Description

Castle Energy is a stock that could appreciate 50% in the next 30 days. I have chosen to write it up as a new idea rather than an update to the original one, since the short term opportunity is so significant. Please refer to the December 2003 write up for background on the company, and litigation history.

The company is in talks to settle the ligitation with Chevron, and the court has instructed both parties to be in court on July 30th, presumably to finalize the settlement.

Even if Castle were to settle the case for as much as $10 million, CECX's shares are trading at a discount of approxiomatey 50% to NAV. The discount is due to the litigation risk with Chevron, and with that being removed, and an obvious catalyst in place, the stock should appreciate to NAV almost immediately.

The biggest risk of coure is that settlement talks could break down, and the matter would be litigated. While litigation outcomes are always uncertain, and sharholders would not get paid as soon, it could be a more profitable outcome for shareholders. There still appears to be no merits to Chevron's arguments, the case seems to be going very well for Castle, and they could even win in summary judgement.

There also seems to be some upside opportunity in the Delta shares. While we feel the stock is fairly valued, a very favorable outcome with the Feds over the offshore leases could bolster the stock further. Governor Arnold has recently been quoted as saying that Bush will be doing something very positive for California environment with respect to the leases. It stands to reason that something could occur soon, because if he waits to much longer, it will be too close to the election, and it will appear to be a blatently political move. Also, Delta's drilling actities seem to be going vey well, there is consider institutional interest in the stock, and was a recent Russell 3000 add.

Due to the significant growth in the value of the assets, and the possibility of a settlement with Chevron in the next month, CECX seems like a more attractive risk reward opportunity today, than it did in December. There seems to be a strong chance the stock could appreciate 50% with little downside risk.

Catalyst

Settlement with Chevron on 7/30, and the immediate announcement of the merger with Delta Petroleum.