The Oil Patch Triple "Play"

(EOR.V, CFW, INSM)

Straddling the border of Arizona and New Mexico, 2,500 feet below the surface of the ground, lies a dormant volcanic structural dome oozing CO2 deep beneath the granite basement.  This natural, but freakish geological occurrence is massive in size with 15 trillion cubic feet of almost pure CO2.  Considering it takes about 6,000 – 8,000 cubic feet of CO2 to produce one barrel of oil and taking into account the ability to recycle 50% of the CO2 once used in extract oil, there lies over 1 billion barrels of oil that can be produced as a result of this act of natural occurrence.

A little known company, Enhanced Oil Resources, Inc (TSX.V: EOR.V or EORIF) stands at the precipice of cashing in on this discovery.  At present, an investment banking firm specializing in mergers and acquisitions (i.e. Tristone Capital) is facilitating the partnering discussions for EOR.V with the Data Room open thru May 22 and final bids to be accepted after that.  Though Enhanced Oil Resources, Inc. has no debt and while its three Permian Basin oil fields will greatly benefit from the CO2, this tiny company is not likely to monetize its vast CO2 asset without the assistance of a partner.

We have arrived at the first of three oil patch "plays".   Let’s call it "The Great EOR Gambit".  Odds are that this massive, undeveloped CO2 field, the last of its kind, will be brought to market and Enhanced Oil Resources will stand to benefit.  At US$0.36 a share (far below its asset value), I say take a swing.  A big swing could net you a very healthy return.

Up to bat next is Cano Petroleum (AMEX: CFW). This small oil company is trading on the American Stock exchange and is powered by the strength of its waterfloods.  Two of these waterfloods in particular are worthy of our attention.  The Cato field located in the Permian Basin is already performing well above the estimated modeling projections.  This horse is going to run and Cano as per their recent teleconference is leveraging this little cash cow by expanding the waterflood.  What separates this "play" from many of the other small cap energy companies is Cano is well positioned to substantially grow its production and proven developed reserves over the next few years and they are doing it in known oil reservoirs.  The oil is there, it’s just a function of extracting it.  A nice niche for this small energy company.  Let the big boys pursue the speculative, big discoveries.  Cano Petroleum is satisfied with picking up these nice morsels and converting them into cash flowing assets.  Not a bad strategy considering they also had the foresight to hedge much of their production at about $80 bucks thru 2010.   If you couple their Cato and Panhandle oil fields and project the future production, we are looking at exponential growth from where we stand today.  With a book value above $3.00/share, Cano Petroleum which is selling in the US$0.60 range, has got "home run" potential written all over it.

Rounding out the order is Insmed (NASDAQ: INSM).  Talk about an eclectic pick.  What does a biotech company have to do with the oil patch?  Well, I say follow the connections and you may be surprised where your investment takes you.  Picking up on our CO2 theme from earlier, it is a little known fact that the impact of utilizing warmed and humidified CO2 gas during laparoscopic surgery and employing IGFPB-3 as a possible role as an anti-tumor agent can have meaningful impact on the lives of patients.  You follow the IGFPB-3 trail further and it leads you to an obscure, but medically effective drug called IPLEX which was approved by the FDA for use in children with short stature.  IPLEX appears to have far reaching benefits as its currently part of a Phase IIb trial for MMD (mytonic muscalr dystrophy), with a Phase II trial for ALS (better known as Lou Gehrig's disease) about to begin.  So now we round out the baseball analogy by coming full circle.  And, in case you think I jest regarding the potential of IPLEX for MMD, bear in mind that news from its most recent trial is due any day now and its previous Phase IIa trial batted 5 for 6 in providing meaningful benefits to its patients.  If IPLEX continues to stimulate the nerve cells and builds muscle groups, along with other attendant benefits, then this company stands to make a big splash in a one billion dollar niche industry for which there is no approved treatment.