Could This Be the Next Bakken?
By Marin Katusa, Chief Energy Investment Strategist
The quest for the next big opportunity in the resource sector drives many investors. Everyone hopes to discover that extraordinary find — not just an elephantine opportunity, but something akin to a brontosaurus in scale, capable of etching their name into the history of resource exploration and yielding substantial returns for investors.
However, investing in the junior resource sector is fraught with danger. The likelihood of failure is high, and many investors face the prospect of losing their money.
If you do strike gold with the right opportunity, though, it can transform your life.
There’s actually a book titled “The Big Score,” which follows the story of Robert Friedland, a distinguished figure in resource exploration, and his remarkable discovery of nickel at Voisey’s Bay. If you can find it, I highly recommend it.
Friedland’s company, Diamond Fields, originally aimed to explore for diamonds in Africa but unwittingly uncovered one of Canada’s most significant nickel deposits, rewarding early investors with returns as high as 200 times their original investment.
Here’s a lesser-known fact: the early private-placement investors realized their enormous gains because Friedland convinced them to lock in their shares for twice the standard duration mandated by the exchange at that time. This made it impossible for them to sell and allowed them to benefit immensely as the stock soared.
Luck? They say you have to be skilled to be lucky.
Throughout my career, I’ve seen my fair share of successes, investing in companies like Cuadrilla, Africa Oil, Copper Mountain, BlackPearl, and Reservoir Capital. Yet, I’ve also encountered my share of failures.
Here’s my most substantial loss to date.
How You Can Be Right and Wrong Simultaneously
During the Casey Research Summit in September 2009, I moderated an Energy Panel that included iconic investors such as Ross Beaty, Lukas Lundin, Rick Rule, and Doug Casey, along with Bob Bishop, editor of the esteemed Gold Mining Stock Report.
At the time, the buzz in the energy sector revolved around “green energy.” With President Obama promoting renewable energy as a solution, expectations were sky-high.
This panel was a heavyweight assembly — arguably the best one could find at any resource investment conference globally — and I was eager to engage with these prominent figures. I posed challenging questions to Rick, Ross, and Lukas, and they responded seamlessly in front of an audience of 500 high-net-worth investors and fund managers.
After 45 minutes of intense discussion, I invited audience questions, a customary practice at Casey Summits. The first question sparked quite a reaction.
The inquiry was, “Marin, we’ve heard Rick and Ross’ perspectives on geothermal energy, but as the numbers guy, what’s your take?”
My response was bold: “Who am I to disagree with Rick and Ross, given their net worth? That said, I believe you will have the chance to purchase these geothermal stocks for 50 percent less in the next six to twelve months, making them an outstanding buy then.”
The expression on Ross’ face was unforgettable. Reflecting back, I realize it was either quite daring or foolish to voice such a prediction with the key advocates of geothermal right before me.
Bob Bishop, seemingly taken aback, leaned into the microphone and stated, “Marin, you’re showing your age. I can guarantee that Magma Energy will not hit those prices.”
“Bob,” I replied, “with all due respect, now that you used the word guarantee, I’m convinced it will happen.” And the discussion continued to heat up.
Afterward, a prominent broker, closely tied to Rick, Lukas, and Ross, called me to express disbelief. “Are you out of your mind? How can you say that about Ross’ geothermal firm? It will never drop to that price.” (Let’s just say I felt the pressure for that comment.)
While I initially called it accurately for the geothermal sector, I still ended up with losses. How could that be?
As my friend Miles Thompson, who chairs Reservoir Minerals, commented, “Marin, your error was being right but still diving in.”
On paper, the geothermal sector appeared unbelievably undervalued, aligning with my metrics, prompting me to invest heavily. Unfortunately, the geothermal companies didn’t deliver the anticipated results based on their technical reports, and the stocks suffered significant declines. In the Casey Energy Report, we took an 83 percent loss on Ram Power and a 64 percent loss on Ross Beaty’s Alterra Power (previously Magma Energy), while we exited Nevada Geothermal with a modest 1.8 percent gain.
From my standpoint, geothermal energy yielded nothing but a tough lesson and a blemish on my portfolio. That humbling experience taught me to approach technical reports from third-party consulting firms with skepticism and to avoid management teams with a track record of failure.
This is the nature of the junior resource sector: wins can be elusive, but the goal is to have more victories than defeats. Fortunately, I have managed that so far.
One of My Greatest Successes: Cuadrilla Resources
When I first encountered Cuadrilla, it was merely an idea born from innovative geologists with a wealth of brilliant concepts but limited funding. Alongside my subscribers, I acquired a substantial stake in the company at the same price.
A captivating story from Cuadrilla’s beginnings involves a 2007 request for me to gather influential figures in the junior resource sector. Following a detailed presentation by the management team on the company’s potential, the brokers appeared puzzled, as unconventional shale oil and gas exploration was still in its infancy.
Years later, Cuadrilla made one of the largest onshore gas discoveries in Europe within the last decade. The company thrived, and I’m pleased to note that those once cash-strapped geologists now possess both wealth and expertise.
I was the first to publish a research report on Africa Oil, and while I sold too early, it still became a significant win.
For years, I searched for another company capable of matching Cuadrilla and Africa Oil’s explosive potential — and it seems I have finally found one.
Is This the Next Bakken?
Currently, I’m focused on a company that I believe holds the promise of surpassing both Africa Oil and Cuadrilla due to its explosive growth potential—it might just be what some are calling “the next Bakken.”
Is there risk involved? Absolutely. Could I face losses? Certainly. But the potential rewards significantly eclipse the downsides.
This small-cap company has quietly secured a multi-million-acre concession in an area with far greater potential for oil and gas production than the legendary Bakken shale formation, which is estimated to contain between 7.4 to 20 billion barrels of recoverable oil.
Many top executives within the company have invested millions of their own money to support the current drilling program. I view this as a positive indicator when management is willing to invest personally in the ventures they are pursuing. Notably, just two months ago, one director bought 200,000 shares at market price.
If the results from the current drilling meet the expectations of management—and those of us at Casey Research—the company could yield significant returns for its shareholders over the ensuing years. We should have more clarity by next week.
At present, the company is relatively obscure, with no analysts covering it; however, if it mirrors the success of Cuadrilla and Africa Oil, it will undoubtedly attract global attention.
And if my predictions hold true regarding this company and its primary project, this time I won’t be too hasty in selling.
Click here to discover more about “the next Bakken.”
Sincerely,
Marin Katusa
for Economic Prism
[Editor’s Note: Until 2005, the Bakken was largely considered uneconomic. However, advancements in horizontal drilling technology revolutionized perceptions, prompting a land rush that created multimillionaires among landowners and explorers. Harold Hamm, founder and CEO of Continental Resources, is noted for “cracking the code of the Bakken.” Discover the next Bakken now, before the opportunity passes, and possibly build your own fortune in the process.]
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