In 1998, Sani Abacha died in the company of four prostitutes. He'd taken too many Viagras. The poor man's heart simply gave out...
Although we don't know if the whores with him at the time of his death shed a tear at his passing, we do know most of the people in Nigeria weren't saddened by the news. You see, Abacha was the dictator of Nigeria from 1993 until the day he died. At the peak of his power, he was ranked the world's fourth most corrupt dictator. He regularly hanged his enemies, which got Nigeria kicked out of the British Commonwealth. He robbed the state treasury of about $4 billion. And he shook down all of the oil companies doing business in Nigeria. (Remember the part about the oil companies... it's the point of our story.)
With Abacha in power, it became progressively more difficult for oil companies to do business in Nigeria. In 1998, an American company, Ashland, wanted out and was offering to sell four oil-producing tracts. The Nigerians responded by threatening to simply repossess the assets. But instead, a tiny, new oil company called Addax was able to buy the properties. How did Addax get the rights? We don't know. But we do know Nigeria's oil minister at the time, Dan Etete, was convicted by a French court of corruption. Addax's representative, Richard Granier-Deferre, was convicted of aiding and abetting him and sentenced to 12 months in jail.
Addax, in short, came into this world with its eyes wide open. Jean Claude Gandur, Addax CEO, turned the Ashland property into a major oil producer. Addax is now the largest independent operator in Nigeria. It earns more than $1 billion per year from its Nigerian properties and is funneling all of the money into exploration and development.
What should we make of the company's origins? There's clearly more to the story than we know or are likely to find out. On the other hand, that's typical of oil and gas deals in emerging markets. Someone always gets paid. Gandur, who is a Swiss citizen, carries a diplomatic passport from Senegal and has been doing business across Africa for most of his adult life. He has proven to be capable and is doing whatever's necessary to get the job done.
What interested us – and should interest you – is where Addax went looking for oil next: Iraq.
For our dear subscribers who believe the Iraq war was fought because Saddam Hussein (a secular military dictator whose country was the only one in the Persian Gulf not ruled by Sharia law and the only one that allowed women to work in high-level government posts) was in league with Osama bin Laden (an extremist Muslim who sought to overthrow all of the secular rulers in the Middle East), some education in the habits and traditions of Arabs is in order.
For the rest of you, a few facts about the Iraqi oil industry might prove to be more explanatory. Iraq has about 115 billion barrels of proven reserves, second only to Saudi Arabia's 267 billion-barrel reserves. But Iraq's proven reserves were assessed using decades-old technology, as Iraq's oil fields have been closed to Western oil companies since the 1970s. Even so, according to Oil and Gas Journal, Iraq has 410 billion barrels of oil resources, again, second only to Saudi Arabia's 471 billion barrels. It's certainly possible more oil will eventually be discovered and produced in Iraq than in Saudi Arabia. In fact, only 15 of Iraq's 80 known large fields have been developed. Only 2,000 wells have ever been drilled in Iraq. (More than 55,000 wells were drilled in the U.S. last year alone.)
Says our staff geologist, Matt Badiali: "Iraq contains the largest concentration of giant and super-giant oil fields in the world (greater than 1 billion and 5 billion barrels of recoverable oil, respectively). We know of nine super-giant fields there and 22 giants."
Addax now owns a 45% stake in the potentially enormous Taq Taq field, which lies a couple hundred miles northeast of Baghdad in Kurdistan. Addax geologists believe Taq Taq contains nearly 3 billion barrels of oil, of which nearly 40% is recoverable. At current world prices, that's roughly $85 billion worth of oil, $37.8 billion of which belong to Addax. And then there's the nature of the field: very shallow. In fact, oil seeps out of the ground here. Production costs would average $2 per barrel.
The only thing Addax needs is a pipeline to move the oil... That's currently under construction and should be running by next year. But the market capitalization of Addax (which trades in London and Toronto) is still only about $6 billion.
Now... when I hear a story like this, my first question is: Where are the Chinese? If Addax really owns what it says it does, the Chinese should have already bought it. You might also wonder, why didn't anyone tell you about this before?
Well, we first mentioned the Addax story in the "In the News" section of the January 15, 2008 Growth Stock Wire. We came out with a full recommendation of the stock in May, in the S&A Oil Report. Both of these reports were published ahead of the big news. Says today's Wall Street Journal: "Sinopec, the Chinese state oil company, is in talks to acquire Addax Petroleum, a small explorer with oil fields in Iraqi Kurdistan and West Africa..."
There aren't many times in your life you have the opportunity to buy into the next Saudi Arabia. I'm NOT talking about oil sands here, either. This is high-quality crude oil, with extremely low production costs. The development of the Iraqi oil fields will be the biggest story in the oil business for at least the next decade and probably for the next 30 or 40 years. Please, if you ignore all of our other advice, don't miss this opportunity. Get to know the stocks exploring the area. We've already published a little bit of information about five or six of them in our S&A Oil Report. And later this month, we're going to cover our favorite two stocks in Iraq in Phase 1 Investor. These are tiny companies (less than $100 million in market cap) that we believe will eventually be worth several billion. Even if we're only half right, you could make between 20 and 30 times your initial investment in these Iraq oil plays. If you want to make sure you get in on Phase 1 and receive our research on Iraq, click here.
Another blow for commercial real estate... Extended Stay Hotels, which operates in 44 U.S. states and two Canadian provinces, filed for bankruptcy today. The company, which has more than 680 properties, had $7.1 billion in assets and $7.6 billion in debts.
We guarantee Extended Stay's assets aren't worth $7.6 billion. The company would be lucky to recover half that amount in an orderly asset sale... even less in liquidation. Remember, Sunstone – a hotel REIT with 43 properties – recently surrendered its W Hotel in San Diego to creditors (a premium property, as compared to Extended's budget properties) because it was worth "much less" than the remaining $65 million on the mortgage... The company bought the hotel for $96 million in 2006.
On Friday, another REIT, Los Angeles-based Maguire Properties, sold a newly developed office building in Irvine, California, for $160 million – around 40% below its 2007 construction cost. The 19-story building is only 60% leased.
We wrote it, did you hoard it?
But the commercial [about seeds] got me thinking about two things... First, I need to throw a couple of packets of seeds into my family's "emergency preparedness" box. Of course, first I'll need to go down to the garage and dig the box out from behind a couple of file cabinets, 12 boxes of Christmas ornaments, and a dusty assortment of antique exercise equipment... More important, though, is I realized "survivalism" is now mainstream. – Jeff Clark in the April 30, 2009, Growth Stock Wire
Today, the Washington Post ran a story about the huge surge in demand for seeds... D. Landreth Seed Co., one of the oldest surviving corporations in America, said its seed sales are up 75% from last year. Wal-Mart's seed sales are up 30% over last year. In particular, people are buying staples like beans, lettuce, and potatoes.
When "extreme" ideas like hoarding seeds for disaster insurance hit the mainstream, it's safe to assume the trend is overextended. Some of the large, publicly traded agricultural stocks like Mosaic (MOS) and Monsanto (MON) are up around 30% this year... That's not a big enough rally for a short sale, especially in today's market, but it's worth keeping an eye on them.
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A personal note... I'm taking a bit of family time this week. At 4 a.m. tomorrow morning, we'll strap our two-year old son, Traveler, into his car seat and drive the family truckster nine hours south to the mountains north of Knoxville, Tenn. Why on Earth would we attempt a nine-hour car trip with a two year old?
Well, there's a little slice of heaven down there called Scott County. If you've ever been, you know what I mean. No one locks his door. And you leave your keys in the car, just in case someone needs to move it. It's one of the few places you can still find plenty of real Americans, who don't want anything from their neighbors, except to be left alone most of the time. The Stansberry clan has several homes around Huntsville, the county seat. Our place sits on top of a nice 2,000-foot rise and looks over a river valley. It's quiet. And you can see mountains for miles and miles.
There's lots to do: four-wheelers, golf, tennis, and plenty of cousins to keep us busy. My mom is a card shark; she'll take every penny I've got this week in late-night bridge games. Anyways, this week is my summer vacation. I hope you're planning something similar with your family this summer. Enjoy yourselves. Remember, there's a lot more important things in life than money. (Hell, you couldn't spend much money in Scott County, even if you tried...)
In the mailbag... We kicked the hornet's nest when we wrote about the issue of detainee abuse in the military's prisons. People will espouse the most incredible things... apparently some people who read our newsletters believe there's not an Iraqi or an Afghani who shouldn't be tortured. We wonder what these people would do if they were standing in front of a naked man who had been chained with his hands above his head for four days, whose legs had been broken, and who was begging to see his wife. We hope they wouldn't actually do what they say they'd do.
Send your thoughts here: feedback@stansberryresearch.com. We promise to read everything you send to us. Even when it makes us sick.
"Good call on Gran Pacifica. We bought a lot there (not an ocean lot, though) three years ago, but have yet to break ground on a home. We bought there for the same reasons you did, but we also bought an oceanfront lot at another development up the coast called Playa Santa Rosa. The ocean and view are more spectacular, but the development does not yet have the amenities and infrastructure that Gran Pacifica has. In a perfect world (read stable, appreciating investment results) we would build at both sites, but our first effort will be Gran Pacifica. I don't surf, but I will be knocking on your door for surfing advice. As to your daily missives, I'm glad you don't let the whiners get you down." – Paid-up subscriber Eric Asserlind
Porter comment: I'll see you down there some day. I'd guess around half of the Americans I've met in Nicaragua are subscribers, or have been subscribers, to my letter. If you see me down there, please don't hesitate to say hello.
"Great, great, great retort to Mark Herzfeld, vis a vis, torture. I served in the Marine Corps, that most history-minded force, and can tell you that the Corps learned, over a hundred years ago in the Philippines that torture doesn't work. The Marine Corps enshrined its principles in the manual of interrogation, which prohibits torture and stresses the 'you catch more flies with honey' approach. Which is not to say that individuals, in the heat of battle, don't do fairly horrible things to one another. But even at Iwo Jima, where atrocities were committed by both sides, Japanese prisoners were treated humanely, fed, their wounds treated, and were preserved from torture. Not surprisingly to the Corps, these prisoners often gave up very good information." – Paid-up subscriber Mike McCormack
Porter comment: We got lots of mail regarding this issue... most of which, quite honestly, was nonsensical. Just because you're not in favor of beating, torturing, and murdering prisoners doesn't mean you're anti-American. It doesn't mean you don't love your country. And it doesn't mean you hate the troops. It means you haven't fallen in love with propaganda to the point of abandoning your humanity.
There is no reason to chain up a prisoner for four days and beat him in the legs until his muscles have been "pulpified." There is no reason to conduct repeated cavity searches, except to sexually humiliate someone. There is no reason to stomp on prisoners feet, to keep them from sleeping, to pour acid on their hands, to make them masturbate in front of you, to keep them naked, to heap every possible form of abuse on them. There is no reason. There is no excuse. It is a terrible stain on our country's honor, and it's despicable that more wasn't done to bring the officers in charge to justice.
"Well, Porter, I do feel you could include a picture of a Stansberry & Associates Pin Up once in a while, to give us old codgers reason to keep opening these e-mails from you. So as not to slight the female readers, let them have a pic of John Wayne, Fred Astaire, or Boggie once in a while, too." – Paid-up subscriber Peter Courtenay Stephens
Porter comment: That's not a bad idea...
Regards,
Porter Stansberry
Baltimore, Maryland
June 15, 2009