These days people all over the world flock to California for the gorgeous beaches, palm trees and the laid back attitude many of us envy everywhere else. But what many of us don’t realize is that there might be another reason that could drive thrill seekers and hungry investors to the rich California sands, something that could only resemble the great 1849 gold rush. Only this time, we’re drilling for oil…
According to an OP-ED piece in the Los Angeles Times written by Alex Prud'homme (December 29th, 2013):
“Modern prospectors are eyeing the Monterey Shale formation, a 1,750-square-mile resource-rich swath of land in the San Joaquin Valley. Lying deep beneath the valley's surface is a trove of shale oil — some 15.42 billion barrels' worth, according to an estimate by the U.S. Energy Information Administration. If that proves true, the Monterey formation holds the equivalent of 64% of America's total shale oil reserves. A recent study by USC predicts that a Monterey Shale boom could add $4.5 billion in tax revenue to state coffers and 2.8 million California jobs by 2020, and would turn the state into the nation's leading oil producer.”
The Monterey Shale formation in the San Joaquin Valley could become one of the biggest discoveries in the US- one that could even propel the state of California to new riches. Major oil producers like Shell ($RDS.A), Chevron (CVX) , ExxonMobil (XOM) and Occidental Petroleum (OXY) are all using new fracking techniques to uncover major oil reserves deep down in the rock.
Keith Schaefer, editor of the Oil and Gas Investments Bulletin, one of the most trusted oil newsletters in Canada, wrote about the potential of the Monterey Shale back in August of last year saying that the “Monterey Shale in California actually has 60% of the technically recoverable oil in all the US—yet has no real production yet. This play is so big that it is actually twice the size of the Bakken in North Dakota and 4x the size of the Eagle Ford in Texas” (August 2013).
The Monterey Shale even caught the eye of the BBC in the UK in July 2013. Science Editor David Shukman took a helicopter and flew over the oil fields to show the pumpjacks in the valley. It’s an incredible sight and I encourage everyone to take a moment and have a look at the video below:
The Monterey Shale is still a mystery to many major oil producers. Large oil and gas players like Occidental Petroleum (OXY) are investing heavily in the area but are still unsure of its true development potential. Oxy is a $70 billion energy company with huge exposure in California. Oxy is the largest oil and gas producer on a gross-operated barrels of oil equivalent basis in California. They are also the state’s largest mineral acreage owner (leasehold and fee), with approximately 2.1 million net acres. Some say the Los Angeles-based oil company will be a pioneer in the area and will make way for others to follow. Although the geology has yet to be proven, Occidental is still investing millions in the area and continues to drill additional wells.
But Oxy isn’t the only one. Many of the largest oil and gas companies in the country are investing millions in the play and are still trying to figure out the best techniques to not only extract the oil but to get to it faster and cheaper. They understand the potential and are willing to pay for it. The geological code is still very complex and has yet to be completely solved, but if and when that does occur, investors that got in early in companies with exposure to the area could be in for a real score. What many people don’t realize is that it takes time for new formations to be solved and drilled properly, but when they are, it makes way for a totally new kind of wealth. When the Eagle Ford in Texas got going, companies with assets in the area saw their stock prices skyrocket in just a few short years. The same thing happened in the Bakken with companies like Continental Resources (CLR) and Brigham Exploration who saw their stock prices soar relatively quickly.
As I take a look around and try to pin point potential investment opportunities, I wanted to highlight a company that is highly leveraged to the area. I truly believe in the discovery potential and am willing to take a chance on a company that could potentially generate substantial returns if it is in fact able to make a viable discovery. I took a position in a small micro-cap company called Rango Energy. I bought 590,000 shares in the company, here’s why:
Rango Energy (RAGO) is a micro-cap energy company with over 55,000 acres within the San Joaquin Valley in California and close to 3,000 acres in Oklahoma. If you believe in the opportunity of the Monterey Shale, then Rango Energy is one company that needs to be on your watch list. Rango Energy entered into an agreement with Innex California, Inc., for a 50-percent working interest in their oil and gas projects in Oklahoma as well as in California’s prolific San Joaquin, Ventura and Eel River basins. The Rango-Innex portfolio of assets is all located nearby proven hydrocarbon columns and existing infrastructure.
Two of Rango’s projects, the Kettleman Middle Dome and The Elk Hills project are located in Kern and Kings' Counties, where Occidental Petroleum is the major operator. To date, nearly a billion barrels of oil and 3 trillion cubic feet of gas have been produced from the Kettleman North and South dome combined. Hundreds of wells producing from the McAdams formation in the North Dome area averaged approximately 2.5 Million Barrels of oil equivalent per well.
Rango’s Elk Hills project is a less risky play that has already produced over 1.3 billion barrels of oil within the project area. Recent wells drilled in similar locations have averaged 185,000 barrels per well.
Rango has just brought on a very experienced and successful oil and gas veteran executive in Bob Harrell. Mr. Harrell spent 20 years with ExxonMobil Corp. (XOM) and Superior Oil (SIOR) and was the co-founder of a successful advisory firm with clients such as Chevron (CVX) , Texaco and ConocoPhillips (COP) . Mr. Harrell will now be taking the reigns as Rango’s CEO.
The company will first focus on their Elk Hills project and their South Tapo project in Oklahoma. Rango’s South Tapo project has seen significant production since before 1920 and is surrounded by producers on all four sides.
With Mr. Harrell at the helm, as well as several new technical advisors on the board, the team is now well positioned to unlock the true potential of their assets. Mr. Harrell will be traveling for a couple weeks starting the week of Feb. 17 to expose Rango’s story and to speak with different potential strategic partners. At a $12 million market cap, for those investors that believe in the potential of Califonia’s oilfields, I would suggest taking a closer look at Rango and following its progress. The company is now finally ready to move forward with their assets and any success could bode very well for current shareholders.
Readers can take a look at Rango Energy’s website here.
One thing to keep in mind is that everyone has different strategies when it comes to investing. Not every idea fits in everyone’s portfolio. I have been in the venture capital game for a while now and always like to allocate a certain percentage of my portfolio to high flyers that could potentially make me a substantial return and Rango is definitely one of them. I wrote this article strictly to highlight some of my ideas and hope you contact me with any questions or concerns.
As always, please do not hesitate to get in touch with me, anytime. I look forward to hearing from you.