Gran Tierra Energy (GTRE – OTCBB)

Dear Bottarelli Research Member,

Did the Fed buy themselves a temporary bottom?

That was the big question this week.

Plus, with oil prices breaking through $110 a barrel, it seems like every major financial program is discussing oil and gas prices on an hourly basis. In particular, news of Exxon Mobil (XOM – NYSE) spending huge amounts of money on oil exploration in the coming years has really caught my interest – and this has set a bullish tone for the small companies currently engaged in the oil exploration and discovery sector.

As I’ve mentioned before, I fully expect natural gas prices to continue moving higher. But when you combine these price increases with new exploration initiatives, you arrive at a major problem. That problem is this: Where are companies like XOM going to find the reserves for which they’re exploring? And how long will it take?

That’s where this week’s small-cap opportunity comes into play.

You see, rather than spending huge amounts of cash on exploration, I believe that the large integrated oil companies will soon decide to take the easy road. Since their coffers are flush with countless billions, I think they’ll be looking to acquire the little gems that already have identified and own any oil and gas fields with major production potential. It just makes more sense.

Today, we’ll learn about one such company…

This firm has been quietly positioning themselves in under-explored regions that are known to hold large amounts of oil and gas reserves. Their deposits also lie within borders that are allies of the United States, giving this play a nice element of political safety. So this week, we’ll venture into yet another country with vast oil and gas resources: South America.

Just this past week, President Bush pleaded with OPEC nations to spur more oil imports. In fact, he made yet another case on national TV, and this only makes this week’s pick more valuable. I personally don’t have much confidence in OPEC, as I’m in the camp that doesn’t quite believe that the Saudis have the amount of oil they claim to have under their sand. Therefore, investing in the small companies sitting on potentially large reserves – while operating in U.S. friendly borders – continues to make a whole lot of sense.

Now let me tell you: I have been following this company for the better part of two years, watching them every step of the way. Late last year, they moved from an explorer to a producer – which is a huge step for an emerging oil and gas firm. They’re growing their reserves in a very timely manner, and now is the time to execute our trigger. The company holds interests in both producing and prospective properties in Argentina, Colombia, and Peru. Earlier this year, they reported 3,300 BPD (Barrels Per Day) on their Colombian project plus another 600 BPD from their Argentina project. More recently, news on their newest drill results in Putumayo Basin (located in southern Colombia) showed a combined maximum flow rate in excess of 6,600 barrels of oil per day!

Obviously, there is quite a lot of potential for this tiny firm.

Over the last two years, they have been diligently acquiring land assets that (they feel) could produce tremendous results. Now that all of this “heavy lifting” is behind them, this little gem is about to produce pay-dirt like a spring bull in heat

If you’ve ever dreamed of owning the next Exxon Mobil, then this company should be part of your core portfolio for years to come. For example, take Suncor Energy (SU – NYSE).In just the last five years, SU shares have gone from under $16.00 in January of 2003 to over $110.00 at current levels. That’s a 587% gain! Nobody thought SU would reach the highs that we’re seeing now. Today, we have an opportunity to repeat this amazing performance.

The drills are now turning and the good news is certainly flowing, so I expect this week’s pick to take out its old highs. That would put some juicy profits in our pockets sooner rather than later. Everything is aligning for this gem to spark a lot of interest, so let’s get positioned to ride the upside now!

The company is called Gran Tierra Energy (GTRE – OTCBB), and let’s dip our toe in the water under $4.20 per share. If we get a pull back to $3.00, I would add to your position.

UPDATES

DIA March 116 Put Hedge (DIA OL): As instructed, you should have sold this protective put position when the Dow dropped over 100 points on Monday. And good thing we did, as the Fed “goosed” the market with a new $200 billion cash infusion on Tuesday that shot the Dow up 400 points! What a wild ride. Since these puts traded as high as $ 1.71 on Monday, we achieved a small profit while owning a level of downside security.

E-House Holdings (EJ – NYSE): They reported great Q4 earnings last Friday, with total revenues of $50.4 million. That’s an increase of 46% from Q4 2006. Even better, total revenues for the full year 2007 came in at $121.0 million, an increase of 116% from $56.0 million in 2006. Yet despite these great numbers, shares sold off. The only thing I can see causing this weakness is the sale of more shares (which I mentioned previously). But this will only be a temporary distraction. After all, EJ estimates that their revenues for the first quarter of 2008 will range from $29 million to $32 million, an increase of 81% to 100% from Q1 2007. For the full year 2008, EJ estimates that its revenues will range from $210 million to $240 million, representing an increase of 74% to 98% from 2007. With numbers like these, shares won’t stay at reduced levels for long. Therefore, I’d like to buy on this dip. Buy.

NII Holdings (NIHD – NASDAQ): I’m not happy in the movement of NIHD. I understand that the entire market has been under water, but the iShares MSCI Brazil Index (EWZ) have been fairly strong, so I’d expect NIHD to show the same upward moves. I’ll give this stock the chance to firm up, but it’s also going on the short leash. Hold.

Interoil (IOC – NYSE): Progress continues to move forward at their LNG facility in Papua New Guinea. ConocoPhillips has been selected to design their plant, and another firm was chosen to undertake the front-end engineering and design. IOC is a true diamond in the rough, so we want to continue holding these shares for the payoff. Hold.

Mercadolibre (MELI – NASDAQ): I have to say that MELI has found it’s range. Revenue for the full year increased 63.5% to $85.1 million and marketplace revenues grew 55.4% to $69.5 million. Their numbers are strong across the board, and they expect 2008 to be even stronger. Boy, I wish I had a business that had these strong projections! Let’s use the recent market weakness to add shares of MELI in advance of a coming market rebound. Buy.

On that note, have a great week. And be sure to give thanks for the abundance in your life!

Sincerely,

“Gran Tierra is at a fundamental tipping point in its life cycle.”

- Dana Coffield, Gran Tierra Energy President and CEO

Gran Tierra Energy is an international oil and gas exploration and production company. They’re headquartered in Calgary, Canada with operations in South America. They just became listed on the Toronto Stock Exchange on February 19^th of 2008 under the symbol GTE, and they also have shares available on the OTC Bulletin Board under the symbol GTRE.

Since shares are only traded on the Bulletin Board, they’re still a Wall Street secret. But once word gets out as to what this company is up to, shares won’t remain unknown for long.

You see, GTRE holds interests in both producing and prospective oil and gas properties in Colombia, Argentina and Peru. Over the last two years, their strategy has been to identify and acquire a portfolio of drilling opportunities that exploit undeveloped reserves and turn these properties into producing assets.

In total, Gran Tierra has a working interest in nineteen different blocks, encompassing approximately 6.5 million acres. According to their corporate presentation (dated March 7^th 2008) their cumulative property portfolio produces 3,300 barrels of oil per day.

Of their nineteen blocks, GTRE is the chief operator of eighteen of them. And under their operating terms, Gran Tierra retains control of budgets, work programs, and drilling and production operations. Here is a breakdown of their 19 projects, with production notes included:

Argentina Projects and Interests

Producing Argentina Projects:

• 14% participation in the Palmar Largo, producing approximately 260 BPD.
• 50% participation in the El Vinalar Block, producing approximately 212 BPD.
• 100% participation in the El Chivil Block, producing approximately 105 BPD.

Non-Producing Argentina Projects (as of November 2007)

• 100% participation in the Nacatimbay Block.
• 100% participation in the Ipaguazu Block.
• 100% interest at Surubi.
• 93.18% interest at Valle Morado.
• 100% participation at Santa Victoria .

Columbia Projects and Interests

Producing Columbia Projects:

• 35% participation in Santana and Guayuyaco, producing 624 BPD.
• 35% participation in the Juanambu, which just established production of 500 BPD.
• 50% participation in the Chaza Block, which just established production of 1,000 BPD.

Non-Producing and Exploratory Columbia Projects:

• 100% participation in the Rio Magdalena.
• 20% interest at Talora.
• 15% interest at Mecaya.
• 40% interest at Azar.

Also in Peru, Gran Tierra holds a 100% interest of two license areas on the eastern flank of the Marañon Basin.

Within this breakdown is proved reserves of 6.4 million barrels of oil and probable reserves of 5.0 million barrels of oil. That, my friends, is a lot of oil. With these proven and probable reserves, they have a 2008 capital program of $46.7 million set aside to focus on continued production growth, which entails converting new and undeveloped reserves into developed producing reserves. This, of course, leads directly to increased cash flow.

But as you read this today, GTRE’s shares are valued based only on their current production. In other words, the enormous potential of their land holdings has yet to get priced into the company’s shares. You’ll see the reason why in just a moment…

But first, let’s understand why GTRE has zeroed-in on locations in Colombia, Argentina, and Peru. First and foremost, GTRE wanted to focus on countries with proven petroleum resources, and all three countries fit this qualification. Due to the cost and risk of frontier exploration, they also wanted the most risk-free approach to new discoveries, and they’re meeting this goal with their current operations.

They also wanted to operate in countries with stable legal systems – where the laws of the land don’t change randomly. They also wanted to focus on countries that came with attractive fiscal terms. Given the harsh fiscal terms in some other major petroleum-producing countries, this is not always an easy task. But with GTRE’s carefully-selected operations, they have the green light to generate cash flow and properly profit from their production efforts.

Now back to the stock valuation. Over the last two years, GTRE has focused on acquiring assets that could add value by drilling. In many respects, this two-year “soft period” has forced most investors to take GTRE off their research list. But now that’s about to change.

You see, over the last two years, GTRE has more than tripled their proven, probable, and possible reserves to approximately 23.8 million barrels of oil. At the same time, they’ve also doubled their current production. It has been an exceptional two years of acquiring lands, adding drill value, and growing their reserves. But now, after two full years of exploration and land acquisition, their efforts are about to begin paying off.

This is the point where investors start to take notice. And best of all, they’ve accomplished this by operating “within their means.” From a financial standpoint, they have $8 million cash on hand with no debt. For a small-cap company to acquire oil-rich land without any major operational expense, that’s quite an accomplishment. Plus, they do not expect to take on any new financing, and I think that investors will soon reward such remarkable fiscal responsibility. After all, the plan for 2008 is to aggressively ramp up production on their oil discoveries they’ve made over the last two years.

That’s why Gran Tierra Energy President and CEO Dana Coffield feels that the company is at a “fundamental tipping point” in their life cycle.

For instance, 2007 was dominated by solidifying the underlying value of the company by their exploration and drilling initiatives. And like I mentioned above, they’ve had extraordinary success in this venture – doubling their proven reserves and more than tripling their probable and possible reserves. But over the next year to two years, GTRE will focus on converting these reserves into cash.

As early-stage investors, this is when we want to jump on board. For example, it makes sense to let the company take two full years to explore and drill, and if their results look extremely promising, then we’ll invest right as the company begins to ramp up their cash flow. That time is now.

With production today at 2,100 barrels per day, GTRE expects this number to “grow significantly” in the coming years. By developing the new oil resources they have found, early investors like you and me could witness this company evolve from an exploration-led company to a development-led company right before our eyes. And that’s where you see the big share price increases.

Plus, Mark’s point about Exxon Mobil’s new exploration plans further strengthens Gran Tierra’s investment thesis. After all, we all know that energy demand will continue growing while energy supplies continue declining. Populations in emerging countries are expanding at a rapid pace, and since petroleum demand permeates almost all levels of consumer manufacturing, the demand for new oil reserves will remain strong for quite some time.

Over the past two years, Gran Tierra has proven that they can successfully target, acquire, and create value (via producing) in underdeveloped lands. This track record of success will not go unnoticed. Any acquisition from a Big Oil firm will come with a very high price valuation. And even if Big Oil doesn’t come calling, GTRE will still increase shareholder value as they simultaneously ramp up their production and cash flow. It’s a very exciting story, and as early investors, we can profit as GTRE evolves into a significant international oil and gas company.

Case in point, just look at GTRE’s 2007 versus 2008 earnings per share estimates. For the fiscal year 2007, analysts estimate that GTRE will earn $-0.06. For fiscal year 2008, analysts estimate that GTRE’s earnings per share will grow by 467% to $0.22! These estimates were pulled from Factual Stock Report on March 10^th 2008.

That’s quite a remarkable year-over-year turnaround, and you better believe that investors will take notice. With 6.3 million gross acres of oil-rich soil in Argentina, Colombia and Peru, the upside is just now getting started. For only $4.20 per share, the idea of controlling a company with 6.4 MMBO of proven reserves, 5.0 MMBO of probable reserves, and 5.1 MMBO of possible reserves makes a whole lot of sense.

With major plans to ramp up their 2008 drilling and oil production, the future looks mighty bright for this little gem. Therefore, let’s establish a new position now!

PLAY: Buy shares of Gran Tierra Energy (GTRE – OTCBB) at or under $4.20, good for the week.

P.S. Here’s a quick note about the current market environment. In my experience, one of the most difficult aspects of small-cap investing is riding out the market downturns. Since the start of 2008, for example, the major market averages have lost about 20% of their value (measured from high to low), and this has trimmed the share prices of many of our favorite small-cap holdings. But the beauty of small-cap positions is that they have no expiration date. In other words, we can own these companies for as long as we want. Therefore, we have time on our side. Once the markets stabilize, we’ll be glad that we picked up shares of the most promising small-cap companies for fire-sale prices. Patient and smart investors like you and me will eventually be rewarded, so don’t lose sight of our overall goal!

Sincerely,