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To
OTC Journal Members:
Industry analysts have been predicting
a world wide energy shortage for years and the bubble finally burst in
2000. Oil more than doubled during the year causing serious financial pain
at the gas pump. Natural gas exploded off the charts with a 500% move
from $2 mcf(1,000 cubic feet) to $10. Natural gas has settled in at the
$6 range, and analysts believe it will stay at these levels for a long
time.
We're all paying $40 to fill our
gas tanks when it used to cost $25. If the pain at the gas pump is a tooth
ache, our utility bills are major oral surgery. When California legislators
deregulated the utility industry they did not foresee critical shortages
of natural gas, the fuel of choice to run power plants. Deregulation has
become a disaster, and utility costs have risen so high that many small
businesses are being forced to close their doors. In some cases electrical
power is not available at any price, and rolling black outs are the norm
in the Bay area.
Reserves of natural gas are at an
all time low. OPEC is cutting oil production because they are enjoying
windfall profits at $30 a barrel. The future looks bleak for energy consumers.
It should come as no surprise that
someone is making a lot of money off this surge in energy prices. Vertically
integrated behemoths like Enron (NYSE: ENE), Duke Energy (NYSE: DUK),
and CMS Energy Corp (NYSE: CMS) are trading at or near their all time
highs off windfall profits.
We have uncovered a micro cap company
that is perfectly positioned to benefit from inflated energy prices. With
market dollars running up stocks of the large energy producers, interest
will funnel down to smaller companies positioned to become profitable from
the new pricing. The stock has minimal downside risk and exciting upside
potential. This company has significant competitive advantages in the search
for new energy sources. We believe this investment represents an opportunity
to recoup your hard earned money spent on exorbitant prices at the pump
and skyrocketing utility bills.
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February
Profile: Energy Power Systems LTD (OTC BB: EYPSF) |
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Stock Listing: OTC BB: EYPSF
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Estimated Shares Issued and Outstanding:
5.1
million
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Estimated Public Float: 3.1 Million
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Closing Price and Volume: $2.95 on
25,000 shares
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Market Capitalization: $15 Million
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Estimated Book Value: $2 per share
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52 Week High and Low: $5/$.75
Energy Power Systems Limited is
a vertically integrated Independent Power Project Developer, an Oil &
Gas Exploration and Development Company and a Contractor of Infrastructure
Projects. One of its three divisions generates a steady revenue stream,
and all three have exciting upside potential in this new era of high energy
costs.
Since their last audited financial
statement (June year end), Energy Power added $1.5 million in equity,
bringing the company's net assets to about $10 million US. With
5 million shares issued and outstanding, the book value (liquidation value)
of the company is about $2 per share.
Studies indicate that companies in
this group trade for an average of 2.8 times book value (Source:
GEARS five year study). If the stock could find its way to the average
price to book ratio it would be trading at $5.60, which is a 90%
return from yesterday's closing price of $2.95.
Each of their three division are
poised to profit form the energy boom- As follows:
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Engineering
Division: M&M Engineering and The Port aux Basques Fabrication Facility |
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M&M Engineering Limited
has been in business since 1968. M&M is an industrial, mechanical
and electrical contractor. A subsidiary produces steel components for structures
and heavy industry, manufactures pressurized vessels and tanks, and provides
in-plant fabrication, welding and assembly services for the offshore oil
industry at its 40,000 square foot and 15 acre production yard in
St. John’s, Newfoundland.
Energy Power also owns a 147,000
square feet fully enclosed fabrication facility on 40 acres of
ocean side property adjacent to a deep sea quay at Port aux Basques, Newfoundland,
along one of the major sea lanes of the world. This facility is available
for use by M&M for large projects. The complex is ideal for
both off-shore and onshore projects. Through this facility M&M
can offer large off-shore infrastructure projects a variety of multi-metal
fabrication, marine refurbishment and outfitting capabilities.
M&M currently represents
all of Energy Power's present revenues. In the September quarter,
M&M
achieved
$4.5
million (cdn) in revenues, which equates to about
$18 million (cdn)
annually at the current run rate.
There are a substantial number of
new exploration projects being launched in M&M's backyard by
major oil companies. Joint ventures and outsourcing to local companies
is the norm. M&M has been in business for over 30 years, and
we expect them to capitalize on these new opportunities.
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Power
Division |
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The demand for new power projects
in the North American market as well as emerging markets is strong. According
to GE Power Systems, “GE forecasts a growth of 90 gigawatts a year over
the next ten years with 50% going to Asia, 30% going to Europe
and 20% going to the Americas.”
The Power Division is pursuing a
strategy to develop and participate in Independent Power Projects in emerging
markets. The Power Division is focusing on India. Already, Energy Power
has equity interest in India Special Purpose Companies that have Power
Purchase Agreements to supply over 600 megawatts of power to
the Electricity Boards of the State of Andhra Pradesh and the State of
Karnataka.
Energy Power has invested
millions of dollars in the development of two power projects in India.
They originally planned the exotic strategy of placing Barge Mounted Power
Plants at these sites. The Andhra Pradesh project has grown to 445 Megawatts
and is now too big for a Power Barge solution.
Once completed these projects will
provide ongoing utility income for the company for years to come,
thereby minimizing the impact of fluctuating commodity prices from expected
oil and gas cash flows.
The first of the giant Siemens turbines
which will power the Andrha Pradesh project is scheduled for delivery in
August.
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Oil
and Gas Division |
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The newly formed Oil and Gas Division
is the wild card which provides the exciting upside in this stock. We have
been waiting for them to complete a transaction which gives us tremendous
upside before launching this profile.
Yesterday, after the market closed,
the company announced they have acquired 25% interest in 1/2 million acres
on Prince Edward Island (PEI). This property is located in the heart
of the Maritimes Basin in Canada's eastern oil and gas country. Click
here to read the full text of the press release.
According to an article in The
New York Times dated September 7, 2000, Atlantic Canada could prove
to be the next generation North Sea. Of the 11 oil fields larger than 100
million barrels discovered worldwide in the last 20 years, 4 have been
off the coast of Atlantic Canada. Canada is the largest supplier of natural
gas to the United States and America's second largest supplier of oil next
to Saudia Arabia. Exxon Mobil estimates the potential oil reserves of Eastern
Canada to be 40 billion barrels. The natural gas reserves of Newfoundland
Labrador alone are estimated at 62 trillion cubic feet, enough
to energize more than 700 million homes in North America for a year. The
Sable Offshore Energy Project off Nova Scotia is already pumping 500 million
cubic feet a day of natural gas and lighting up New England.
Meteor Creek Inc is drilling a gas
well right now on the north east section of PEI, just a chip shot from
the Energy Power property, in a field Meteor claims could contain
one trillion cubic feet of natural gas. If Energy Power were to
hit such a gas well on their PEI property the effect on the stock would
be enormous. Meteor Creek's exploration drilling gives Energy Power a "free
look" at the potential of their property.
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Summary-
Why Energy Power is An Exciting Microcap With Tremendous Upside Potential |
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$10 million in Book Value
today- $2 per share. As highlighted above, the industry average
stock trades at 2.8 times book value. If the stock can achieve the industry
average it will trade at $5.60, 90% above Friday's closing price.
This factor minimizes downside risk.
Immediate upside potential is exciting
through both the Engineering Division and the Exploration Division.
The map highlights the potential of this company.
Energy Power Systems' exploration
permitis right in the middle of Atlantic Canada's Maritime Basin. Both
the
Sable Offshore Energy Project and the Hibernia
Project are monster producers. Natural Gas discoveries are all
around the Energy Power property. A find of major magnitude is possible.
Husky Oil recently announced
it will be developing the White Rose Oil Field by contracting to
build an Off-shore Floating Production and Offloading Platform Facility.
The total investment in this off-shore project infrastructure alone is
expected to run $1.8 Billion and much of it will be built
in Newfoundland. M&M is expecting to fill its facilities building
components for this project. The platform will be located in the Atlantic
out near the Hibernia Project right in M&M's backyard.
M&M's 40,000 square foot
production facility and 147,000 square foot fabrication facility are ideally
located to participate in this $1.8 billion project. Newfoundland's
government encourages these large companies to use local contractors and
local facilities. M&M is already in discussions with Husky/Maersk,
and large new contracts should follow.
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Conclusion |
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Management has informed us it intends
to file applications for listing on the AMEX and the NASDAQ
as soon as minimum price requirements are achieved. The AMEX requires a
$3 stock, and the NASDAQ requires a $4 stock. The company already qualifies
in all other ways. An upgraded listing will improve the visibility of the
stock and benefit early stage investors.
Friday's news announcement that the
company has acquired a 25% interest in 1/2 million acres of prime oil and
gas exploration land on Prince Edward Island gives investors in this stock
significant upside potential. The news announcement came out after the
close. Members of the OTC Journal are the first to learn of it,
and you have a competitive investing advantage.
One could argue this stock is undervalued
today. Based on the industry average of 2.8 times book, $5.60 should
be achievable given the tremendous upside of the PEI property and the potential
of the independent power project. Major new contracts are imminent
for M&M with Husky's $1.8 billion White Rose Project.
You have substantial upside well beyond $5.60 if the Meteor well
hits on Prince Edward Island or the company works up drilling targets on
its own property through seismic surveys, joint ventures, or other means.
In such a case we would move up our price targets accordingly. If
the power project achieves financial closing next quarter or if there are
other corporate developments this would be icing on the cake For
now we believe the stock is undervalued and could be accumulated for a
potential move over $5.00 in the near future.
Prior to making any investment we
remind you to please review our section on Rules
For Successful MicroCap Investing found on the left hand menu bar
of our home page. Pay particular attention to the section on Trading
Strategies.
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