Having read through the May 23rd newsletter ?Energy and Capital,? we were astounded to read about Mike Schaeffer's favorite coalbed methane (CBM) stock, Pacific Asia China Energy (TSX: PCE). The widely read CBM guru aggressively argues PCE will become a major winner for his subscribers, telling his subscribers, ?The bottom line: PCE is a dreamboat company?All the pieces are falling into place. The only thing you need to do is sit back and enjoy the ride up.?



What pieces is Schaeffer talking about? Prior to his initial recommendation of Pacific Asia China Energy (acronym is PACE; ticker is PCE.V), the stock quickly doubled on (a) anticipation of drilling and (b) Schaeffer's recommendation of this stock. Those who have closely followed Schaeffer have come to realize he has one of the best eyes for a CBM deal before the company rockets up the stock charts. And they do take off.

The initial drilling amazed Schaeffer (and us). He wrote in his recent recommendation, ?PACE examined twenty coal samples from nine seams. When they did, they found that the initial gas content was high ? much higher than they expected. In fact, in only 6 days (out of the originally planned 60 days) of drilling, PACE was able to confirm Sproule's ?most likely? estimate of 5.2 TCF. In other words, it's almost a shoe-in that PACE will be able to extract much more gas than outlined by Sproule.?

Let's clarify what Schaeffer is talking about. Sproule International is a Calgary-based engineering company, which evaluates the economic viability of many of the world's CBM projects. Many consider Sproule to be the leading CBM resource evaluation firm. They were among the first to negotiate joint venture research projects with the Chinese, through the state-owned China United Coalbed Methane (CUCBM). TCF is a trillion cubic feet. In an earlier interview with Eric Nuttall, a research analyst with Sprott Asset Management, which has a stake in PACE, Nuttall explained that each TCF might equate to $1 billion in market capitalization (and of course warning of various discounts with regards to developing projects elsewhere, maturity of a project, etc). Using Nuttall's appraisal method of $1 billion for 1 TCF, and PACE, according to both Schaeffer and Sproule, might have five times that. Well, we're not going to print anything that could be construed as a price target here, but the math is not rocket science.

Schaeffer appraised PACE's potential market capitalization relative to Great Eastern Energy, which trades on London's AIM stock exchange. He wrote, ?In comparison, Great Eastern's in place methane resource is only 1.4 TCF, nearly a quarter of PACE's resource, and the company has a market cap of more than C$308 million.? (Editor's note: PCE's market cap is about 30% of that). Schaeffer concluded, ?Simple mathematics suggests that when compared to Great Eastern Energy, PACE is severely undervalued.?

The PACE May 3rd news release, which caught our eye, announced Dr. David Marchioni as the company's new Vice President of Exploration. The same news release announced Tunaye Sai as the company's new president. Five days later, the company announced its results. Both Mr. Sai and Dr. Marchioni were in China, during the drill program. It appears Dr. Marchioni, whose name is well respected in Canadian CBM circles and in the United States, wanted to ensure the Guizhou property's CBM potential had the economic permeability he desired. In our previous interviews with Dr. Marchioni, he repeatedly emphasized the property must have a certain level of permeability for it to be economic. The Boatian-Qingshan property's (in Guizhou province) CBM permeability level appears have sufficiently satisfied Dr. Marchioni to accept the exploration vice-presidency.

As Mike Schaeffer wrote in his opening paragraph, ?Any lingering uncertainties that Pacific Asia China Energy won't soon become one of the most prominent coalbed methane companies operating in China should be long left in the dust.? That statement carries even more weight when you consider that Schaeffer reaches that conclusion in the context that some of those ?other prominent CBM? explorers include Chevron-Texaco and Conoco-Phillips.