Shining a Light on Torchlight
A couple of the no-brainer trades that I talked about in the book and later on my website such as the silver/gold spread where you buy silver and sell gold at a certain ratio and the platinum/gold spread where you buy platinum and sell an equal amount of gold have done well indeed. The silver/gold ratio was 84-1 when the book came out and now it's 68.5-1. Gold had a premium of $331 over platinum two weeks ago, now it's at a premium of $289 over platinum. Both silver and platinum are still very cheap to the price of gold.
I am neither an expert nor a guru. I have opinions about a lot of things because I operate both an energy website, 321energy.com and a resource website 321gold.com. As such I have to read over 100 articles every day. If you read the same, you would know pretty much what I do but neither of us would qualify for guru-hood.
I do follow my advertisers closely. One of them just came out with a press release that I can only call, "Barn burning." Torchlight Energy Resources (TRCH-NASDAQ) put out comparison numbers between a well they just drilled in the Orogrande Basin near El Paso with similar wells in the known Midland Basin. The press release is interesting but the comparison numbers indicate Torchlight is incredibly undervalued and is one of the most leveraged energy plays to the price of oil in the world.
Torchlight is not going to be a ten-bagger. It's going to be a lot bigger than that. Here's why.
To coin a phrase, the oil business is highly liquid. In any given area there are dozens of companies both buying and selling properties at any given time. It's fairly easy to determine relative value. For example, an acre of ground in Midland was worth $50,000 to $75,000 when oil was $115 a barrel. Now it's $5000 for lesser projects up to $15,000 to $35,000 for the prime ground.
By going to Torchlight's website we learn that Torchlight actually has a project in the Midland Basin. They will be drilling their first well shortly; I believe they are spudding this weekend. The technical data will be back in about a month and we will learn if it's $5000 ground or $15,000.
In any case, they control 12,000 acres with a 66% working interest subject to a 75% NRI. So multiply 12,000 by .66 by .75 to get an idea of how many net acres they control in the Midland Basin. I come up with a figure of 5940 net acres. If you take the low side of the value of Midland acres at today's oil price, you come up with a number of $29.7 million.
So if you take that number and compare it to Torchlight's total market cap at today's price you get a market value of about $26 million and the Midland ground alone is worth $29.7 million today. Once the drilling numbers are back in a month we can be more accurate but until then, the company is selling for less than the value of the Midland ground.
But wait a minute Bob, you were mumbling about a 10-bagger? If their market cap is $26 million and Midland is worth $30 million, that certainly doesn't qualify as a ten-bagger.
True, but you haven't gotten around to reading about the Orogrande press release just yet. At Orogrande, Torchlight has a 95% working interest in 168,000 acres. And we already have a hard number on what that ground is worth because the company did a deal with Founders Oil and Gas that calls for Founders to spend $50M in drilling to earn 50% of the Orogrande project. So if Founders' 50% is worth $50M, so is Torchlight's 50%.
So a minimum value of the company today would be the $29.7 million for the 12,000 acre Midland ground and $50 million for their half of Orogrande.
But Bob, if I add $29.7 million to $50 million, I still don't come up with a ten-bagger. Are you blowing smoke?
Actually not, because you didn't get around to looking at the chart of actual technical results prepared by the world-famous expert on the Permian Basin, Rich Masterson, who is an independent geologist with no ties to the company, and the chart was released on July 5.
Rich set up the chart comparing an already drilled well on Orogrande by Torchlight called the University Rich A-11. He added the latest results from the well named the Founders B-19 #1, as well as a typical Midland Basin Permian well. It's important from a technical point of view that the latest well closely matches the prior Orogrande well, and it does. But the money numbers are to compare the two Orogrande wells to the known Midland Basin numbers. Using 22 different technical measures, the Orogrande wells are as good or in some cases significantly better in almost every category.
Now we can come up with some really hard and accurate numbers. Torchlight has a 47.5% working interest in 168,000 acres (assuming Founders completes their Farm in, otherwise Torchlight keeps the original 95%). But to be very conservative, let's use 100,000 acres, because not all of the Torchlight ground actually is covering the basin—some is outside. So, 47.5% of 100,000 acres is 47,500 acres, and we already know the known drill results are as good, or slightly better than, Midland ground currently worth $15,000 an acre. That creates a theoretical value of $712M just for Torchlight's Orogrande ground.
Of course there has to be a lot more testing and drilling. They will be doing horizontal drilling that will come up with the amount of oil in each well. By that time someone is going to be coming around with a checkbook in his or her hands. It may well be Founders Oil and Gas or someone else looking for a big play.
We don't know what the price of oil will be in 6-12 months. We can only guess. But the oil that was selling for $26 a barrel on Feb 11 doubled already. The actual spread between supply and demand isn't as large as most people would believe and some sources are already making the assumption that the price of oil is going to surprise on the upside. At $70-$80 oil Torchlight would probably be a billion dollar company.
I am as biased as I can be. I have bought shares in the open market. Torchlight has been an advertiser for a couple of years now and my first shares were 600% higher than they are now. Do your own due diligence.
You don't need experts or gurus to make investment decisions for you. All the information in this piece is available in the open market on the web. All I have done is put it together. You can do the same and you should. I don't make a penny of your profit or your losses. You do. So take some responsibility for your own money and decisions.
But a great investment would be $3.99 for Nobody Knows Anything. Read that and you don't need me at all, even if I am really interesting to read.
Torchlight Energy Resources
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November 29th, 2020
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