Inside: Warren Buffett’s Stunning About-Face
Increased Renewables Don’t Change the Simple Fact…
Oil and Gas Demand is Rising Faster than Supply Can Keep Up
Editorial Feature | June 28, 2023 | Energy
One tiny microcap is using a 23,000-acre claim in an oil-rich Colorado basin… to pioneer an extraction method that is cleaner, greener, and more efficient.
Learn why this junior explorer has hit its inflection point, become cash-flow positive, and projects exponential revenue growth over the next 12 months.
Renewables may get the press.
But the world’s economy still runs on oil.
That will be true for some time to come — thanks to steady increases in energy demand, and natural ‘speed limits’ that are about to hit the renewable sector.
In fact, the world is demanding more oil, not less.
However, the world is producing less oil, not more.
This supply crunch is creating a unique opportunity…
A chance to enter one of the most profitable industries…
Right at the start of a secular bull run.
Even better, you will soon see how one tiny microcap is using its rich established oil field in Colorado to pioneer a cleaner, greener way to extract hydrocarbons from the ground.
We need such an innovation.
Why The World Needs More Oil
In many ways, the story of oil today is simple to tell.
Demand is growing. It is projected to rise 6% by 2028 — which, in a multi-trillion industry like fossil fuel energy, is significant.1
At the same time oil supply is shrinking.
This is partly because OPEC made a surprise cut to production in April.
But, perhaps more importantly, the crash in oil prices in 2020 brought all exploration and development to a halt.
With that crash, a number of producers were no longer profitable.
Many went under.
Some sold their claims at a loss.
And some companies saw the fire sale and gobbled up attractive claims at even more attractive prices.
That’s exactly what this junior did.
And it proved prescient.
The economy’s appetite for oil has since grown so voracious, the Strategic Reserve fell to its lowest level in decades:
The Reserve has since been partially replenished — but the supply crunch has not abated.
That’s because it can take years to bring a new well online.
There will be years of a supply crunch. By the time the market realizes it needs more oil, it’s too late.
That’s where we sit today.
However, this supply crunch could be a particularly nasty one.
- Energy demand is growing — far faster than alternative energy can come online.
- That renewable energy is dependent on fossil fuels regardless — renewables are reliant on freshly mined material, and the mining industry runs on hydrocarbons.
- India is rapidly industrializing, as is Africa.
- Southeast Asia is fast becoming the new factory of the world, as China’s population becomes middle income and too expensive.
- The developed world is also seeing increasing energy demands thanks to new tech — everything from EV cars to smart speakers to the next must-have gadget.
The stage is set for even more dramatic increases in the price of oil in the short term.
The demand for oil is clearly there. And it’s not going away.
97% of the world’s energy comes from oil, coal, or natural gas2.
That may surprise some. Renewables have been on a tear recently and have shown double-digit growth for years.
But that’s because they have made up such a tiny slice of the energy pie, even small gains can look like large percentage swings.
However, as the sector grows, renewables will come up against some hard speed limits — mostly due to resource availability.
Without a drastic upswing in mining for material like copper, lithium, rare earth metals, and other components necessary for renewable energy, we can only make so many windmills or solar panels.
To grow from 3% to 30% of the energy mix, renewables would demand 10 times as many resources.
However, the markets for resources like lithium and copper are already stretched thin by the increase in demand from renewables.
Indeed — the entire mining industry is entering a secular bull — as energy demands are high enough, we need more of everything.
However, in the past few years, oil and gas investments have become passé, in favor of renewables.
This is a mistake.
One that the Oracle of Omaha himself realized.
Why is Warren Buffett All-In on Oil?
Over a decade ago Warren Buffett lost a good chunk of change on an investment in an oil company.
That followed a few other oil investments that turned sour.
That’s why, not long after, Buffett said he was done with oil, and would never invest in the sector again.
As of last year, he has changed his mind.
In fact, Buffett’s Berkshire Hathaway has been buying up oil and gas investments at a dizzying clip.
Why the turnaround?
Buffett is a practical investor.
And he understands that the world still runs on petroleum and will for years to come.
In addition, as a longtime proponent of value investing, Buffett surely loved that oil and gas was being overshadowed within the energy sector by the shiny new things that had come along.
These sorts of temporary distractions — which have everything to do with investor tastes, and nothing to do with actual valuations or profitability — provide the best buying opportunities.
Buffett understands, the oil sector is in a powerful position to go on a sustained bull run.
And one small company has positioned itself to take full advantage of this secular bull.
A Proven Claim in a Rich Basin
As already mentioned, when dropping oil prices shuttered a number of exploration and development companies, this company went on a buying spree.
They acquired claims on over 23,000 acres of oil-rich Colorado country in the Denver Basin, at a substantial discount.
Indeed, the company bought these claims for only $1200 an acre.
In addition, they have the option to lease another 10,000 line-of-sight acres within 90 days of commencing drilling.
This part of Colorado is rich in oil deposits, and oil wells.
- It is far from civilization, reducing the potential for friction with the local community.
- There are no schools, churches, libraries, or civilian infrastructure to avoid or complicate drilling projects.
- All of this makes for a streamlined permitting process, with a 100% success rate and a fast 90-180 day turnaround.
- While there is no civilian infrastructure, the area has long hosted drilling activities, and has extensive infrastructure for mining operations, including oil and gas transport.
- This company ’s claims are atop legacy wells — over 600 — with new reserves now accessible thanks to improvements in technology, primarily fracking.
This Colorado basin contains one of the better oil deposits in North America.
In fact, there’s something very rare and special about this basin.
It contains not one oil field underground, but two, at two different levels, formed at two different times.
This greatly increases the profit potential of each acre.
In fact, reports show that each new well will pay for itself within nine months.
With so much oil already proven underground, the company is quickly transitioning from its exploration phase to development.
By Q1 2024, they expect to begin pumping oil and natural gas out of the ground.
To begin, the mix will be about 87% oil, before falling to 75% oil and 25% natural gas.
With its current-day market cap around $25 million, the next few years will likely be very fruitful.
However, while they have a proven, large revenue stream coming online over the coming months, that is not the end of the company’s potential.
Making Oil Production More Environmentally Friendly
Today, extracting oil comes with a lot of waste.
The most visible sign of that waste is gas flaring.
That’s the always-lit source of natural gas as it comes out of the ground.
It’s necessary to have gas flaring as an outlet to relieve pressure underground.
In addition, many companies don’t collect natural gas if it isn’t found in economically viable quantities, or the infrastructure to handle it isn’t there.
That’s why the oil and gas industry has always been looking for ways to use gas flaring — and other types of oil and gas waste — and put it to good use.
This company has found the answer.
They are using the waste gas from its wells to power a crypto mining division.
The main cost of mining crypto is energy.
By using gas flaring, you can use free energy — waste energy, actually – increasing efficiency and reducing the amount of methane that is released into the air.
One of the issues with gas flaring is it is quite variable. If something needs a constant flow of energy, it won’t work.
Crypto mining doesn’t have any issues with variability. Indeed, most crypto miners today will mine at different times of the day — whenever energy is cheapest.
This company doesn’t have to wait for cheap energy — it has free waste energy. But the mining operation can easily work when the free energy is flowing – and go into sleep mode when it is not.
This solves several problems.
- It helps crypto mining become cleaner — as it is using waste energy that isn’t good for anything else.
- It helps oil and gas extraction become cleaner — as there is less flaring, no waste energy, and much greater efficiency.
- And it helps add one more uncorrelated income stream — smaller than its oil profits, but significant, nonetheless.
This is likely to prove a popular business model.
Already, there are companies like Crusoe trying to do something similar.
However, only one company owns the hydrocarbons, and the wells that produce them.
What to do now…
Foresight and risk assessment are the secret to junior explorers’ success. This company’s founders have made that formula work time and time again.
That’s why now could be the right time to dig into your research.
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