Opportunity in junior oil stocks. Right Now!
I give a 55% probability to an Argentina style total freeze-up of the world’s financial system in the next 7 weeks. Markets love to crash in October and I think a crash is in the works. And I give a 45% probability to a 1923 German style run-away inflation leading to a blowup of the financial system down the road.
But the best mind we have writing on 321gold.com is Richard Russell and here’s what he said on Thursday August 30th.
"I believe we are now in the early stages of the third and most speculative phase of the great bull market. How long this phase is fated to last, and how far it will carry on the upside I don't know. But it should be an absolute whopper, ending in rising inflation and maybe even hyperinflation."
He could be right and that would make my 45% chance of run-away inflation valid. He’s a lot smarter than I am. But in general, it’s a time for caution until we see what is going to happen.
That said, energy is poised for a move a lot higher. The Gang of Fools in the White House has lost three wars in a row and why stop when you are behind? Nuking Iran is on the books until and unless a few of our military commanders go back and reread the oath of office they took when they were commissioned, - which I doubt they will do - we have dumbed down the “leadership” of our military to the point that they don’t understand why torture and murder don’t win wars.
When we attack Iran or when we finally manage to goad Iran into attacking our forces in the Persian Gulf, the price of oil is going through the roof. Here are some really good and timely oil stocks.
Daytona Energy (DTE-V) (website) is in the midst of drilling an important infill well in Webb County, Texas near the Mexican border. As of Friday the 31st of August, they had completed 4,424 feet. The first target is the 6400 sand called the Lobo 1 with a total depth planned for 9,500 feet. They will be at 6,400 feet shortly. Watch for a bounce in the stock should they hit something.
Daytona has about $60,000 cash flow monthly now and back of the envelope calculations show their 45% of this current well, the Pandura well, should contribute another 110,000 in cash flow monthly. With a $5.5 million market cap, $2 million in cash flow yearly would make this an easy triple.
Daytona has 5 possible wells in the Pandura field. Each could contribute an additional $110,000 per month. It’s not exploration drilling, they are drilling in an existing known field and the odds favor them. Should they hit and add $6 million to cash flow, it’s an easy 10-bagger.
In addition, they will be drilling in Sept-Oct in the Brazeau River field in Alberta, Canada. They only have a 6% interest and each well could contribute $30,000 monthly. And they have a 25% interest in the N. Sharon field in Jasper County Mississippi. Drilling begins early in the new year. They hold a 25% interest in the field and believe each completed well will generate an additional $110,000 per month in cash flow. The N Sharon field has potential for 8 wells.
Junex (JNX-V) (website) is going for the gold in Quebec. In a matter of speaking. Actually they are drilling one of the most ambitious wildcat projects attempted in Canada in decades. If they hit, they have billion dollar potential, if they don’t hit, they still have a prosperous company with a wide variety of interests.
Formed in 1999, Junex produces and markets brine some 400 million years old and containing 10-12 times the salt found in oceans. And they provide drilling services for oil, natural gas and brine. And they have an oil exploration arm.
The oil and gas exploration arm has acquired rights to more than 6 million acres of land in the Appalachian basin within Quebec province. In late August, Junex announced spudding the Paspebiac #1 well located in Gaspésie in Quebec. Junex is targeting a potential 500 million barrel field located within a 30 square km ananomly with 300 meters of vertical closure.
Junex is fairly valued today with revenue of $2.69 million and a market cap of about $40 million. They have invested more than $2 million dollars on seismic data covering more than 200 km on their Quebec project. Should their Paspebiac #1 hit, Junex shares are going to explode higher.
Unlike most juniors where you have to sit and patiently read a copy of “Waiting for Godot” before anything happens, the well is already half way to their target depth of 1500 meters. The well should be tested and logged in the next 30 days. I love plays like this, lots of upside and little downside and you don’t have to wait long for results.
I wrote about Montello Resources (website) last November when they had plans for drilling a monster well in Tennessee starting in January. The stock was $.10 and they had a manageable 113 million shares. The stock is up a bit and the number of shares is up a lot and they finally have gotten around to spudding the well.
For a lot of reasons mostly beyond the control of Montello, drilling was delayed for 8 months. The company didn’t do a very good job of explaining the delays and a lot of investors probably threw in the towel but drilling finally stared in mid-August and results should be announced between the middle and the end of September.
Montello has a 55% interest in the project and is fully funded until expenses on the John Bowen #2 exceed $3 million. The well is designed to twin a pair of holes drilled previously that blew out. Reports show the flow from the blowout wells at 800 bpd on one and 6,000 to 8,000 bpd on the other. All the regulatory agencies with a piece of the pie insisted on ultra safe drill procedures to prevent another blowout.
All three of these companies are drilling projects that will come to success or failure in the next 30-45 days. They are fully funded and each is drilling what could be company-making wells. While I am very nervous about the state of the world’s financial system, energy is a pretty safe bet and these companies represent the best energy juniors with current projects that I know of.
Montello and Daytona are advertisers. We have participated in private placements in the past and have never sold any shares. While Junex is not an advertiser, they recognize they need to broaden their exposure to investors. They have a world-class project with good finances and excellent management. We do not own shares in Junex but it’s only because I just learned of this story two days ago.
We are biased. Do your own due diligence. I like all three companies and they may well offer a lot of safety in dangerous times. Rather than put all your eggs in one basket, if you are able, spread your investment across all three. I expect two of the three companies to have success but I can’t guess which two.
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April 8th, 2020
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