Have a Grievance? Share Away!

In my experience, people who hide behind the cloak of anonymity generally behave worse than people using their real names on the Internet. Even people using their real names will write things that they would be unlikely to say to someone's face. The big picture is that nobody is truly anonymous anymore and eventually I would expect for people to remember that manners matter, even on the Interwebs.

 With that preamble out of the way, we all love juicy insider information. First person accounts. I've found two services that allow people to describe their experiences of either working for a company or getting paid while consulting for a company. 

Glassdoor describes their service perfectly. Glassdoor is your free inside look at jobs and companies. Salary details, company reviews and interview questions - all posted anonymously by employees and job seekers.  

I've checked out a few public companies using this service and it does provide an unvarnished snapshot of how people in the trenches view the company. Employees are happy to share their tales of woe anonymously and that makes Glassdoor very useful. Many great companies squeeze the life out of their employees. Companies grow and lose their culture. While the site is tailored for job-seekers, it is pretty handy for anyone interested in investing in a company. I would hope that HR departments pay attention to it as well. 

 Satago lets freelancers know when they'll actually get paid. Currently UK based. You'll blow your anonymity pretty quickly if you gripe about a smallish firm that doesn't pay many freelancers but it is a valuable site because it answers a fundamental question for consultants. How quickly will I get paid? If this business scales into other countries, it could also be used to track the relative health of different industries. 

 The founders wear t-shirts that say F**k You. Pay Me. I think that is reason enough to pay attention to them.


Soup's On! Warhol Style

Strange coincidence. I was in the Museum of Modern art in New York last Saturday and took a few snaps of the Andy Warhol soup can paintings.  

On Thursday I was in a taxi headed to the Windsor International airport and the driver was listening to the CBC. The program was about soup. You record enough programming and you'll probably talk about soup a few times.  There's some classic Canadiana on the show but I really enjoyed the piece about Andy Warhol visiting Toronto. You can't make this stuff up!!

Start at 15:34 for the Warhol segment or listen to the whole thing on a cold day for some healthy nourishment. 

 CLICK HERE

Soup.jpg

Restaurant Frantzén

One of the most memorable meals of my life was courtesy of Frantzén in Stockholm. Ranked as one of The World's 50 Best Restaurants, this place provided friendly attentive service along with some amazingly creative dishes. We were greeted at the door by an NFL sized doorman wearing a dark coat and bowler hat. He escorted us to our seats, at a small bar overlooking the kitchen. Then champagne was served with friendly introductions. At every stage of the dinner, there was an explanation about the source of the ingredients and how they were prepared. The meal was scripted so that ingredients they presented earlier in the meal would not always show up immediately, but a few courses later. Sous-Chef Jim Löfdahl (the tall guy with the beard) graciously answered all of my questions. Of course the food was amazing but just as enjoyable was watching the food being prepared by a fast moving yet efficient team. 
 

This video provides a condensed version of the experience. We were fortunate enough to have the two seats on the right.  

Enhanced Oil Recovery News

I've been curating this site www.enhancedoilrecoverynews.com for several years new. It was about 6 months ago that I inadvertently deleted the entire site from Scoop.It which was one of my worst digital errors in years. Fortunately it didn't take to long to rebuild the site and now there is pretty steady traffic AND Scoop.It is recognizing the site as "highly recommended" in the technology arena. I'm a wee bit proud of the silver ribbon hanging off the site's pumpjack avatar.

More on Nexen's Long Lake

I've talked about Nexen's Long Lake project in the past so I like to keep tabs on any new developments.  

From Reuters Special Report: The education of China's oil company

CNOOC says it is seeking "new technology to overcome the complex geology. It is not yet clear, industry analysts say, where that technology will come from.

The term "Long Lake reserves" should probably be replaced with "Long Lake resources" but that's a job for reservoir engineers, some of who were obviously VERY wrong about the viability of the project. 

 

 

More on CP

Since I wrote Ackman's Canadian Pacific Payday at Canadian's Expense? after a train nearly ended up in the Bow River during the big Calgary flood, Ive been paying attention to the happenings at Canadian Pacific Railway (CP). 

Good PR

CP Rail strengthens safety measures after Lac-Mégantic train disaster that killed dozens

Canadian Pacific sponsoring Spruce Meadows competition

 

Bad performance

Inglewood residents evacuated after eight train cars derail in Alyth yard - the cars were filled with diluent (light hydrodcarbon) which thankfully did not ignite.

 

We'll see how their safety stats hold up over the next few years. I'm concerned.

 

 

 

Adventures in the Biotech Trade

The Life Sciences Report (8/15/13) - Jim Letourneau, publisher of Big Picture Speculator, shares tales of strange biotechnologies worth buying into—such as cures for high dental bills and dog breath—in this interview with The Life Sciences Report. Letourneau likes to invest in biotech firms because their stock values are less volatile than commodity-based companies, which are chained to uncontrollable price fluctuations. You are advised to hold onto your brain (quite literally), while Letourneau describes a few curious—and potentially profitable—biotech investment adventures.

Source: Peter Byrne of The Life Sciences Report (8/15/13)

Jim Letourneau, publisher of Big Picture Speculator, shares tales of strange biotechnologies worth buying into—such as cures for high dental bills and dog breath—in this interview with The Life Sciences Report. Letourneau likes to invest in biotech firms because their stock values are less volatile than commodity-based companies, which are chained to uncontrollable price fluctuations. You are advised to hold onto your brain (quite literally), while Letourneau describes a few curious—and potentially profitable—biotech investment adventures.

The Life Sciences Report: Jim, at the recent World Resource Investment Conference in Vancouver, your talk was called, "How I Learned to Stop Worrying and Love the Venture Markets." How does this translate into pursuing profit in the life sciences?

Jim Letourneau: "Venture" is short for adventure. Many life sciences companies are developing new technologies that directly affect people's lives. It is an exciting field to invest in, but it is also risky.

However, investing in the life sciences poses a very different type of risk than, say, going into mining and energy projects. Commodity-based companies are at the mercy of prices that they have little or no control over. A recent example of sensitivity to commodity price fluctuations can be seen in the dramatic downturn in the stock of potash companies after a dispute over marketing between Russia's Uralkali (URKA:RTS; URKA:MCX; URKA:LSE) and Belaruskali (state-owned) led to fears that Uralkali would flood the market with potash at reduced cost.

Life sciences companies don’t have this problem. There is a constant demand. People will pay a lot of money to live longer, or to make their quality of life better. It's a more stable business sector than gold or oil.

TLSR: You've advised readers of your Big Picture Speculator to examine the biotech markets while waiting for precious metals and energy holdings to pick up steam.

JL: Biotech is currently underfollowed and ignored, but the sector has just as much upside as mining and oil and gas. There are some great Canadian and U.S. companies out there.

TLSR: Do you have any names for us today?

JL: One that I have followed for a while is biOasis Technologies Inc. (BTI:TSX.V). BiOasis has a technology, Transcend, which allows drugs to be conjugated with therapeutic protein molecules (p97 protein/melanotransferrin) so that they can cross the blood-brain barrier. This is a big hurdle: A lot of a drug can be injected into the human body, but only a small percentage of it will cross into the brain. Blood-brain permeability is a big issue for treating brain disease.

TLSR: Who has biOasis partnered with?

JL: BiOasis has partnered with some big pharmas, including Shire Human Genetic Therapies Inc. (Shire Plc [SHPGY:NASDAQ; SHP:LSE]), AbbVie Inc. (ABBV:NYSE), Medimmune Ltd. (a division ofAstraZeneca Plc [AZN:NYSE]), and UCB S.A. (UCB:BSE).

TLSR: BiOasis has an Alzheimer's disease product, too—or am I forgetting something?

JL: The correlation between serum levels of p97 and Alzheimer's disease was first made by professor Wilfred Jefferies and his colleagues at the University of British Columbia. The company was developing Cognitest, a blood test for the diagnosis of Alzheimer's disease, but has stopped putting corporate resources into Cognitest. Dr. Jefferies will continue to evaluate Cognitest in a small number of freshly collected human brain samples.

TLSR: Were the researchers using mouse brains to test the blood-brain barrier?

JL: Yes. They used fluorescence imaging to determine the amount of drug penetration into brain tissue.

TLSR: Any other biotech names that attract you?

JL: I like a company called Verisante Technology Inc. (VRS:TSX.V) because it has an amazing spectroscopic device that detects skin cancer with good accuracy. The current state of the art in skin cancer detection is a visual inspection; if something looks suspicious, a biopsy is ordered. Verisante's skin cancer device is looking good, and new data should come out shortly on a device that detects lung cancer, which could be exciting news.

Verisante's skin cancer device, called Aura, is game-changing technology for dermatologists. Yet the company's share price is low and its market cap is about $20 million ($20M). One reason for the undervaluation is that the skin cancer detection instrument has not yet been approved by the U.S. Food and Drug Administration (FDA). The firm is talking to consultants about how to best get its device into the regulatory approval system. That can be a big challenge for a small company. A device may be approved in Canada, Europe, Japan and China, but the big market is the U.S., and that requires FDA approval.

TLSR: Any other promising companies currently in the clinical trial and approval cycle?

JL: TSO3 Inc. (TOS:TSX; TSTIF:OTCPK) has a revolutionary sterilization technique called Sterizone. It uses ozone to sterilize instruments that are otherwise difficult to sterilize. The company was taking one route for FDA approval when the FDA suggested that TS03 use a different approval pathway called a de novo classification (which means that the product is new and unique). But there were hurdles with that method, so TS03 has returned to the normal 501(k) regulatory approval route.

Investors are asking, "What the heck is going on?" The pathway change created some confusion, and with confusion the market gets a little nervous—which didn't help TSO3's share price. The truth is that TSO3 is working hard to get the sterilization method approved by the fastest method possible, and it is the FDA's internal flip-flop that has temporarily confused the market.

TLSR: Does TS03 have competitors? Is there a race to get its system approved?

JL: Its competition is simply the status quo of sterilization methods, such as heating in an autoclave. The problem is that intricate medical devices do not stand up well to heat sterilization. TSO3's sterilization method is faster; it is used with good results in hospitals in Canada.

But until Sterizone has FDA approval, there is a question mark hanging over it. It is not a big question mark because the technology is known to work. But until the FDA approves it, investors tend to stare at their shoes and mutter, "Something might be wrong with it, we don't know what, but. . ." That is the big challenge for biotech investors, learning how to be patient.

TLSR: What about the cardiovascular sector? Do you have any names there?

JL: I really like a little company called VentriPoint Inc. (VPT:TSX.V), which has a $13M market cap. Its Angelo (VMS) analysis system uses ultrasound images to construct images of the heart in 3-D. The device is cheaper and quicker than an MRI scan. The doctor can do the analysis in his office, as opposed to sending a patient to a lab and incurring a more expensive diagnostic procedure.

Ventripoint has been under the radar, but a paper about its work on pulmonary arterial hypertension was just published in the Journal of the American Society of Echocardiography, which gives the device a stamp of credibility. Ventripoint has placed its equipment in prestigious hospitals with researchers who are going to publish more papers. After Ventripoint gets FDA approval, it makes sense that a big company will buy it out.

TLSR: Are there any firms in the arteriosclerosis game that you follow?

JL: Yes, and one of them just announced trial results and got hammered. It is a company out of Calgary called Resverlogix Corp. (RVX:TSX), in which I am keeping my shares. Before the trial results were announced, the price was more than $3/share. After Resverlogix announced the disappointing results for its compound, RVX-208, the price fell to $0.20/share and has bounced back up to about $0.60/share.

TLSR: What were the problems with the trial results?

JL: The RVX-208 trial did not meet its primary endpoint. The trial used intravascular ultrasound to measure arterial wall thickness. The endpoint was not what the firm had projected. But, a lot of the data was trending, and if the trial had run another three months, Resverlogix might have met the endpoint. Now the company is faced with the hard road of pushing that trial rock back up the hill to prove that the compound does, indeed, work. Resverlogix is not a big pharmaceutical company, so it cannot afford to run long trials.

TLSR: Does Resverlogix have enough cash on hand to get through the task of achieving regulatory approval?

JL: It has a variety of cash sources to draw on. The company is obviously not in the best bargaining position with its share price down. But the bigger picture is that the RVX-208 compound is drawn from a whole family of epigenetic compounds that Resverlogix has been busy patenting. Just before it announced the RVX-208 trial results, the company spun out a lot of its intellectual property into a different company. It kept the cardiovascular applications in Resverlogix.

The spinout is called Zenith Epigenetics Corp. It is a private, early-stage company, and it may want to stay private. The shareholders of Resverlogix lost a lot of value when the trial results were released, but they were given shares in Zenith Epigenetics, and there could be exciting developments coming out of that operation down the road.

One thing I look for is how robust a company is—can it bounce back from misfortune? Resverlogix bounced back from $0.20/share to $0.60/share because people figured out that the company is not totally dead. Following that trend, I like an exciting company calledNeptune Technologies & Bioressources (NTB:TSX; NEPT:NASDAQ). Neptune had an unfortunate accident in November 2012: Its manufacturing plant blew up and killed some workers, which is horrible news. Yet today the company's shares are close to where they were before the accident. There is a robust demand for Neptune stock because the market likes the company's products, and also liked how it handled adversity.

Neptune spun out a company called Acasti Pharma Inc. (ACST:NASDAQ; APO:TSX) and, as parent, Neptune still owns shares in Acasti. Acasti Pharma's share prices have been on fire!

Acasti transforms krill from the Antarctic Ocean into a drug. To market a drug, a company must prove that not only does the product not hurt people, it actually helps them. A lot of evidence suggests that krill oil changes people's lipid profile by increasing the amount of good cholesterol and decreasing the amount of bad cholesterol.

TLSR: How does one turn krill into oil?

JL: Neptune has a patented process that crushes the krill and leaches out the oil with acetone. But what's nice about Neptune is that comparable companies are enjoying market caps of well over $1 billion ($1B). The Neptune/Acasti dream is to ratchet up to a high market cap with the krill oil venture.

TLSR: Biofilms are also a hot topic in the life sciences space.

JL: For biofilms, I like Kane Biotech Inc. (KNE:TSX.V). The market cap is about $12M and the stock is cheap. Kane is attractive because biofilms are the scourge of medicine: They feed bacteria that cause infections in wounds. Biofilm-eating bacteria form a protective layer over themselves, making it hard to sanitize hospital equipment. And when disinfectants cannot penetrate the biofilm, they are ineffective against infections. Kane's product breaks up biofilms and allows disinfectants to pass through and sanitize medical equipment. The company recently completed a contract with the United States Army Dental and Trauma Research Detachment to develop an antibiofilm-antimicrobial wound gel formulation. It reduced more than 95% of biofilm-embedded wound-associated bacteria as compared to the commercial wound gel, which showed only a 50% reduct ion.

And recently, Kane has rolled out a product—this will sound a bit weird—for dogs that have bad breath. The smell comes from bacteria and plaque growing on the dog's teeth.

TLSR: Tell us more.

JL: The product is called StrixNB, which is added to the dog's drinking water. It reduces bacteria in the mouth that forms plaque and tartar buildup. Kane does not intend to become a massive manufacturer of the product; the company will happily license it out to a big animal supplier. But Kane did test the market for StrixNB in Canada, and got really good feedback. The product sells well because it works. People happily spend $400/year to scrape and clean their dogs' teeth. This product is cheaper and much less painful for the dogs.

The next leap is that the product will likely work for humans! Animal testing has proven that the formulation is not toxic or harmful to humans. If humans start using StrixNB, Kane will make a fortune.

TLSR: That would be truly revolutionary.

JL: Yes, and it is all under the radar. The bad breath product has been rolled out for dogs, which is a pretty big deal. People spend a lot of money on their pets. But the really big market is humans.

TLSR: If it works for dogs, it should work for humans.

JL: I happen to know humans who use it; I am tempted to try it myself.

TLSR: Let's talk about oncolytic viruses. Can you suggest any names in this space?

JL: A good firm in the oncolytic virus space is called Oncolytics Biotech Inc. (ONCY:NASDAQ; ONC:TSX). The company is based in Alberta and has been around for a very long time. Oncolytics makes a human reovirus, called Reolysin, that it can inject into tumors to kill cancerous cells. Oncolytics has had some good results with head-and-neck tumors, and is conducting ongoing phase 2 clinical trials with partial results released. The criticism is the company is a bit selective in what trial results it chooses to release. But regardless, it has raised a lot of money.

TLSR: What is its market cap?

JL: It is $233M—which is a big number.

TLSR: To close, can you comment on any differences between Canadian and U.S. regulatory approval processes from an investment point of view?

JL: The big difference is that the FDA is the big kahuna, and getting FDA approval takes longer. That is the big challenge for a lot of innovative medical technologies and for a lot of drugs. Approvals in other countries, such as Canada, occur more rapidly. Testing regimes for the FDA are expensive, and involve a lot of bureaucratic back and forth, which tends to stall the evolution of the market cap for small companies.

Just because investors like a product does not mean that the trial results are going to be favorable. Of course, the fact that a medical device is already approved for use in other jurisdictions should deriskthem to a large degree for savvy investors. I simply do not know any examples of products that work well for patients and are cost-effective that were not approved by the FDA in the end.

TLSR: Thank you, Jim.

JL: Good day, Peter.

Jim Letourneau is the founder and editor of the Big Picture Speculator and is a geologist living in Calgary, Alberta. He is an early-stage investor in energy, metals, biotech and technology companies. He speaks at investment conferences across North America.

Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) Peter Byrne conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report:Oncolytics Biotech Inc., Verisante Technology Inc., biOasis Technologies Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Jim Letourneau: I or my family own shares of the following companies mentioned in this interview: biOasis Technologies Inc., Kane Biotech Inc., Ventripoint Diagnostics Ltd., Resverlogix Corp., TS03 Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Enhanced Oil Recovery with Competitive Costs

The Energy Report (8/8/13) What's the difference between an oil well and a very expensive hole in the ground? Advanced hydraulic fracturing techniques, in many cases. That's why Big Picture Speculator Editor Jim Letourneau is following service companies that are helping producers get to the finish line on time and under budget. In this interview with The Energy Report, Letourneau discusses new ways to play the ever-evolving shale revolution.

Source: Peter Byrne of The Energy Report (8/8/13)

http://www.theenergyreport.com/pub/na/smart-fracking-jim-letourneau-on-enhanced-oil-recovery-with-competitive-costs

What's the difference between an oil well and a very expensive hole in the ground? Advanced hydraulic fracturing techniques, in many cases. That's why Big Picture Speculator Editor Jim Letourneau is following service companies that are helping producers get to the finish line on time and under budget. In this interview with The Energy Report, Letourneau discusses new ways to play the ever-evolving shale revolution.

The Energy Report: On July 26, George Phydias Mitchell died at the age of 94. The late Texas oilman had pioneered the use of horizontal drilling and hydraulic fracturing. Can you speak about his achievements?

Jim Letourneau: Mitchell was the founder of the entire shale oil/shale gas revolution. For decades, the Texas wildcatters had known that there was gas in the Barnett Shale, but it was very difficult to get it out. Mitchell did not invent the fracking technologies. He just wanted to get the gas out of the shale. And as the owner of an oil company, he got to challenge the technical people. He basically said, "If you guys can't figure it out, I'll find someone who can." He had the power and the money and the persistence to make it work. Mitchell Energy & Development Corp. began working on the problem in 1981, and it took until 1999 to figure it all out. The company sold for $3.5 billion ($3.5B) in 2001! It is inspiring.

TER: Were other companies trying to develop fracking?

JL: The conventional wisdom did not comprehend what George Mitchell was attempting; some folks thought he was crazy. And since some visionaries fail, we need to celebrate the ones who are successful. He grew to be very wealthy as an oilman, but he had also read the book, "The Limits to Growth," and he was very concerned about how civilization is managing the earth's resources.

TER: The extraordinary success of fracking has brought the prices of petroleum products below the cost of production, in some cases. What kinds of adjustments are the juniors that are already producing product in the North American shale field having to make in order to turn a profit, or even to just survive intact until the next boom?

JL: Because horizontal wells cost anywhere from $5–15 million ($5–15M) to drill, the juniors typically need to partner with a larger company. The big companies wait for juniors with nice land positions but not much capital to get desperate; then they move in to strike a deal.

The giant shale plays are not junior friendly, because small firms do not have the hundreds of millions of dollars needed to develop them. Thirty million dollars sounds like a ton of money, but it might only fund two wells. Statistically, it might be necessary to drill up to 10 wells to prove up a play. Typically, it's the majors that develop the new fields, and the juniors try to tag along by capturing acreage in a hot play, and that is often a good strategy. But they can't afford to spend big money to crack the code. They usually look for partners.

Even medium-sized big companies like EnCana Corp. (ECA:TSX; ECA:NYSE) are entering into partnerships with foreign companies and looking for big investors, because the amount of money required to develop these plays is so enormous. In Northeast British Columbia, literally billions of dollars of investment will be required to fully develop the resource. If a junior's land position is compelling enough, it can get a big payday from selling it. The challenge is that there are numerous shale opportunities for major oil companies to pursue and a junior needs an asset that is big enough to move the needle.

TER: For companies with producing wells, what kinds of new technologies are available to increase productivity without hurting already stressed out operating budgets?

JL: There are a lot of technological tricks with minimal costs: A producer can re-enter wells or stimulate wells or fracture older wells. It can enhance oil recovery with pulsed injection of water or chemicals.

TER: How does that work?

JL: A tool installed in the well injects fluids in pulses—pumping like a heart pumps. Think of putting a kink in a garden hose. Pressure builds up and when the kink is released there is a strong pulse of water. This technology is efficient and companies can make money doing enhanced oil recovery with pulsed injection.

TER: What names are on top of that technology?

JL: Wavefront Technology Solutions Inc. (WEE:TSX.V) provides pulsing tools to operations all over the world. It has a couple new business lines with fantastic growth rates. In well stimulation, a chemical (usually acid) is injected into a formation to clean up the area around the well bore so that more oil and gas can flow. By using pulsing, the acid is placed more uniformly and better flow rates are achieved after the stimulation. This part of Wavefront's business is growing very quickly and now accounts for roughly half of the company's revenue.

Wavefront's pulsing technology has been modified for use in performance drilling tools. Fluid pulsing behind the drill bit and drill string agitation dramatically increases the rate of penetration. Reducing drilling time by 20–40% is an easy sell, and the enhanced oil recovery business has a huge market in the field.

In another five years, these technologies will be commonplace, but it takes time since most oil companies are slow to adopt new technologies. It is going to take a few more quarters for Wavefront's revenue to ramp up, but its revenue growth is encouraging and I am quite optimistic about its prospects.

TER: How is its cash position?

JL: It has over $11M in cash. It is very close to being profitable, and it has more than enough money to see it through. The bottom line is that it has a market cap of about $25M and a rapidly growing business.

TER: How is Wavefront's stock performing?

JL: The share price is approaching all-time lows. A couple of weeks ago, I bought more Wavefront shares because it is so cheap. I could be wrong, but the company has staying power, and it is not desperate for cash, so it is a good buy right now.

TER: Where are the best shale oil plays located?

JL: The big picture is there are lots of thermogenically mature source rocks all over the world that are amenable to horizontal drilling and fracking. Typically, these plays do better where there is existing infrastructure and expertise, like Texas. It is harder to do hydraulic fracturing in relatively new areas like Pennsylvania and New York or Europe because even though these regions have a long history of petroleum development, they currently do not have the infrastructure and the regulatory environment to manage fracking. Take the Wolfberry trend in the Wolfcamp shale, for example. It's one of the hottest Texas plays with really good results coming out. And because it is in Texas, there are not a lot of regulation-related delays.

TER: Do you have any names for us in these shale plays?

JL: There is a small Canadian company with a foot in the Wolfberry door called Big Sky Petroleum Corp. (BSP:TSX.V). It has drilled one well that recovered a small amount of oil, but it remains to be seen how that plays out. Right now, Big Sky does not have a lot of staying power on its own, but it does have a big land position. However, with only about $1M in cash on hand, it needs to find a partner or get bought out. That is not an uncommon situation for a small company with a big land position. Capturing the land takes expertise and an upfront investment with no immediate return. The next step is drilling wells that flow at an economic rate. Or a company can wait for other drillers nearby to come in with good wells, which can make it easier to raise money at that point.

I also pay attention to Shoal Point Energy Ltd. (SHP:CNSX), which has big shale play acreage in Western Newfoundland, but since it did not have a lot of cash, Shoal Point partnered with another company that will earn in by drilling wells. Drilling costs a lot of money, and the first well does not always work out. Drilling can quickly turn into a giant money pit.

Generally, the challenge is the continual need to raise capital. It is a grind, but every once in a while, a company taps that gusher and sells itself to a major at a big profit. It just doesn't happen all the time. It took George Mitchell 20 years to figure out what he was doing in the Texas shales; and that is too long a wait for most investors.

TER: Do you have any other names?

JL: There is a hot new play in California called the Monterey Shale. It is world-class source rock. A little company called Zodiac Exploration Inc. (ZEX:TSX.V) has a big land package in the San Joaquin Basin. It has farmed some of it out to partners, and it is getting results. It has about $13M in cash.

TER: Are there regulatory issues in that area in California?

JL: Zodiac is drilling close to Bakersfield, which is an oil and gas-friendly neck of the woods. There are some big majors involved there, like Chevron Corp. (CVX:NYSE). And once a major gets involved in a play, it helps everybody in terms of community relations. Occidental Petroleum Corp. (OXY:NYSE) is also big in that area of California.

TER: What kind of oil price will make shale exploration profitable?

JL: At $150/barrel, we would be booming! But, seriously, even the current low prices are sustainable. There are a lot of moving targets and price is just one of them. There are the drilling and completion costs—and those costs are coming down because companies are figuring out what technologies work best. The oil and gas business is slowly learning how to frack more efficiently. Oil companies cannot do much about the price of petroleum, but they can watch their costs, and that is where the focus is now.

TER: You often talk about the "hype cycle." What is it?

JL: When something new comes along, everybody gets excited about it, everybody wants to try it and then the technological limitations kick in. The challenge is to make that technology better and better. Hype-oriented investors get in during the onslaught of the hype and then sell at the crest. Things decay as people realize, "wow, this is going to take a lot of work!"

With the advent of hydraulic fracturing, there was a big hype cycle: Everybody wanted in on the new thing. Money was thrown at all sorts of shale plays all over the world. Some of them worked out, and some of them did not do well. But the industry is maturing and optimizing the strategies that work. It is a slow grind to make horizontal drilling and hydraulic fracturing economic. But the current price of product is certainly sustainable, and oil companies can make a profit if they keep costs under control.

In the long run, oil production will operate like a manufacturing business. When the price goes up, there will be no shortage of ways to increase production. There is a huge runway, and that will keep the industry in balance for many decades ahead.

TER: It sounds like you're an optimist.

JL: I just do not see a problem in the current situation. With the new industry that George Mitchell created, we are less reliant on coal. Natural gas is a better, cleaner fuel than coal—in spite of the protests and arguments to the contrary. Most people would rather have natural gas-fired electricity than coal-fired electricity for a variety of reasons. Low energy prices are good. It's good for the economy. When we humans run out of a resource, we usually fix the problem.

One good example is the peak oil website, The Oil Drum. It recently stopped adding new content, because the peak oil argument is the same thing repeated over and over. The argument is that there is a finite amount of oil and we are going to run out of it and the consequences will be dire. But when there is a new discovery, the oil peakers have to pick it apart and say, "oh, it's not that good because these wells decline quickly" or, "the environmental impact of this is too great." They are continually negative about new developments that increase supply. And it's fair to be critical. Good business practices include environmental impact and looking at how resource development best serves all of society.

But the big picture is that we have bought ourselves a lot of time with horizontal drilling and hydraulic fracturing: we will not run out of hydrocarbon fuels, and we will be able to make a nice transition into cost-effective alternative energy during the next 10 or 20 years.

TER: Given the high costs of exploration, is there going to be a collapse of the junior sector?

JL: There has already been a natural winnowing out of a lot of juniors. It used to be that a junior with a small amount of money could develop a play to the point where a bigger company would buy it out. Now the bigger companies have all kinds of options to pursue, so they're less interested in small acquisitions and they have just as many ideas as the juniors do.

The challenge for a viable junior is to have a play in the top quartile. The odds are stacked against junior explorers. But if one of them ties up the right land, then there is an exciting payday for all involved. The key challenge is how to crack the code for the least amount of money.

TER: How can investors determine which of the small firms has the best chance of success?

JL: That is unknowable, because there are a lot of variables. The ideal situation for an investor is to hold a diverse portfolio of juniors. There definitely are attractive companies out there and they all have the same story: "We have captured acreage, and there are lots of hydrocarbons in place, and we have lots of science to support that it is valuable." And sometimes they have big companies playing right beside them, too. But advancing the story to where there is a payday for the investors is a long road.

I'm not being negative, but realistically, it's not easy right now for the juniors. They need their plays to look shiny and pretty. They need people to get interested. And there are so many shale plays out there that it's hard to stand out.

TER: Thank you, Jim.

JL: You are welcome, Peter.

Jim Letourneau is the founder and editor of the Big Picture Speculator and is a geologist living in Calgary, Alberta. He is an early-stage investor in energy, metals, biotech and technology companies. He speaks at investment conferences across North America.

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DISCLOSURE:
1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Zodiac Exploration Inc. and Big Sky Petroleum Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Jim Letourneau: I or my family own shares of the following companies mentioned in this interview: Wavefront Technology Solutions Inc. and Shoal Point Energy Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Wavefront Technology Solutions Inc. and Shoal Point Energy Ltd. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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Syria?

What is the POTUS likely to do given that the UK has bowed out of a coalition style response? 

The president walked into the room and watched a talking head explain knowingly to his audience why he, Obama, had taken some action. “Oh, so that’s why I did it,”  

Read the Vanity Fair article, Obama's Way (by Michael Lewis)  for some clues. It provides a fascinating account of how Obama led the US to intervene in Libya during Qad­da­fi's last days.
 

Speaking of Sinkholes

If you've been a mining stock investor over the last few years you'll know all about sinkholes.  

Sinkholes occur naturally with a regular frequency. What makes this sinkhole a bit more interesting is that it is associated with the Texas Brine Company's solution mining operation in Bayou Corne in Louisiana. Check out the Wikipedia entry. If you really like sinkhole disasters, Lake Peigneur was a doozy!
 

Overrated Travel Articles

In the fight for eyeballs, snark and lists tend to get attention so variations of the title "The Top 10 MOST OVERRATED TOURIST ATTRACTIONS IN THE WORLD" is a surefire winner. I'm still a sucker for list articles even though I should know better. They lend themselves to click generating slideshows which are a time waster. Why Google isn't doing something about this instead of making fake meat is a travesty. Back to the lists! I had to keep score on these. I've seen the Mannekin Pis, Las Vegas, London Eye, San Francisco Cable Car, Hollywood Walk of Fame, Fisherman's Wharf and a Madame Tussauds Wax Museum. 8/10 

Looks like there's some creative theft happening with this theme.  

10 Terribly Overrated Destinations (And Where To Travel Instead) I've been to Buenos Aires, Costa Rica, Colorado, Vancouver, The Caribbean, San Francisco. 6/10. To my credit I've been to 7/10 of the alternative destinations. 

Top 10 most overrated cities in the world I've been to Orlando, Niagara Falls, and Los Angeles 3/10

10 Most Overrated Attractions in the World  I've seen The Las Vegas Strip, been on the London Eye, The Hollywood Walk of Fame, and Loch Ness. 4/10

I'm hoping to add a few more overrated sites to my travels along with some lesser known gems.

 

 

 

 

 

Ceres (TSX:CRP) is in Play

Ceres Global Ag Corp (TSX:CRP) is in the news because New York hedge fund, VN Capital is unhappy with the fee arrangement between Ceres and a management group from Front Street Capital. VN Capital owns ~7% Ceres and their belief is that Ceres is trading below breakup value because of an outdated "2 and 20"fee structure.

Ceres was a pick of mine several years ago as a way to play the agriculture sector. Initially they were trading on the abilities of Front Street Capital's braintrust to plough money into agriculture related investments. 

Investing in big picture themes, like agriculture, it can lead to outsized gains. It helps to have strong fundamentals but if enough fund managers raise enough capital, a sector can become overheated. There are only so many real small/mid cap businesses to invest in. Multiples expand and everybody makes money...sometimes.

 

Ceres Global Ag Corp. long term chart

Ceres Global Ag Corp. long term chart

Ceres was set up with a typical "2 and 20" hedge fund compensation/incentive system for management. Management is paid 2% of the asset value annually and 20% of any gains or outperformance compared to a relevant benchmark. Unfortunately for Ceres' investors the company launched just before the 2008 crash and was never able to completely recover.  Management abandoned the fund model and decided to purchase Riverland Ag in 2010.  More recently, they have announced construction of a logistics hub in Saskatchewan (for trains of grain and Bakken oil). Ceres never made money for its initial investors so there have been no incentive fees paid to management. However, they've been collecting their 2% of Net Asset Value fees even after the acquisition of an operating company.

VN Capital Management is making waves. Here is an excerpt from their latest salvo...

The management agreement structurally misaligns Front Street’s financial interests from those of Ceres’ shareholders.  To illustrate, since the company’s inception, Front Street has collected $15.4 million of fees plus $2.3 million of additional expenses which has more than offset any losses on Front Street’s equity stake in Ceres while the non-Front Street shareholders have lost a collective $58 million.

You can read the entire release here. 

Ceres has a market cap of of ~$100 million and it has been higher in the past so that 2% fee certainly adds up over the years. One key question is, are the guys at Front Street earning their keep? Had they done nothing would shareholders be better off?  On the surface, it sounds like VN Capital may have a valid grievance.

PAGG - Global Agriculture Portfolio Profile long term chart. The Index is designed to measure the overall performance of globally traded securities of the largest and most liquid companies involved in agriculture and farming-related activities. 

PAGG - Global Agriculture Portfolio Profile long term chart.

The Index is designed to measure the overall performance of globally traded securities of the largest and most liquid companies involved in agriculture and farming-related activities. 

Ceres shareholders would have been better off holding an agriculture related ETF. 

The very important wrinkle in this corporate battle is that Front Street management is a significant shareholder of Ceres Global Ag Corp. On December 8th 2012 they announced a purchase of $9.4 million worth of shares. At that time they owned 3,093,091 common shares of Ceres (Ceres has just over 14 million shares outstanding). On March 18, 2013 Front Street principals announced that they owned or controlled   approximately 20% of the outstanding shares of Ceres. Less honourable management would have bailed as soon as their 20% incentive fee seemed out of reach. I've seen it happen.

Sometimes these hedge fund gambits work (Canadian Pacific Railway TSX:CP NYSE:CP) but other times they completely destroy shareholder value (Baja Mining - TSX:BAJ).   

I attended the Berkshire Hathaway AGM this year and one of my big learnings was how beneficial investment in long term businesses is to the economy compared to say, hoarding silver bars. It looks like Front Street is trying to create a business that will create jobs and make money for shareholders over the longer term.

I also learned that Warren Buffet pays himself $100,00/year.

 

 

 

Ackman's Canadian Pacific Payday at Canadian's Expense?

Bill Ackman's Pershing Square Capital Management LP  just had a big win. Who lost?

Ackman ventured to the Great White North as an activist shareholder trying to shake up Canadian Pacific Railway Ltd. (TSE:CP, NYSE:CP). Just over a year ago, he won a boardroom proxy battle.  Shareholders voted in favour of 6 new board members. They sacked the Chairman and replaced him with a hand-picked successor, Hunter Harrison.

 

cp.png

So far this was a typical business story. The brilliant strategy of Pershing was to lay off lots of CP employees. CP metrics didn't compare favourably with other railroads. The market bought the story and CP shares tripled since Pershing's initial investment.

Of course the fact that CP has to cross the Rocky Mountains and endure winter avalanches and spring floods wasn't in the metrics. A railway crossing the plains of Kansas would likely appear to be more efficient. 

On June 3, 2013 Pershing Square Capital announced that it was starting to sell off some of its postion in Canadian Pacific. 

Then the floods came to Calgary early in the morning of June 21st. The worst natural disaster in the city's history. The cherry on top of this prolonged state of emergency came 6 days later when 6 CP Rail cars became stranded on the one bridge that failed in the City of Calgary (images).

Calgary's beloved Mayor, Naheed Nenshi, asked the question on everyone's minds.

I'll be very blunt. I'll probably get in trouble for saying this. We've seen a lot of people lose their jobs at CP over the last year. How many bridge inspectors did they fire?

CP is swearing up and down that the bridge was inspected. What kind of inspections are required on a 100 year old bridge? They thought about sending a diver down to inspect the piers but of course the raging Bow River made that unsafe. They didn't mention taking any elevation readings on the bridge. They didn't mention checking tiltmeter data (better technology can eliminate jobs, but it can also increase safety.) CP doesn't mention the use of any technology apart from a "visual inspection" of the rails.

Fortunately disaster was avoided this time and the railcars were removed safely but close calls and derailments are not news to anyone following Hunter Harrison's "track record". Read Are derailments the cost of CP Rail’s efficiency drive? if you are curious.

Back to Ackman, he's been described as just pompous and arrogant and seems to have been born without the gene that perceives and measures risk in a recent Vanity Fair article. 

To summarize, CP is being gutted, public safety is at risk, and Ackman is selling his shares. Well played Mr. Ackman. No white hat for you.  

The Big One - Calgary Flooding

It has been an eventful 24 hours with evacuations being ordered in Calgary at 3:00PM yesterday. They weren't kidding. Most everyone has family or friends affected by the high water. Fortunately things like electricity, natural gas, and water services are still functioning in the drier parts of Calgary.     

There was a limit of 5 cases of water (or 120 710 ml bottles) per person at Costco. How much does 85,200 ml of fresh water weigh? 

How to Evaluate a Junior Mining Stock

The IKN blog   has developed a thoughtful system for evaluating junior mining stocks. A bottom is forming but as to how long that process will take is beyond my predictive abilities. 

Oh I used to be disgusted, but now I try to be amused. 

Elvis Costello