TLDR: Lionheart Holdings (CUB) is a Cayman SPAC with ~$200 million in trust and a deadline of March 20, 2027. It has signed a non-binding LOI to merge with KEO Energy, whose only asset is a 40% stake in the PetroUrdaneta joint venture in Venezuela’s Maracaibo Basin. The seller sold 16% of that asset last week at a price implying $234 million for the whole field. The LOI values the entire asset at an implied $1 billion pre money (8/8ths). The warrants (CUBWW) at $0.41 are a punt on the market accepting the higher number and this becoming the first domino in a string of future acquisitions.Swen Lorenz ran the first-ever Weird Shit Investing Online conference last Tuesday and I was lucky enough to present. The presentation I gave, and the transcript are available here.Relevant to today’s writeup is Swen’s second presentation which was a forgotten Canadian micro-cap giving you high-quality exposure to the revival of Venezuela’s oil industry.He thinks it is a 4x.Mine is the degen version.As some of you may know, I recommended gold reserve a long time ago and that worked out pretty well. I am no stranger to sketchy Venezuelan assets.So, if you want Venezuela exposure and you would like to sleep at night, buy a copy of his presentation and get access to all the other ideas presented of which I invested in.If you want a lotto ticket, keep reading.Alright, onto the article.Thanks for reading Triple S Special Situations Investing! Subscribe for free to receive new posts and support my work.HistoryMaha Capital AB (not to be confused with Sec Kennedy’s initiative to give Americans Measles) renamed itself Keo Capital AB (KEOC).Under it sit two businesses: A fintech and an oil and gasThe O&G business is now called KEO Energy (or Maha Energy (Indiana)).KEO Energy is what is attempting to merge into Lionheart. The fintech is staying behind.The merged entity aims to become the first Venezuelan oil company listed on NASDAQ and is likely to do more deals beyond this one (if successful) based on the amount of money they are targeting.There were two transactions that resulted in Maha’s ownership in this field.Transaction 1: 24%March 2024: EUR 4.6 million for the exclusive right to buy into Novonor’s Spanish vehicle.March 2026: EUR 4.6 million to exercise it and take 24%.Transaction 2: 16%Last week: USD 37.5 million. $5.35 million on signing, $22.15 million at closing, $10 million deferred, which is how we get to $234 Million on the 8/8ths.Lionheart deal: Buying the Combined 40% for $400 million Pre Money$400M for 40% or 1 billion on an implied 8/8ths.The assetPetroUrdaneta is an onshore joint venture in the Maracaibo Basin, in which PdVSA holds 60%, that comprise 4 fields, La Paz, Mara West, Mara East and El Mojan, located next to Petroboscan (Chevron’s giant oilfield in country).The history of these fields is impressive with peak production of 240,000 BOPD and cumulative production of 1.4 billion barrels with 8.6 billion barrels of Oil in Place, which is a 16% recovery factor.What’s interesting is that most of these fields are not tarry sludge with an API of 20-30°, which is considered medium grade crude, that allows for cheaper and easier production and higher netbacks. This field offsets Chevron’s main field area which produced 80,000 BOPD, prior to sanctions.The not so great news is that the current production is 1,500 BOPD with only six active wells and 284 inactive ones, and the asset’s license agreement runs through 2036 assuming the company does not get an extension.How did these fields fall into such disrepair?In 2016, Halliburton and Schlumberger stopped servicing PdVSA over unpaid bills, which killed all workovers and artificial lift repair in these mature fields. Then the asset was slowly dismantled, as the facilities deteriorated and rotted due to theft and corruption. A victory for the people. Management believes with proper investment they can bring this field back to 27,000 BOPD (40,000 BOEPD), which works out to be 84 Million BBLS of oil and 28 Million BOE of Gas, and doesn’t seem that outrageous given the recovery factors and OOIP of these fields.There are 500 Million bbls of 2P oil reserves and 200 Million BBLs Eq of 2P gas reserves left in the field. This number doesn’t seem impossible given the low existing recovery factor, which doesn’t even include much (if any) secondary recovery.If you apply the price paid for this field, it works out Lionheart is paying $2/BBL for 2P Oil reserves in the ground.That would be fine except they don’t produce most of them without an extension of their concession past 2036.You could also make arguments with some sort of secondary recovery, this field could make another billion barrels of oil, which would make this the opportunity of the century with sufficient capital behind you, and may be their actual plan. Extend the license and make this a world class production facility.The wells in this field area have been historically insane. Here is an excerpt from a geology paper on the La Paz Field.“La Paz oil field is one of the most famous, well-documented fractured reservoirs in the world. Since 1945 it has produced more than 830 million bbl of oil from both low porosity Cretaceous limestones and underlying granitic basement. Fracture distributions, initial rate and cumulative production distributions, and trends in formation water chemistry all suggest that reservoir quality and reserves are controlled by natural fractures. Production levels within the area of Eocene uplift are anomalously high, with one well producing 59 million bbl of oil. Typical wells in other parts of the field produce 1 million bbl of oil.”We are talking about wells that are no longer drilled onshore in America, since the 1960s, so there may be more here than meets the eye, with well rates in the thousands of barrels per day. That also may be part of the reason why secondary recovery may not work out here since these high well rates are driven by fracture production. Finally, there are about USD 60 million of outstanding dividends on this asset. I’m doubtful they can squeeze blood out of a stone, but they might be able to use the money owed as some sort of credit on future production payments.LionheartLionheart IPO’d in June 2024. 23,000,000 units, each unit being one Class A share and one-half of one warrant.On June 18, 2026 shareholders voted to push the business combination deadline from June 20, 2026 out to March 20, 2027.Holders of 4,503,836 public shares redeemed at roughly $10.88.That leaves approximately $201,221,817 in trust against 18,496,164 public shares.Also, on the same day, the sponsor which held an aggregate of 7,666,667 Class B ordinary shares of the Company elected to convert 3,000,000 outstanding Class B Ordinary Shares held by it on a one-for-one basis into Class A ordinary shares of the Company.The Company after the conversion had an aggregate of 21,496,164 Class A ordinary shares, and 4,666,667 Class B Ordinary Shares issued and outstanding, so a total of 26,162,831 shares in total.Financing Getting from six active wells to 40,000 boe/d means reactivating a couple of hundred wells.I am not going to pretend I know what a workover and pumping system replacement costs in Venezuela in 2026, because I do not, and anyone who quotes you a firm number is probably guessing, unless they work for Chevron or PdVSA.But at any plausible figure for 284 wells plus artificial lift plus facilities, you are talking about a lot of money (not including any new drilling or secondary recovery projects).However, Lionheart disclosing a $2.25 billion target capital raise means they are planning to buy multiple Venezuelan fields and this first purchase is just the way it takes to get their plan going.“The NASDAQ-listed blank-check company is in talks to purchase oil fields in the country for between $150 million and $400 million, the people said without giving details on the assets or timing of negotiations. The deals are not final and would require regulatory approval from Caracas and Washington.Clear Street LLC, a Wall Street brokerage, has agreed to provide $1.5 billion for the acquisitions and subsequent capital expenses to rehabilitate the fields, the people said. The remainder would come from Lionheart’s own funds and bank financing.”It explains why most of the float also chose not to redeem, which is unusual for a SPAC.The warrant mathCUBWW, $0.41. Strike $11.50. One whole warrant for one Class A share and five years.Note the difference from the Presidio warrants I wrote up in March, which were trading at a huge discount to intrinsic value. Those were mispriced. These are not mispriced. They are correctly priced as an out-of-the-money option on a deal that has not been signed and is probably overvalued.(Side note: I am hoping Presidio increases their dividend to $1.50 which should juice their warrants more since they closed their acquisition in the Arkoma. If it trades at a 10% yield, that makes them worth $3.50)However, the first deal is planned to be papered up in the next month per the last press release.For those forty cents, you get access to the potential of the first US listed oil producer in Venezuela, with Chevron next door which should hopefully smooth OFAC approval.The fields are not speculative with 8+ Billion barrels in place. What is speculative is extracting the value out of these fields and future ones.The RisksAll the risks. Venezuela. PdVSA. Non Binding Loi. License expiration. Multi billion dollar equity facility. Valuation. It’s a SPAC.ConclusionTwo ways to play this, and they are not the same trade.A) The common at $10.80. Trust is $10.88 and growing. You are getting paid a small spread to hold cash with a redemption right, plus free optionality if Venezuela becomes the trade of 2027. This is a cash parking spot.B) The warrant at $0.41. A binary outcome. Deal closes and this somehow re-rates, you make more than your 41 cents if the market is so inclined. So, size this like a bet on the craps table, and check out my presentation at Weird Shit which is something you can actually bet some real money on.And with that I am off to vacation in the mountains in search of goats and bighorn sheep. I’ll be back in a few weeks with a story that puts my Braemar one to shame. If you enjoyed this write-up, please like and restack.I don’t get paid to do this, so consider that my reward.Substack seems to throttle free article writers, which makes attracting new readers difficult. I do not want to charge for this substack, but the algorithm may end up requiring it. I am trying to avoid this, so please spread this substack if you can.Also, if you have other ideas I should write about, my DM’s are always open on substack.All writeups are subject to our TOSThanks for reading Triple S Special Situations Investing! 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