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CFUL: Increasing Oil Demand Enhancing Revenue Projections

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New report issued on a fast growing oil transportation company that is targeting increased demand in oil to boost revenue projections.  

Continental Fuels Inc. Rated ‘Speculative Buy,’ Target Price $.53 by Beacon Equity Research

In the report, the analyst writes, “Continental Fuels, Inc. (CFUL) distributes crude and refined petroleum products.  Its core business encompasses purchasing, selling, storing, blending and transporting petroleum products, both domestically and internationally. 

In December 2007, the Company completed the purchase of all the outstanding shares of Geer Tank Trucks, Inc., a crude oil purchasing company. Founded in 1945, Geer Tank Trucks has five locations in North Texas and generates nearly $50 million in annualized revenues. Through this acquisition, CFUL gains four pipeline terminals with connections to major pipeline companies such as Colonial, TEPPCO and Plains, five service yards in various locations across North Texas, more than thirty 200 barrel transports, 50 frac tanks and water hauling and disposal facilities.”

Investment Highlights

A business model capitalizing on opportunities in oil transport 

CFUL’s core business entails purchasing, selling, storing, blending and transporting petroleum products, both domestically and internationally. The Company takes advantage of distribution inefficiencies in the petroleum market by purchasing small quantities of boutique petroleum products and re-selling them in bulk at a profit.  CFUL operates petroleum storage and terminal facilities at the Port of Brownsville, Texas and recently acquired Geer Tank Trucks, an established crude oil purchasing company generating approximately $50 million in annualized revenues and operating from five locations in North Texas.

Aggressive growth strategy

The 2007 acquisitions of the Port of Brownsville facility and Geer Tank Trucks solidify CFUL’s presence in the Southwest’s petroleum market. Going forward, CFUL plans to expand into gas marketing, fuel blending, oil pick-up and trading of refined products, including ultra low sulfur diesel, on barges or in pipelines. On the international front, CFUL has established a wholly-owned subsidiary in Aruba, Agencia Fiduciaria Aequitas N.V. (Continental Fuels A.V.V.), which will serve customers in Latin America and the Middle East.

Robust revenue growth

Following the acquisition of the Port of Brownsville facility, CFUL has begun generating meaningful revenues from its trading and distribution operations. During the third quarter of 2007, revenues rose to nearly $12.0 million and operating income rose to $714,000.  In 2008, CFUL’s management expects the Port of Brownsville facility to generate monthly revenues of approximately $4 million.

Geer Tank Trucks acquisition completes vertical integration

The acquisition of Geer Tank Trucks gives the Company four pipeline terminals with connections to major pipelines owned by Colonial, TEPPCO and Plains, five service yards across North Texas, over 30 large transports, 50 frac tanks and water hauling and disposal facilities. Through this acquisition, CFUL becomes a fully-integrated operator with port facilities; equipment for transporting and delivering crude oil and contracts for the purchase, storage, sale and delivery of light crude in North and South Texas.

Under CFUL’s guidance, Geer Tank Trucks is implementing an aggressive expansion and modernization plan which is expected to more than triple its monthly revenues during the first 12 months. Already in the first few weeks of this program, new contracts have been secured that double monthly transport volume and add $36 million to annualized revenues, contracts have been negotiated with purchasers that will yield higher margins, and work has begun on installing GPS tracking systems on Geer trucks and state-of-the-art blending equipment at its facilities, with the goals of improving service, product quality and margins.  As a result, management conservatively estimates that annualized revenues from Geer Tank Trucks could exceed $100 million in 2008.

Rising oil demand and higher prices support CFUL’s business model

Despite slowed economic growth, the US is forecast to increase its oil consumption in 2008 and 2009.West Texas Intermediate (WTI) crude oil prices, which averaged $72.30 per barrel in 2007, are projected to average $87 per barrel in 2008. After surging nearly 58% in 2007 - the biggest annual gain in a decade – oil prices hit $100 per barrel in early 2008. Market analysts believe prices will remain high for the foreseeable future and some experts are predicting $125 or even $150 per barrel oil.