about this in my post titled 2012: The race for East African Oil has well and truly begun. Watch out for Jacka’s Tanzania announcement.
There is also another not-so-obvious catalyst that will be occurring in the lead up to December 31st 2012, one that I think will be the most powerful price mover of them all. I will elaborate in the next section…
Nextoilrush.com Criteria 5: Is there a Solid Funding Plan?
According to the September 2012 quarterly report, Jacka Resources had approximately $4 million in cash in the bank. Jacka need $8 million to fund their share of the Tunisian drilling occurring in Q1 2013.
Jacka’s production in offshore Nigeria won’t come onstream until mid 2013.
Is this a funding problem? Or an opportunity for short term gains for the astute investor…
Let me explain.
There is a golden opportunity for Jacka to easily raise $14 million dollars in the next few weeks, which would see them comfortably meet their drilling cost obligations and fund them through 2013.
Here’s how:
There are 71 million Jacka options with a strike price of 20c expiring on December 31st 2012 (ASX:JKAO). What this means to the company is that if the stock price is trading well above 20c on December 31st 2012, then option holders will exercise their 20c options, and Jacka will receive over $14 million in funds.
All the company needs to do is make sure the share price is consistently and comprehensively north of 20c before December 31st 2012.
You can call me cynical, but I have seen it so many times. A penny stock price suddenly re-rates upwards in the weeks leading up to option expiry, or trades above a certain price for a certain amount of days to trigger forced exercise clauses on warrants.
Regular readers will recall that I used this exact kind of situation to successfully make a 127% profit in 60 days trading a company that was planning to raise funds by triggering a forced exercise clause on outstanding warrants. You can read the full plan on that trade here, along with detailed explanations and examples of how companies have raised money using these methods in the past.
If you have glazed over this last section, I strongly suggest you read and understand this last point, as it is very important to the near term value proposition of this investment.
The key to this strategy for Jacka is securing a Fund or Brokerage House to underwrite the options. Basically this means that the Fund or Brokerage House promises to exercise any options that are not exercised by the holders.
Its amazing the lengths an underwriter can go through to “encourage” the stock price to a level where option holders are inclined to exercise their option.
If Jacka secure and announce an underwriter would be a huge catalyst, as it essentially means the $14 million to Jacka is secured no matter what.
So the stock price needs to be well above 20c before December 31st – Let the Jacka broker road shows and PR campaigns begin! December 31st is approaching fast!
WARNING: These 20c Jacka options are listed and tradeable (ASX:JKAO), but VERY HIGH RISK. The upside could be in the thousands of percent within a few weeks, but they could also become worth a big fat ZERO. I hold Jacka options, along with my Jacka stock.
You will also notice on the Jacka Website that all of a sudden three separate broker reports have come out… with some very bullish price predictions.
(The three broker’s price targets are $1.15, $0.79 and $1.00)
Sounds like this looming share price strength could be the worst kept secret in town!
IMPORTANT UPDATE: Subsequent to this article being published, FUNDING HAS BEEN SECURED! Jacka has just announced that the options have been underwritten. Jacka is now fully funded for the next 12 months, until they start oil production in 2013, that will generate cash flow of $20 million per year and further fund Jacka’s exciting frontier oil drilling – the 2c to $2 Hardman Resources strategy all over again.
Nextoilrush.com Criteria 10: Is there too much internet chat room hype? Has the “Dumb Money” arrived?
Another one of my favourite indicators to assess a potential investment is the level of activity on stock chat rooms around a stock. The smaller the number of posts the better, make sure to take a look at the nextoilrush.com guide to dealing with internet stock chat rooms.
Have you ever seen one of those stocks that seems to generate hundreds of inane comments per day, and the stock price just seems to keep creeping down over time? This is a good indication that every man and his dog has already taken a position, including unsophisticated investors who are normally last to the party, and the price isn’t going anywhere soon, but down.
A stock with minimal chat room activity is preferable, as it indicates that the stock is generally unknown amongst retail investors. Jacka certainly falls into this category, and only generates one or two posts per week on various chat sites. These are the kind of stocks I like to get involved in, before the crowd finds out about them.
Can you imagine what will happen to the stock price if a bit of chat room hype takes hold once investors start finding out about Jacka’s value proposition and near term catalysts? “the stampede” as I like to call it, should be fun to watch….
As discussed in the previous section, three brokers have just released analysis reports on Jacka with some pretty lofty price targets, which they will be distributing to their clients, so the chat rooms may start heating up any day now.
Summary
Evaluation against the nextoilrush.com 16 crucial investment guidelines rates Jacka a screaming buy. I can’t remember if I have mentioned this yet, but last time an oil explorer rated this well on the 16 guidelines, it went up 600% in a few months!
The team that took the Hardman Resources stock price from two cents to two dollars in a matter years, and an eventual buy out, now have Jacka as their new project, and they have just signed a JV with Genel Energy, backed by one of the most impressive business line-ups I have seen in a while.
With so many near term price catalysts due in the next few weeks, Jacka Resources is my top stock for the rest of 2012, and into 2013.
Enjoy the ride.
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