I’m combining the blogs today, with the private blog following after the paywall. For those who haven’t been reading since the start, I commenced writing the Sunday blog in February 2018 and it has been published each week more or less since then. In addition to summarising the small cap oil and gas company news each week, I’ve also tried to educate as to how the market really works, information which has not always been welcomed. The private blog commenced weekly publication in November 2019 to share my actual trading ideas: the document I send out is exactly what I use to guide my own trading, with all the company and well information actually necessary. Why I trade these particular situations exclusively is explained fully in the core information section on the website.
My interest in the oil and gas exploration industry goes back some time, but was theoretical until I decided to get practically involved just after I turned 40. The place to start I believed was Texas. Initially, it was via fractional ownership in drills, where an operator brings in a number of investors to finance individual projects. After a little time, I decided to operate myself. I started by leasing an un-drilled 80 acre tract in Oklahoma, offset and updip to other producing acreage, and engaged a low cost Mexican crew with an air rig to drill it. It came in and for less than $100,000 I had 100% of a new, producing gas well. I was hooked and kept going.
I also learned the actual on-the-ground reality of the industry there. It’s about fighting produced water and plugging liabilities. The most unscrupulous make the most. The produced water, or more accurately brine, costs money to dispose of legally and the State can force the operator to plug old non-producing well bores, which can be an expensive process. As a result, large tracts with minimal (but some) production and lots of old well bores can be acquired for nothing (the owner gets rid of the plugging liability). Sometimes these tracts end up being flipped into London public companies at valuations of several million. Hence my cynicism when it comes to some of these.
Geology had been a developing interest - ever since childhood when my father would take me to old disused mines in Cumbria where we could find quartz rocks in the spoil heaps containing specks of gold and silver - so I also started looking to identify possible plays, mainly in continental Europe, which had not received the same detailed level of interest from the major oil companies as the United States. Even more useful was the study of the European oil companies’ historic permitting, in particular of those tracts where no drilling had taken place. These tracts had met a certain initial criteria to be acquired and had a minimum level of work undertaken on them, usually the shooting of seismic, but had not progressed, either due to poor results from the geophysics, or problems with objections to the location of the drill site. Since in the latter case the area already had been established as having serious geological worth (the permit holder was ready to go to the drill stage), I focussed on the permitting of those. They were easy to farm out to companies which believed they could deal with the objectors and had significant promotional merit. Few ended up being drilled.
In Europe, the reality is that most oil exploration has effectively been finished, for the time being at least, by a combination of environmentalist agitation and sympathetic or intimidated administrative officials who simply do not properly process the necessary applications. I had my car vandalised by environmentalists one day in the north of Italy and the local official, who had to live among these people, was too scared to progress the environmental impact assessment (this was on a permit I had farmed out to Shell, whose name was like a red rag to a bull). It was a great shame, since the tract contained a prospect with estimated recoverable reserves of 50 million barrels of oil and a defined drill location where another company started drilling in the 1980s, but was forced to cease operations when the local mayor imposed a weight limit on trucks using the road through the village to access the drill site. Everything is essentially on hold in Europe now, but once people start getting cold in winter and the population wakes up to reality, I’ve got a lot of tracts to re-permit.
My main activity has always been finance related, initially in the United Kingdom and later in the United States. The focus has always been on public companies, which in my view is the most exciting area. After over 40 years, I know how it all works quite well. It’s not how most investors think and it can take some time for them to understand and accept the reality. Then they can start to make money. All this is discussed and explained in detail and at length in the 20,000 word core information document written three years ago during lockdown when it was not possible to leave the house and I had spare time on my hands.
My trading approach is simple. Go for fully funded companies with no convertible bonds or similar outstanding, which have a strong future news flow leading up to a potentially transformational event. Maintain the discipline not to trade different situations and risk losing money. And remember, you do not have to be in everything; other than spreading risk it makes no difference if your funds are in similar shares. Just go for the best ones with large audiences; there is no reason to be in more.
I started writing the Sunday blog over five years ago and have attempted to communicate my knowledge to investors (that has not always been received well by certain companies, but I’ve persevered regardless, as I have done all my life). I started the private blog just over a year and a half later since my wife could not accept that I wrote everything for free. There was no real extra work in the private blog, since I maintain the continuously updated document anyway for my own trading purposes. The subscription price is just a small fraction of one good trade.