RAM Energy Resources (RAME – Nasdaq)
Dear Bottarelli Research Member,
Happy 4th of July!
As you know, the last two weeks have been murder for the major market indexes. If you recall, I mentioned in our May 16th alert that high energy costs and the rapid appreciation of food prices really bothered me about this market. Now that both of these items are front-page news, it appears like mainstream investors have finally recognized the impact that sky-high food and fuel prices has on their everyday lives. As a result, June of 2008 shaved -10.4%,-9.1%, and -8.6% off the Dow, NASDAQ, and S&P 500 respectively. The selling pressure has been absolutely brutal.
Having said that, please realize that this is not the first time that Bryan and I have been through treacherous market conditions. Folks, in my experience, the only way to survive (and prosper) in times like this is to rely on our experience, hard work, and market instincts. Beyond everything else, these are the only things I’ve come to trust over the years, and I’m not about to change now. Therefore, the name of the game is to remain patient and focused — just like we’ve been doing. And in the process, we’ll continue picking up the very best small-cap companies at fire-sale prices.
And this leads directly into your newest pick…
The company I’m bringing you today has quietly been on the move in a market sector that we love: crude oil and natural gas.
This gem has developed natural gas and oil reserves in Texas, Louisiana, and Oklahoma since 1987. In total, they own interests in 2,900 wells, and they’re also expanding into new locations in Mississippi, Kansas, New Mexico, Wyoming, Arkansas, and offshore California. This expansion tells you that their wells will continue growing.
They’ve also secured key J/V deals with powerful names like Devon Energy (DVN – NYSE) and EOG Resources (EOG – NYSE), and this is where you could really see some powerful growth. You see, their new Barnett Shale project (which is their J/V arrangement with Devon Energy) just increased to 20 wells. And of those 20, five of them are either drilling or completing. In other words, this single project could be the near term upside trigger that elevates shares to a whole new level. That’s why I feel we have another “tiger by the tail.” In fact, if you look at this company’s Q1 2008 earnings, you’ll truly get a sense of just how quickly this little gem is growing. Get this:
- Q1 production totaled 612,000 barrels of oil equivalent (BOE), up 96% from the 313,000 BOE in Q1 2007.
- Q1 daily production totaled 6,725 BOE, up 93% from the 3,478 BOE in Q1 2007.
- Cash flow hit $16.2 million in Q1 2008, up a whopping 298% from the $4.1 million in Q1 2007.
- Oil and gas sales rose to $43.5 million, an increase of 188% above last year’s level.
Numbers like this on a small-cap oil and gas play really get my attention, simply because that’s how you identify the next major oil/energy winners. You see, a company could take years and years acquiring land and drilling holes, but once they hit upon a producing area, that’s when you witness eye-popping share price appreciation. And my friends, that’s exactly the situation we have here.
Furthermore, I learned that this company also owns most of their own equipment (including rigs, tankers, and earth moving equipment), which ensures the availability to facilitate operations in the field.
Not only that, but they’ve also discovered a way to use some of the natural gas that’s wasted in flare-off wells to power their generators. This unique application has cut their electricity costs approximately $38,000 per month.
Add it all up, and this stock could be the next EOG Resources. The company is called RAM Energy Resources (RAME – NASDAQ), and shares are a buy at or under $6.50. As a testament to their powerful growth, they were just added to the Russell 3000, and I expect big things as their emerging projects continue to ramp up. RAME appears to be another “core holding” in our small-cap ledger, so be sure to accumulate a position next week!
UPDATES
US Geothermal (HTM – AMEX): Similar to our new pick on RAME, shares of our top small-cap geothermal play were also added to the Russell. I have no doubt that geothermal is going to be another major alternate energy sector that’ll gain investor attention, especially since we have such an abundance of it here in the U.S. As HTM gears towards full electrical output in their Raft River Project, I would add shares at these levels. I expect HTM to trade much higher by year’s end. Buy.
Genoil (GNOLF.BB): I wrote a couple weeks back about how I came away impressed after having a lengthy conversation Genoil’s CEO David Lifschultz about their heavy crude oil conversion technology. At present, there are around 76 million barrels of light oil being produced every day from a base of approximately 400 billion barrels of light oil in the world. But at the same time, only 9 million barrels per day of heavy oil are produced from a worldwide base of 900 billion barrels. In order to meet world demand for gasoline, jet fuel, and diesel fuel, it is essential that heavy crude oil conversion take center stage. In fact, it’s vitally important for China to initiate heavy oil conversions to meet its growing demand, and since Genoil’s technology has already proven itself, it’s only a matter of time before their heavy crude oil conversion process attracts investor interest. Although this is a bit more speculative, I want to maintain our Genoil position. Hold.
National Coal (NCOC – NASDAQ): Although last week’s pick has pulled back alongside every other coal play, I would certainly use this as an opportunity to add to your position. After all, the demand outlook for coal remains rock solid, and we have the world’s largest coal reserves right here in the USA! Buy.
OceanFreight (OCNF – NASDAQ) & Star Bulk Carriers (SBLK – NASDAQ): Our two small-cap shippers have also pulled back from their recent highs, but each position remains a core holding. Their incredible dividends offer us a great cushion to any market weakness, and global shipping will remain in-demand for quite some time. Hold.
Mercadolibre (MELI – NASDAQ): I’m keeping a close watch on our “Google of Latin America” play. The market has punished many stocks, and I need to see MELI get back with the program. Therefore, let’s continue to hold the shares, but if the stock drops down to $30.00, close out your position. Hold, with a position close-out if shares dip to $30.00.
Before signing off, I ask that you take a moment this Independence Day to salute our troops, including the men and women who have served our country in the past. We live in the greatest country in the world, and we enjoy our freedoms on a daily basis. So please enjoy your 4th of July holiday, and more than ever, be sure to give thanks for the abundance in your life.
Sincerely,
The Top Small-Cap Play for Continued Oil Price Increases
188% Earnings Growth, 100% Drilling Success Ratio, and New 52-Week Highs in June
The investing thesis on RAM Energy Resources (RAME — NASDAQ) is quite simple.
First and foremost, they’re a very small and independent oil/gas driller with operations in Texas, Louisiana, Oklahoma, and West Virginia. Two-thirds of their production comes from oil reserves, and the remaining third comes form natural gas. Therefore, they are a clear beneficiary of higher oil and energy prices for the remainder of 2008 (and beyond).
As Mark mentioned, their drilling is up 100% year over year, which shows you that they could be in the very beginning stages of emerging into a powerful producer. Plus, the stock is a Wall Street secret. In fact, only four small firms even bother to cover the stock, which is probably why it’s so cheap compared to its peer group. In fact, shares of RAME were the one and only integrated oil company added to the Russell 2000 index on June 30th, which shows you that this company could finally be ready to make a strong upside move.
Note: The Russell 3000 index is realigned once every year, and the index is then broken down into 26 smaller indexes, including the widely-watched Russell 1000 index of large-capitalization stocks and the Russell 2000 index of small-capitalization stocks. Small-cap stocks that are added to the Russell are often times some of the most powerful small-cap investments you can make, as these are the companies on the verge of truly powerful upside growth. Therefore, since RAME was the only integrated oil company to make this list, you can really see the potential of this small-cap pick.
Furthermore, RAME is a stock that has yet to receive any valuation from their Barnett project — which should be coming online very soon. This could be the single trigger that blasts shares upward. Not only that, but if oil and energy prices remain high, RAME will continue its upward momentum.
You might ask yourself, “How can oil prices remain so high?”
Personally, I think we’ll see prices move down at some point in the future. But any price dip won’t last too long. After all, here are some of the many reasons why oil is setting historic highs — and why it’ll continue for the immediate future.
U.S. Dollar: The continued U.S. dollar weakness versus all major currencies is a bullish indicator for commodities, and specifically the oil markets.
Supply/Demand Imbalance: Right now, the world is only producing 85 million barrels of oil a day, versus world demand of 87 million barrels a day.
Developing Nations: A single American consumes 25 barrels of oil per year. Yet a single Chinese and Indian only consume 2 barrels of oil per year per person. Yikes!
Continued War Premiums: If Israel attacks Iran, oil prices will blast up to $200 within a week. It’ll be a classic “oil price shock” unlike any time in history.
OPEC Forecasts: Chakib Khelil, president of the Organization of Petroleum Exporting Countries, believes oil prices could rise to $170 a barrel by the end of this summer.
Combine these upside catalysts with a small cap oil/gas play like RAME, and you have a strong case for higher stock values. In fact, highlights from their recent company presentation speak for themselves. Some interesting data points are listed below:
- First quarter 2008 production volumes grew 96% to 612,000 BOE.
- Average daily production in the first quarter 2008 was 6,725 BOE vs. first quarter 2007 level of 3,478 BOE.
- First quarter production rose 40% compared to production of 436,000 BOE in the fourth quarter of 2007.
- Higher production combined with increased product prices drove oil and gas sales to $43.5 million, 188% above last year’s sales.
Plus, if you look at their 2008 projects, it’s easy to see that their growth will continue. For example, RAME has interest in 15 producing wells. Three of these wells were completed during Q1 2008, three were spud (which means they’re currently producing or awaiting completion) during Q1 2008, and three were spud in Q2 2008. As output from these wells contributes to their upcoming earnings, their numbers are likely to continue increasing at a frantic pace.
The image below highlights RAME’s collection of projects in the southern United States:
Plus, as Mark mentioned above, RAME’s potentially huge Barnett Shale project continues to accelerate at a rapid pace. So that’s another powerful upside trigger as well.
But while I was doing my due diligence, what really struck me about RAME was their amazing ability to drill at such a high success ratio. Case in point, of their 31 wells drilled year to date, 23 wells are producing, eight are either drilling or completing, and a grand total of zero have been dry holes. That’s a 100% success ratio!
And get this: Their100% success ratio in 2008 isn’t a fluke. Looking at their wells drilled from 1987 to 2008,you’ll see a remarkable track record. Check it out:
- Total Drills: 673
- Total Producers: 617
- Total Dry Holes: 48
- Current Drilling or Completing: 8
- 21-Year Success Ratio: 93%
This is an amazing 21-year track record, especially for such a small company. And looking at their income statement, you have trailing three month revenues of $110.58 million and gross profit of $43.20 million, which amounts to an impressive year-over-year quarterly revenue growth of 184.30%.
In fact, when you pay $6.50 for every share of RAME, you’re getting approximately $2.37 of pure revenue per share. Furthermore, despite the super-weak market environment, shares have been remarkably strong, hitting a series of new 52-week highs on June 17th, June 18th, and June 19th. So, when it comes to a small-cap stock with explosive upside combined with an element of safety in difficult market conditions, it doesn’t get much better than RAME. Therefore, let’s add shares to our small-cap ledger now!
PLAY: Buy shares of RAM Energy Resources (RAME – NASDAQ) at or under $6.50, good for the week.
And from my family to yours, have a fun and safe holiday weekend!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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