|Special Situation / CBM Play / China Play|
I have been following Coalbed Methane (CBM) companies for a couple years. I own several. I have done extremely well with my CBM portfolio. Our future natural gas supplies are dependent on CBM development. I have focused on CBM because I believe there is less risk, as there is never a dry hole. CBM has become one of the fastest-growing sources of natural gas. The U.S. faces a major natural gas crisis over the next several years.
I believe the following is an unusual opportunity. It is impossible to find CBM companies with a small market cap. This is by far the best CBM prospect I have ever found. This one has around a $ 20 million market cap. All start-ups are HIGH RISK, so please do your DD.
The September 30, 2004 $ 2.1 BILLION acquisition of Evergreen Resources, a leader in CBM technology, by Pioneer Natural Resources created this opportunity. Evergreen's Vice President of Operations and Engineering, Scott Zimmerman, age 48, was out of a job. His annual CBM drilling budget at Evergreen was approximately $ 200 million.
Scott spent from 1982 to 2002 with private JM Huber heading up their large CBM properties. He earned only a salary during that period. At Evergreen he was third in command but did not have the stock holdings that the other two had. Zimmerman was now very hungry to build his own major CBM company. This is important to me.
On October 19, 2004, less than one month after the Evergreen acquisition, Scott Zimmerman joined tiny ($ 20 million market cap) Storm Cat Energy (SME or SMEFF in US) as CEO and President. He has immense CBM expertise developed over 22 years.
I talked with CEO Scott Zimmerman. He has worked in every CBM environment imaginable. I talked with Scott's references who stated he was the: "Best CBM Operator in Country." This is key! His references tell me he moves very quickly and has build infrastructure time and time again. His strategy is to first purchase underutilized producing properties in the United States and Canada. Zimmerman will use his vast experience in this first strategy. Thus expect revenues which will enable the company to list on the Toronto stock exchange. They will also seek a U.S. listing at some point.
They will also look for JV opportunities to leverage Zimmerman's expertise. Zimmerman has overseen the drilling of thousands of CBM holes. I asked about his CBM success rate: 99%.
Here is the icing on U.S. / Canadian CBM development: Storm Cat has over 12 million CBM acres (12 million is huge !!) in Mongolia which is partnered with the Mongolia government. Petro China (Buffet company) is completing a $ 5 billion natural gas pipeline that is near Storm Cat's property that runs throughout China. IMO they will probably JV the Mongolia with money partner. Apparently Storm Cat has already interests had some interest from the majors. I have always dreamed of finding a China CBM play. Mongolia has only 2.5 million people. Jim Rogers wrote a chapter on the country. It's positive. I even communicated with Rogers by email about Mongolia.
I found this pick because of a recommendation by investment newsletter writer Michael Schaefer's who did a piece on Storm Cat in which he called it his top pick. I, however, did my own due diligence by calling Zimmerman, his references, etc. etc. etc.
I also knew that Michael Schaefer has had a great track record over a long period of time. He thinks the stock could reach $ 200 share. It is $ 1.44 today US. I'm not sure about his target and do not really care at this point but I do know that this is an undiscovered gem with a lot of potential. My due diligence also included talking with Schaefer. He confirmed my understanding of the potential of CBM and the inability of companies to find management with CBM expertise. I believe CBM expertise is more important than land position. Companies with CBM land positions are going to reach out to the Zimmermans' of the world. Trust me there are not many of those!
The same group that founded Canadian Spirit founded Storm Cat.
Storm Cat has a market cap of only $ 20 million. Canadian Spirit is over $ 100 million.
Here is Newsletter Michael Schaefer promo piece written BEFORE Zimmerman came on board-with Zimmerman on board the U.S. / Canada CBM comes into focus:
"He grew up 2 doors down from Warren Buffett… Purchased his first stock at age 12…
And was a millionaire by 35 His portfolio has returned 673% in 10 years… With a mind-boggling 81% success rate… Now the "Other Oracle of Omaha" has found what he believes is the investment of a lifetime! Mike was a good friend with Warren's son, Howie, and spent a lot of time at the Buffett house. Through osmosis and a hunger to learn more about the financial markets, Mike learned everything he could from Warren Buffett.
Company Website : stormcatenergy.com
Scott Zimmerman Bio
Mr. Zimmerman is President of Storm Cat Energy. He is an innovative and highly accomplished engineer in the North American coalbed methane industry. Mr. Zimmerman joined Evergreen Resources, a premier leader in the development of coalbed natural gas, as Vice-President of Operations & Engineering in January 2002. Prior to this, as J.M. Huber's Vice-President-Energy Sector, Mr. Zimmerman spent 20 years specializing in CBNG exploration and development in the Rocky Mountain region, with emphasis on the San Juan and Powder River Basins. Prior to J.M. Huber, Mr. Zimmerman was the Senior Production & Reservoir Engineer with Amoco Production Company. Mr. Zimmerman received a BS in Petroleum Engineer from Texas Tech University in 1979 and is a member of the Society of Petroleum Engineers.
China natural gas crisis:
Engineering academician predicts dearth of natural gas in China
SHANGHAI, Nov. 4 (Xinhuanet) -- China will likely face a short supply of natural gas, as its demand for the energy is on the rise along with a fast economic growth, according to Han Dakuang, an academician from the Chinese Academy of Engineering.
I also went through the Storm Cat stockhouse thread and found this-confirmation of my due diligence:
"the new president is one of the best coal bed methane guys in North America with an unreal track record of helping build a billion dollar company?"
If you want to see one of the greatest interviews on the U.S. natural gas crisis-this crisis will last for years!:
An Interview with Andrew Weissman
by Bill Powers, Editor
Canadian Energy Viewpoint
January 4, 2004
Summary of Evergreen Resources-Zimmerman's former company
Leader in coal bed methane technology
Evergreen Resources is an independent energy company engaged primarily in the operation, development, production, exploration and acquisition of North American unconventional natural gas properties. Evergreen is one of the leading developers of coal bed methane reserves in the United States. Evergreen's current operations are principally focused on developing and expanding its coal bed methane project located in the Raton Basin in southern Colorado. The Company is also expanding its conventional and unconventional projects in the Piceance Basin in western Colorado, the Uintah Basin in eastern Utah, and in the Western Canada Sedimentary Basin in south-central Alberta. Evergreen has also initiated coal bed methane projects in the Cook Inlet-Susitna Basin in Alaska and the Forest City Basin in eastern Kansas.
The boards of directors of Evergreen Resources and Pioneer Natural Resources Company (NYSE: PXD) approved a strategic merger valued at approximately $2.1 billion, in which Evergreen will become a subsidiary of Pioneer and Evergreen shareholders will receive new shares of Pioneer common stock and cash.