An Opportunity Hidden in Plain View

Oil? In Colorado? Absolutely...

Oil fields overlooked by the major oil companies still create serious profit opportunities...

Today, I’ll share the story of two companies that have focused on overlooked oil fields in the American Midwest. These two companies that have returned 700% to shareholders... and there could be more gains to come.

The discovery of the Rangely oil field here in northwest Colorado centered post-World War II exploration on this area’s Uinta Basin.

Initial efforts to find oil in the region failed, as those early explorations were based on a flawed model. However, with the advent of 2-D seismic technology, the major oil companies poured into the region. Among them were Phillips, Standard of California, Sinclair, and Union Oil. Over the next 15 years, the majors discovered several large fields. However, by 1960, exploration efforts in the region faded.

Fortunately for us as investors, they left a lot of oil in the ground.

One reason for the slowing efforts of the big guys was the fields were too small to be commercially viable, by their standards at least. Second, the model changed again and directed exploration efforts to other regions. A third reason is that the price of oil was depressed throughout the late 20th century, which suppressed new exploration.

This story was played out repeatedly in many basins throughout the U.S. We should be thankful for it. That state of affairs opened the doors to small companies like Abraxas Petroleum (ABP) and American Oil and Gas (AEZ).

Both of these companies are now worth hundreds of millions of dollars because of their domestic oil exploration in places like Wyoming, Montana, and Utah. The majors gave up on these areas in the 1960s and 1970s. As a result, tiny companies like these that weren’t worth a look five years ago are booming today.

Take Abraxas for instance... the company began acquiring acreage in the Powder River Basin in 1999. Shares of Abraxas were selling for less than $1 (but did get as high as $3) that year. That acreage now holds about 1.5% of its proven reserves, but it has more than 45,000 unexplored acres and 29 projects waiting to be drilled.

Investors who bought in 1999 and sold in early 2006 made as much as 690% on their investment. I think the potential for this company is still tremendous.

American Oil and Gas has a similar story... it has two large projects in the Powder River basin, but it has a third in the Williston Basin in North Dakota. Its Williston Basin project is called Goliath.

Goliath has the potential for 100 wells. While the field wouldn’t interest a major, it could vault American Oil and Gas up a level in reserves and production. In fact, American Oil and Gas investors who bought in January 2004 have made 757% so far...

Even a small find can buoy the stock price of a small company. However, a giant find (in the billion-barrel range) will result in triple digit returns. Don’t think it’s possible? In a coming column in DailyWealth, I’ll show you how it’s already happening.

In addition to the potential for big finds, many of these little companies are buyout candidates. Every month in the Oil and Gas Investor, I read about the latest take-over offers. In the last three years, we’ve seen over $30 billion in mergers and acquisitions in the Rocky Mountain region alone.

The moral of today’s story? No, these small American oil companies aren’t going to solve America’s energy problem anytime soon... but they just could make your entire year as an investor. Stay tuned to DailyWealth, and I’ll tell you how to find the next big winners...

Good investing,

Matt Badiali