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OTC Journal Members:
This weekend's idea is my offering
in the oil & gas sector. This is an exotic opportunity which takes
us to another corner of the world. Five different members emailed this
idea to me. While there's nothing wrong with 30% to 40% returns, I'm looking
for more. I'm hunting for elephants. Elephant hunting is risky, but can
be very rewarding when you hit a big winner. Long term subscribers will
remember NetSol (NASDAQ: NTWK) which I first wrote about on January
15, 1999 (then Mirage Holdings). The stock was on the BB at about
that day. In March of 2000, after making the transition to the NASDAQ,
the stock hit a high of $75 (21.4 times your money). I loved
it, and so did the members. I hope it happens again. Could this be the
next one? I could write 50 pages on this situation, but I tried to condense
the story. Read and decide for yourself.
& Gas Off the West Coast of the Dark Continent
Vice President Dick Cheney stated
the following in the May 2001 National Energy Policy Report: "West
Africa is expected to be one of the fastest-growing sources of oil and
gas for the American market." In July of this year President
Bush's visit to the "Dark Continent" helped highlight the current administration's
policy towards reducing US dependence on Middle Eastern Oil.
It is believed somewhere between
6% and 10% of the world's oil reserves can be found off the West Coast
of Africa. Revolutions, violence, ethnic unrest and corruption have undermined
the growth of the oil industry in this untapped region.
However, development is now gathering
momentum. Shell continues work on the massive Bonga deep
water development, estimated to contain 700 million barrels of oil and
scheduled to come on stream in early 2004. ExxonMobil is developing
the 400 million barrel Yoho field in shallow waters, slated to start
producing in 2005.
In the middle of this turmoil sits
the peaceful Western African nation of the Republic of Guinea (not
to be confused with corrupt and unstable Equatorial Guinea). Guinea
is a member of the UN Security Council.
An agreement which has its roots
in 1995 gives Houston based Hyperdynamics (OTC BB: HYPD) the rights
for oil & gas exploration and production on 16 million acres located
just off the Guinea coast. Referred to as the "concession", it
is showing early signs of having natural gas reserves in the "trillions"
of cubic feet, and potentially hundreds of millions of barrels of oil.
The stock has been trading up in concert with building evidence.
||History of Hyperdynamics
(OTC BB: HYPD) and the Accord With The Republic of Guinea
Hyperdynamics is a former
dot-com (hence, the name). Like some many of its brethren, they struggled
with their business model. The company built an IT co-location facility
in Houston,Texas, which happens to be the energy capital of the world.
In an effort to expand their business
prospects, Hyperdynamics acquired now wholly owned subsidiary SCS
in May of 2001. Along with the SCS acquisition came
two seasoned veterans of the oil industry. They led the company in a new
direction. Hyperdynamics started using its state-of-the-art digital
facility to provide a unique service to the oil industry. The company went
into the business of converting the millions of seismic records in the
data libraries of the major oil companies from micro fiche to digital media.
Under this new leadership, Hyperdynamic's fortunes reversed course.
A major transition came in March
Hyperdynamics charged after an opportunity, giving the
company renewed upside potential. Through long established contacts, Neil
Moore, President of SCS, joined forces with USOil Corporation,
who had entered into a Revenue and Production Sharing Agreement
with the Republic of Guinea in 1995. Moore was able to facilitate
new seismic studies in the area as required in the agreement, thereby fulfilling
an obligation and keeping the accord current.
In late 2002 Hyperdynamics
negotiated an improved arrangement with USOil. In an 8K
filing with the SEC on December 20, 2002, it was disclosed that Hyperdynamics,
through wholly owned subsidiary SCS Corp, had acquired all the rights
for drilling and exploration as defined under the accord with the Republic
of Guinea. In short, Hyperdynamics acquired the rights to the
concession, positioning the company to go after the potential mother lode.
The concession, which you see outlined
by the purple dotted line superimposed over this aerial photograph, encompasses
64,000 square kilometers. SCS owns 100% of the rights to explore,
drill and produce this 16 million acre concession. The area runs 400 kilometers
offshore and 300 kilometers along the shore.
The formation is a delta, very similar
to those found in the Gulf of Mexico and the Nile River. In the 1970's
did some seismic studies in the area, but abandoned the project due to
political unrest at the time.
SCS acquired ARCO's
old data, and gathered new data from satellite imagery and seismic readings.
The company has determined there is a high probability for finding extensive
hydrocarbon assets in this formation.
Here's an aerial photo taken from
the space shuttle Columbia. The offshore delta formation is clearly
In a press release, which came out
just after the close on Friday, Hyperdynamics disclosed some preliminary
findings from the seismic data and satellite photography using an advanced
seismic analysis process known as “amplitude versus offset".
President Neil Moore stated: "We have now encountered and inventoried
large features approximately 3 miles deep with high porosity strata supporting
an increasing probability of sizeable and commercially viable hydrocarbon
reserves in Guinea."
Another words, they think there's
lots of oil and natural gas in this formation which can be extracted and
is "commercially viable".
To From Here?
I interviewed Neil Moore at
length concerning the sequence of events which would occur from here forward.
Here's what I learned:
Sometime in the next week or two,
a boat will begin taking seismic readings in a 100 square kilometer grid
within the concession. The existing data has helped then identify this
"grid" as a high probability area. It will take approximately two months
to gather all the required data.
Once the data is compiled, it will
take another month to process. The company will then identify the best
area for drilling test wells. The first test wells could be drilled in
the first quarter of 2004.
From now until the time the first
test wells are drilled, there could be any number of corporate developments.
Once the most current seismic data is available, the company could form
an alliance with a major name in the oil and gas exploration business for
the purpose of financing the next exploration phase. If the company decides
to finance the test wells internally, they would have to raise capital.
They are working on both possibilities now.
As the seismic data is gathered over
the next two months, results will be compiled, then flown to Paris and
onto to Houston about every ten days. I am informed that from time to time,
intends to formally release the seismic data to the public. If it's highly
technical, I won't understand it, but the market will and the price movement
in the stock will tell you all you need to know.
and Upside Potential
As you can see from this chart, shares
of Hyperdynamics have already had an exciting year as news of the
found its way into the investing community.
The stock started appreciating in
early June, and then made a breathtaking run from $.30 to a high of $2.09
on July 15th. The stock has since traded sideways for about seven weeks
at the high end of its support range, suggesting it could be poised to
make it's next major move.
The catalyst for the next potential
surge came out Friday after the market closed. Hyperdynamics released
news detailing the results of the latest data. Investors will have their
first opportunity to respond when the market opens on Monday. The stock
was up about 10% on Friday and traded three times its normal volume, indicating
someone had an inkling this news was coming.
It's tough to put a target price
on this stock, as the upside potential is virtually unlimited. Hyperdynamics
has about 24 million shares issued and outstanding. Based on the closing
price ($1.76), the market is placing a $42 million valuation
on the company.
The closest comparison I could find
is Environmental Remediation (OTC BB: ERHC). This Houston based
company's only asset is a concession in the Gulf of Guinea in the Joint
Development Zone between Sao Tome and the Federal Republic of Nigeria.
The company has no revenues and carries a market value of over $200 million.
Therefore, if Hyperdynamics
achieves an equivalent market valuation to ERHC, the stock would
trade at $8.33 (375% return).
Another comparison is the nearby
offshore Alba gas field. Originally discovered in the 1980's,
this off shore project was developed by CMS Energy (NYSE: CMS).
After establishing operations, CMS sold the ownership in 2001 to
Oil (NYSE: MRO) for $993 million.
An event of this magnitude could
be years away and certainly would involve a major partner, so it's impossible
to put an associated value on Hyperdynamics. Let's just say you
would make a whole bunch of money.
We're on the front end of a lot of
exciting potential. If this becomes a major find, the upside potential
in incalculable. There is also significant risk. If the seismic studies
are weak, the project could fizzle out. However, the stock is trading as
if the market believes this concession has considerable merit.
For the risk end of your portfolio,
accumulate anywhere you want and set your stop loss at whatever percentage
you are comfortable risking. I expect to report on this company at least
through the first half of 2004, if not longer. For the remainder of the
year, the stock will trade up and down on seismic results and corporate
events. If the concession contains significant assets, the current valuation
offers exciting upside. Today's $42 million market cap is a microscopic
starting point in the oil & gas exploration industry.
To understand the size and scope
of the Guinea Concession, I have provided a map of the State Of
California. The dotted line replicates the size of the area over which
owns the right for oil & gas exploration and production.
The two men who run SCS Corp on
behalf of Hyperdynamics have impressive resumes in the oil and gas
exploration field. The following bios can be found on the company's web
Neil Moore, President
Mr. Moore has over 42 years of
experience in offshore oil and gas exploration in all parts of the world
and has pioneered several seismic techniques and systems during his career.
During the 1960’s, Mr. Moore was instrumental in formulating the Geohazard/Engineering
survey criteria for the U.S. Department of the Interior still required
today for offshore development in the United States. Mr. Moore spearheaded
the introduction of digital processing into high-resolution marine seismic
procedures in the 1970’s, operating and managing up to six vessels around
the world. In 1980, he co-invented the “Slanted Seismic Array” for marine
exploration and engineering surveys and still maintains exclusive rights
to this amazing technology. In 1986 he co-founded Seatex Service, Inc.
in joint partnership with Houtex Seismic Inc. to develop a new patented
exploration technology for offshore areas. Mr. Moore is a graduate of California
Polytechnic College with a Bachelor of Science in Electrical Engineering.
Robert E. Bearnth, Executive
Mr. Bearnth has over 49 years
of experience in the oil and gas industry. From 1953 until 1980 he was
employed with Exxon Corporation in exploration at various locations including
Louisiana, Texas, Alaska, California, Spain and Madagascar. During the
1970’s, he was loaned to Aramco as Assistant Chief Geophysicist in charge
of Interpretation and Processing for all of the offshore area of Saudi
Arabia. During his career with Exxon, he also occupied various management
and technical positions at the Exxon Research Center and Exxon Data Processing
Center in Houston. Mr. Bearnth is a member of the American Association
of Petroleum Geologists, Society of Exploration Geophysicists, European
Association of Exploration Geophysicists and the Houston Geophysical Society.
He is both a Registered Geologist and a Registered Geophysicist in the
state of California. Mr. Bearnth holds a Bachelor of Science degree in
Geology from Oklahoma State University.
More information can
be found on the Guinea Concession at the company's web site. The
web site can be found at www.hypd.com.
Here to go directly to the section concerning SCS Corp.
Investor Relations is handled by
Capital. You can call 800-277-9081 for more information or email
Here is the complete text of Friday's
News Release for your review:
|Press Release Source:
of Guinea Oil & Gas DHIs Test AVO Positive
Friday September 19,
4:13 pm ET
Advanced Seismic Analysis Support
Exceptional Source Rock Necessary for Large Hydrocarbon Reserves Increasing
Probability of Commercially Viable Resources
19, 2003-- HyperDynamics Corp. (OTCBB: HYPD - News) announced today that
its wholly owned subsidiary, SCS Corp., has obtained substantial results
based on advanced analysis of its initial 1,000 kilometers of seismic data
acquired last year on its vast 16,000,000 acre concession off the coast
of Guinea, West Africa. The data which initially revealed significant direct
hydrocarbon indicators (DHIs), or indicators of gas and oil reserves, has
been further analyzed revealing significant positive results that indicate
high porosity source rock over the area reported in the seismic data, suggesting
that there is a substantially greater probability that significant and
commercially viable hydrocarbon reserves exist.
This area currently under
advanced analysis represents just one of many promising and developing
prospects within the northern quadrant of the concession. DHIs based on
the company's seismic data of other locations based in shallower formations
in the quadrant are being set up for modeling with advanced seismic analysis.
Some of these DHIs that have been observed indicate one significant prospect
covering more than 20,000 acres. One particular area is calculated as capable
of holding trillions of cubic feet of natural gas and oil reserves below
the identifiable fluid boundaries.
The advanced seismic
analysis has been performed working with professionals from Alliant Geophysical
of Houston through a well-known process known as "amplitude versus offset"
(AVO). Neil Moore, president of SCS, commented, "Our AVO testing obtained
much better results than we had hoped for." Now, through the scientific
results of the AVO analysis high porosity in the zones is supported. Moore
added, "We have now encountered and inventoried large features approximately
3 miles deep with high porosity strata supporting an increasing probability
of sizeable and commercially viable hydrocarbon reserves in Guinea."
HyperDynamics is a provider
of integrated information technology services. HyperDynamic's wholly owned
subsidiary, SCS Corp., is focused on geophysical data services for the
oil and gas industry, including its integrated SCS NuData(SM) services
as well as developing new regions of Africa for energy production.
Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995: The statements
contained herein that are not historical are forward-looking statements
that are subject to risks and uncertainties that could cause actual results
to differ materially from those expressed in the forward-looking statements,
including, but not limited to, certain delays beyond the company's control
with respect to market acceptance of new technologies or products, delays
in testing and evaluation of products, and other risks detailed from time
to time in the company filings with the Securities and Exchange Commission.
HyperDynamics Corp., Houston
Kent Watts, 713-353-9400
Stock Enterprises Inc.
Jim Stock, 702-614-0003
Charts Provided Courtesy