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Field Point Petroleum (AMEX: FPP): Little Company; Really Big Drill

What if I told you today's new idea was a $3.25 stock on the AMEX, and delivering $850 million in annual revenues with $230 million in net income? Sounds a bit unlikely- does it not? In a sense, it's true.

The company I'm referencing is Concho Resources (NYSE: CXO)- A stock that has run from $40 to $75 this year alone. How's this stock behaving so well? They just drill baby drill, and they have boatloads of cash to do it with. No- it's not a $3.25 stock on the AMEX- it's a $77 stock on NYSE. Do you want to own CXO at $77, or FPP at $3.25? Here's the story- you be the judge.

This story is kind of like the biotech/pharmaceutical industry. There are dozens of biotech companies out their trying to develop the next big thing- a cure for Cancer, a new therapy for obesity- you name it. They are trying to find it.

The behemoth pharmas have become marketing companies. They take a latter stage therapy, buy into it or just buy the company, then finish the last commercial steps. Want to make a lot of money in this sector? Own shares of the company they target.

Today's oil and gas industry is very similar. Behemoths like CXO get in bed with smaller, more nimble and resourceful exploration companies, then take their discoveries into the final stage of production. That's the story here.

CXO is extremely active in New Mexico's Permian Basin. Enter Field Point Petroleum (AMEX: FPP). Not exactly a behemoth, but a respectable small oil and gas exploration and production company with growth and profits. FPP has doubled its size in the last year, and is likely onto something that will double it in size again.

Here's a map of the Permian Basin along the New Mexico/Texas border. 49 wells were drilled in this area in 2009- 36 of them became big producers. Hence, the CXO price chart. Cause and effect. It is estimated 130 wells are being drilled in Bone Spring in 2010- 100 of which are expected to be big producers.

Smack dab in the middle of the Permian Basin is the Bone Spring Formation- On a recent investor road show in NY, the CEO of CXO was extremely bullish on the prospects for the Bone Spring. 21 years ago drilling was abandoned in this area. The new horizontal drilling techniques have opened up vast new resources, and Bone Spring is smack dab in the middle of the most prolific sector.

FieldPoint found the Bone Spring property, and just like in the biotech/pharma industry, got a major player to buy into the data. And..... Despite having the deepest pockets and the biggest drill bits, CXO is a minority partner to FPP in the deal. 

Just this past week, FPP wrote a $1 million check to CXO as their part of the initial drilling costs. FPP has a 43.75% ownership in the oil- CXO only has 37.5%, with the remaining 18.75% in the hands of other partners.

Within a few miles of the site, there are other wells producing 400 to 800 barrels per day. If either well delivers those kinds of numbers, the revenues would translate to about $15 million annually, which would translate into $6.5 million for FPP. FPP would nearly double in size.

So, now when do they Drill Baby Drill? CXO called for the contribution from its partners this past week. FPP sent in their money. The drilling will start any day now.

Now, it's back to class. Investing in oil drilling 101- What did we learn in yesterday's class? Own the stock before the drilling starts. Sell some or all when the drilling starts and everyone wants to buy the "mystery". I believe we just had a real life example with Eagleford (OTC BB: EFRDF). That's was 50% on your money, and that company didn't have any revenues or trailing profits. FPP has already notched $.14 in EPS this year on their existing producing properties.

FPP's share price has a history of behaving well into events like this. Look at this spikes in 2005 and 2008- the stock ran to $10 and $8 respectively. Those spikes all occurred around major drilling events for the company.

You have the pole position on this one. The entire oil and gas world follows CXO. Funds will flow to the junior that has found their next big discovery- FPP-, and you need to get in today before the rest of the market figures it out.

As I stated, oftentimes you end up taking a profit before the drilling results are in. Own on Mystery, Take Profits on History. We'll be ringing this one up. 

Oh- did I forget to mention this? FPP has been buying back its shares in the open market- Always a good sign.
 

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