My stock for "the next great resources boom"

Oil and gas exploration is a risky, and costly business

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tough crowd these ASX investors.

Overnight the Dow put in another 100+ point gain, jumping back through the 15,000 level.

The S&P 500 Index surged to its biggest three-day rally since January.

Yet here in Australia, the ASX is as flat as a pancake,up just 12 points in early afternoon trading.

Perhaps it's end of financial year (EOFY) lethargy? Or tax selling? Or just Friday and all the traders are out for a long lunch?

Stocks to stand the test of time

Here at Fool HQ, as ever we're hard at work hunting down stocks that will stand the test of time.

I'm talking about companies with strong competitive advantages that will grow and grow and grow, earning patient shareholders bucket loads of dividends and capital gains in the years and years ahead.

I admit it's not quite as sexy as the "I turned $5,000 into $500,000 trading gold shares… and you can too" stories going round the internet, but at least I'll be able to retire happily and wealthily.

Speaking of gold, it has crashed to $1183 an ounce. It's getting very ugly out there in gold-land, and resources-land too.

BHP $30… it's just a matter of time

Looks like it's just a matter of time before I get my chance to snap up BHP Billiton (ASX: BHP) shares under $30.

Such a "boring" trade won't see the beautiful ladies of the cocktail party circuit flock to hear me regale stories of instant wealth creation, but at $30, BHP will pay me a fully franked dividend yield of around 3.7%, not to be sneezed at in this world of low and falling term deposit rates.

My colleague Scott Phillips is on record on Sky Business News as saying BHP might be a buy for him at $25.

That's some admission given it's no secret that Scott's NOT a fan of mining stocks.

It's a stance that's probably saved him, and made him, thousands and thousands of dollars over the years.

While the rest of the investing world has been chasing the next hot mining stock, Scott has contented himself with investing in growth stocks, like Corporate Travel Group (ASX: CTD) and Amazon.com (Nasdaq: AMZN), true long-term wealth creators.

It's tough to get an investment idea past Scott.

Believe me, I've tried, floating stocks like Forge (ASX: FGE) and even Maverick Drilling & Exploration (ASX: MAD) past him as potential stock recommendation ideas for Motley Fool Share Advisor subscribers.

Luckily for me, and our subscribers, they didn't see the light of day.

Bye bye MAD

I've seen the errors of my ways too with Maverick, recently selling out of the highly speculative oil explorer. I wish them well in their Texan drilling endeavours, but I'm happy to watch this one unfold from the sidelines.

Back to BHP…

Scott only might buy BHP at $25. He admits $25 might well be too conservative, but he wants to buy their iron ore business at a massive discount.

And hello Buru Energy

Another idea that I couldn't get past Scott was Buru Energy (ASX: BRU).

The former market darling controls a large portion of North Western Australia's huge Canning basin.

Source: Buru Energy presentation. Click here to enlarge.

The company's Ungani oil field discovery is due to begin production in the first half of 2014, at a rate of 5,000 barrels of oil per day (bopd).

Buru estimate this will be strongly cash flow positive when in production, generating $60m per year net cash flow to the company.

To my eyes, with the shares at $1.20, that just about justifies the market capitalisation of $320m, which includes net cash of around $45m, the exploration upside potential effectively thrown in for a song.

According to Buru, the US Energy Information Agency ("EIA") identifies the Canning Superbasin as the largest "shale" or unconventional gas potential in Australia.

"The next great resources boom"

The Director General of the Western Australia Department of Mines and Petroleum recently said Western Australia's shale gas potential is "quite amazing and could spark the next great resources boom."

It's one thing having potential, it's another thing turning that potential into profit. That's the challenge for this well known and respected management group, and the bet for investors willing to embrace some risk.

Buru Energy didn't get past Scott, and isn't a stock we'd recommend, but I enjoy a little risk and couldn't resist adding them to  my diversified SMSF.

I'm a little underwater at the moment, having paid $1.35, but feeling comfortable, and willing to top-up my holding should a) the price falls further and/or b) the company makes further operational and exploration progress.

Whatever you do, don't rush out to buy Buru Energy. For the 9 months ended March 2013, the company chewed through $66m of cash.

Oil and gas exploration is a risky, and costly business. I think the odds are in my favour, but I'm going in with my eyes wide open. Wish me, and Buru, luck.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »