Review 3Bob Moriarty
Archives
written Sep 11, 2009
published Sep 17, 2009
Energy is entirely a different market from mining even though bothrevolve around resources. Energy demand is large and consistent. If theprice of iron doubles, demand drops a lot. If the price of Natural Gasis cut in half, demand is about the same. A different use for resourcesreflects different demand curves. So you have to do a lot more forwardthinking with energy. Your biggest cost is in drilling and most holesare blanks.
Once you have developed an energy resource, you can easily controlsupply. If the price gets too low, you just shut a tap, you don’t haveto fire 300 miners and put a facility on care and maintenance.
We are at a very unusual time for Natural Gas. The West Texas pricefor NG is now at record levels in comparison to prices for crude. Onstrictly a calorie basis, crude should be a ratio of 6 contracts of NGto one contract of crude. So if crude is $60, NG “should” be in the $10range. But the ratio is standing at an awesome 24 to 1. West Texas NG isbeing quoted at under $3 while West Texas crude is going for $71.66.
The West Texas price only reflects demand and supply within the USand to a smaller extent Canada but can give you an idea of relativevalues. It’s as if Cheerios are selling for $.30 an ounce and Wheatiesare selling for $1.20 an ounce. Something is dead wrong in thevaluation. Natural Gas is a lot cheaper than it “should” be.
I wrote about a companydrilling for Coal Bed Methane (CBM) in Indonesia in December of 2008.The price of CBM Asia (TCF.V) was $.46 and I thought it was high. It wasin hindsight. I wrote about them again in April when the price was $.23. I thought it was pretty cheap and it was.
CBM Asia is going to spud their first Coal Bed Methane well inIndonesia this weekend. They are targeting three coal seams totalingover 90 feet. This is a great time to buy; the wells are twins ofexisting holes. They have a pretty good idea of what they will find.Results of the thickness of the coal will be out within a week.
With coal bed methane projects, there are several issues. One is thethickness of the coal but it’s entirely possible to have coal withoutrecoverable gas. So the other issues are both gas content andsaturation. TCF will know the thickness of the coal seams in a week butit will take a few weeks to know about the technical issues.
The company is well cashed up with over $3 million in cash. DrillingCBM is cheap in comparison to natural gas wells because they areshallow. Success in the first well will immediately result in more wellsbeing drilled. There will be a steady flow of news for months.
CBM Asia has the potential for putting Indonesia on the map for CBM.Because of how the government classified CBM, it was neither in the coalcategory nor the NG category and as a result sat dormant for years.Asia needs gas. There is a CBM liquidification plant nearby and TCF isdrilling now.
What I read and saw convinced me to buy TCF in a placement over ayear ago at $.60 and to load up the truck in the $.20 range. I havebought more recently. The risk is lower than it has ever been and rewardpotential higher. This could be a $10 stock or it could go awayentirely. I’m betting on the former.
CBM Asia is an advertiser. I really like the concept, the country andthe management. We are biased and since we don’t share in your rewardsor losses, we encourage you to do your own due diligence.
CBM Asia Development
TCF-V Cdn
.40 (Sep 14, 2009)
CBMDF-PK
40 million shares