I told you people were going to get rich investing there. Brand new
drill rigs dotted the landscape. Jaded Texas oilmen were giddy with
excitement... This was the biggest U.S. discovery in years.
At the same time, I recommended an "expensive" little oil company to readers of the S&A Resource Report
I put common valuations like price-to-cash flow and price-to-earnings
in the back seat. You see, in an oil boom, you want acreage. We bought a
small, Eagle Ford oil company called Magnum Hunter Resources (MHR).
Back in July, Magnum Hunter was a tiny, just a $262 million market
cap. It held 11.3 million barrels of reserves, 70% was oil. It produced
1,750 barrels per day. The company had just $4 million in cash and $56.7
million in debt.
At that time, Magnum Hunter wasn't cheap. It traded at 238 times
operating cash flow... But I wasn't worried about that metric. That's
because it owned over 21,000 acres of Eagle Ford. In other oil and gas
fields, real estate investors made more money than the producers. The
value of hot oil and gas fields
rose far faster than the price of oil and gas.
In July, we paid about $12,000 an acre for Magnum Hunter's Eagle Ford acreage. Then Eagle Ford acreage prices soared...
Here's an eight-month chart of Magnum Hunter:
As you can see, shares of the company have rocketed up 91% since
July 2010. That's a huge gain in just six months. It also reflects the
surging value of its Eagle Ford acreage.
I'm not writing this to encourage you to rush out and buy Magnum
Hunter shares. While this is a great stock, the more important point is
to keep your eyes peeled for companies with large land positions in hot
oil and gas areas like the Eagle Ford.
If you're looking to make huge gains in commodities over the coming
years, don't ignore a company just because it looks expensive. You see,
while most real estate and housing markets are dead, you can still make
a fortune in real estate. You just have to know this commodity
secret... and know where to look.