Another $3.4 Billion Bailout

Forward to a Friend Having trouble viewing this issue? Click here. Refer a Friend to Energy and Capital.

Another $3.4 Billion Bailout By Briton Ryle | Friday, December 14th, 2012 Friends for more than 50 years, Jim Bob and Tex just got a bailout. Now, this wasn't some $500 “get out of county jail on drunk in public charges” kind of bailout; nor was it a payday loan to keep their struggling tow truck company going another few weeks. No, this bailout was of the multi-billion-dollar variety. Truth be told, “bailout” might not be the best word for what happened. After all, Tex was #366 on Forbes' list of the Richest Americans just a few years ago. Still, the fact remains both Tex and Jim Bob managed to preserved their wealth when things weren't looking too good — and it appears average investors are getting stuck with the bill. The “Tex” I'm referring to is Tex Moncrief, a 92-year-old Texas oil man, rugged as any West Texas landscape. Mean as a rattlesnake, too. He once sued his own nephew, the son of his deceased brother. Rumor has it that Tex Moncrief may have defrauded the U.S. government out of as much as $300 million in taxes (but you didn't hear that from me). Tex settled for around $23 million in 1996 and the charges basically went away. A few Senators reportedly even apologized for bothering him. And whether or not his alleged former mistress and long-time employee was actually guilty of embezzlement, or if Tex just wanted to be rid of her, may never be known... He never managed to explain in court how his signature came to be on some $10,000-plus checks used to pay her Master Card bills. Advertisement OPEC Disaster: Investors' Dream Come True OPEC is about to fall apart — all because of this American oil deposit... Find out which three companies could pocket you up to 314% gains. Get all the details now — including the name of a stock analysts are predicting to DOUBLE in short order.  The Real-life J.R. Ewing Tex learned the oil business from his daddy, Monty Moncrief. Just 10 years old at the time, Tex actually saw the black plumed gusher that signaled a five billion barrel find in West Texas... and he was a millionaire when he graduated grade school. Tex's biggest find was the three trillion cubic foot Madden Deep natural gas field, found in Wyoming in 1969. It's still one of Moncrief Oil's biggest assets. His 20,000-acre ranch outside Fort Worth, Texas, sits in the middle of the Barnett Shale gas field. He hasn't started drilling for natural gas there — yet... In 2009, Tex got a call from his old friend, Jim Bob. Jim Bob Moffett was the CEO of oil and gas exploration company McMoRan Exploration. His company was doing some pretty radical deepwater drilling in the Gulf of Mexico. The water his company was drilling in was often just 20 feet deep. But they were drilling 17,000, 20,000, even 26,000 feet down into the earth. And they had plans to go even deeper. It was at these depths that McMoRan made a major discovery of oil and natural gas. The field, named Davy Jones, was thought to tap as much as six trillion cubic feet of gas and maybe 160 million barrels of oil. It was one of the biggest finds in the Gulf ever — and one of the deepest, ultimately drilling down over 28,000 feet. Advertisement The "Perfect" Coin Perfect gold coins are hard to come by. Their top quality and high demand allow them to fetch prices unimaginable in the world of bullion. Coins bought for $5 are routinely sold for more than $500. Learn how you can secure these perfect gold coins today.  Under Pressure Jim Bob offered his old friend Tex a 10% stake in the Davy Jones field, along with a percentage of other deepwater McMoRan wells. At the time, Davy Jones had cost around $100 million. Several hundred million more would be spent. The oil and gas they were finding was actually part of a larger proven formation that extended from the south-central United States into the deepwater Gulf. BP was drilling the same formation, but far from shore and in 5,000 feet of water. Jim Bob and Tex were looking pretty smart. Even though they were drilling to incredible depths, the prospect of finding oil and natural gas seemed pretty low-risk. There was just one problem... Pressure. Nobody really knew how much pressure there would be 28,000 feet below the earth's surface. And as it turned out, there was significantly more pressure than they expected — not to mention 400 degree heat. Flow tests were delayed repeatedly, and the stock price bounced between $8 and $18 a share, depending on how optimistic Jim Bob and Tex sounded. In fact, two years after the discovery, McMoRan was still grappling with how to prevent the incredible pressure from producing a blowout. Once this problem seemed like it was worked out, something called barite became a big problem. Barite is used to add weight to mud that is used sort of like a cork after a well is drilled, but before the well starts flowing. The barite/mud used to “cork” the first Davy Jones well actually plugged it — and after months of trying, McMoRan couldn't unplug it. Between November 23 and November 27, 2012, McMoRan stock fell from $12.45 to $8.18 a share. Ouch. Analysts were saying the first Davy Jones well might have to be abandoned. Some wondered if the Davy Jones field itself could ever be developed. Jim Bob and Tex were in trouble. It was then, virtually out of the blue, that the bailout came... Advertisement Easy Income from Canada's Triple-A Rated Economy With 1.7 trillion barrels of oil and plenty of gold and timber, Canada's natural resource sector is the backbone of its Triple-A rated economy. It's also created one of the most attractive real estate markets in the world... Now there's a safe and easy way you can get in on Canada's rock-solid real estate market — and cash "rent" checks every month. One man from Ontario gets $1,638 a month. Another in Arizona gets an amazing $5,969 every month. To learn how you too can start cashing huge checks like these each and every month, click here.  Jim Bob and Tex's $3.4 Billion Bailout On December 5, 2012, McMoRan agreed to a buyout offer that included $2.1 billion in direct compensation, some share in a royalty trust, and the assumption of $900 million in debt. All told, the buyout was worth $3.4 billion. Jim Bob's share of the company had fallen to around $25 million after the Davy Jones debacle. The buyout pushed his stake to $89 million, according to Bloomberg. You probably know that McMoRan Exploration was bought out by copper giant Freeport-McMoRan (NYSE: FCX). The “McMoRan” name that both companies share is no coincidence... McMoRan Exploration was spun off from Freeport-McMoRan 15 or so years ago. Freeport has been out of the oil business ever since. But it doesn't end there... Jim Bob Moffett is also Chairman of Freeport-McMoRan's Board of Directors. "Aha!" you say — and you are right. This deal kind of stinks. Though, I should tell you Freeport-McMoRan's move back into the fossil fuels business is a bit more complicated than I've characterized it. For one, McMoRan has more assets than Davy Jones. Freeport is paying around $40 a barrel for these assets. Still, the deal raises a few concerns... I have no problem with a company expanding into oil and natural gas production. To me, fossil fuels is the single most reliable growth industry in the U.S. today. I'm not at all worried that Freeport will be distracted by its expansion. In fact, after Freeport-McMoRan fell +16% in the wake of the announcement, I considered the stock a “buy.” No, my questions center on risk.   Why should Freeport buy Gulf of Mexico oil and gas reserves for $40 a barrel, when it could own much less risky onshore oil and gas for around $60 a barrel? I bet Freeport's shareholders would have been much happier if the company had bought stocks like these. Not only would Freeport have avoided the steep decline in its own share price, but it might also have avoided the slew of investor lawsuits the deal has prompted. Either way, it looks like Jim Bob and Tex are having the last laugh. I wonder what they'll do with their bailout money... I won't be surprised if they buy into some of those $60/barrel onshore oil companies I mentioned. Briton Ryle @BritonRyle on Twitter Helping individual investors protect and grow their wealth since 1998, Briton has an impressive resume. He has recommended stocks such as Petrochina at a share months before Warren Buffett jumped on board. His fundamental analysis, technical analysis, and vast experience has proven invaluable as research assistant for The Wealth Advisory, and his money-making insights appear weekly in the pages of Wealth Daily as a contributing writer. To learn more about Briton, click here.   I liked this article | I did not like this article Follow Energy and Capital on The Bottom Line Related Articles Arctic Oil Investing Myanmar Oil Investing Obama Oil Investing Domestic Oil Investment Opportunities Recently... Benefits of Cheap Natural Gas for Transportation Miners Seem Better than Makers It Failed! Energy and Capital's Weekend Edition Losing a Benchmark, Gaining a Future

This email was sent to ignoble.experiment@arconati.us . You can manage your subscription and get our privacy policy here. Energy and Capital, Copyright © 2012, Angel Publishing LLC, 1012 Morton St, Baltimore, MD 21201. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Energy and Capital does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law. Please note: It is not our intention to send email to anyone who doesn't want it. If you're not sure why you're getting this e-letter, or no longer wish to receive it, get more info here, including our privacy policy and information on how to manage your subscription.