TransCanada defends pipeline route decision

By
1940bkg
-
0

TransCanada, an Alberta-based energy company, recently shot back at criticism about its pipeline route choice from U.S. senators.

The company said that the route of its 1,661-mile-long Keystone XL pipeline was chosen to have the smallest impact possible, reports Platts.

"Our focus was to reduce the overall footprint of the route by avoiding environmental, engineering and economic impacts," firm spokesman Terry Cunha told the news source in an email. "Route choices also took into account potential impacts on wildlife, archaeological resources, aboriginal settlements, crops and protected areas."

Seven Democratic senators wrote a letter to Secretary of State Hillary Clinton to express concern about the potential environmental impact of the pipeline, pointing to the recent ExxonMobil spill in Montana, reports The Hill.

The lawmakers are hoping that the State Department will further review the proposed pipeline, which would carry oil from Canada to Texas.

"We believe that the DOS should work with the [Pipeline and Hazardous Materials Safety Administration] to more thoroughly review the safety of the proposed Keystone XL pipeline and put in place sufficient safety measures," the letter stated.

According to Cunha, the pipeline has support from four trade groups and 14 American senators.

TransCanada is expected to release its second-quarter financial results on Thursday, July 28, which could potentially affect oil stocks.

Is Bankers Petroleum Stock Still a Buy?

By
1940bkg
-
0

Dear OGIB Reader,

Today’s story comes from guest writer Cory Mitchell, who gives us an in-depth look at Bankers Petroleum — one of the most widely followed international junior oil companies in the world.

– Keith

Bankers Petroleum Stock (BNK – TSX) Disappoints – Is it still a Buy?
By Cory Mitchell, CMT

Bankers Petroleum (BNK – TSX) provided an update on second quarter (Q2) operations after the market close on Tuesday, July 5 – causing a huge down-spike in price on big volume. This former OGIB pick has become one of the most highly followed junior oil producer in the North American markets – covered by 16 analysts and owned by many Canadian, US and European small cap energy funds.

Bankers’ is developing Europe’s largest onshore field, which is in Albania. Three things have made the market very excited about this field, and therefore Bankers’ stock:

1. This huge field (called Patos-Marinza) has over 7 billion barrels of Original Oil in Place

2. Horizontal drilling has dramatically improved production rates per well, so that wells pay out in 6-11 months. (Anything under 24 months is considered good)

3. Production declines much more slowly out of these horizontal wells than the light oil wells of the Bakken and other horizontal plays around the world.

It was originally a stock based on the huge reserves in the Albanian fields, but now is becoming a cash flow growth story as well – especially as heavy oil has been getting a better price around the world.

Yet, while the company did increase production handily over last year, it did miss the production estimates it gave to the market and downgraded its own expectations for year end production volumes.

The disappointing current and forward looking guidance dropped the stock to its lowest level in 16 months. Based on the fundamental data of the company and technically analyzing the stock performance I will look at whether buying (or holding if already owned) at the 16 month lows is likely to be a profitable endeavour.

Was the Sell-Off Warranted?

BNK reported below expected production and sales levels, producing an average of 12,973 bbl/day, a 7% improvement over Q1, but missing the company’s own forecasts by 1200 bbl/day. Current production is at 13,150 bbl/d, which is up 44% from the same quarter last year.

The company could had have actually come closer to hitting the target (would have missed by about 500 bbl/d) but shut-in production was 60% higher than normal. Shut-in production is when the company pulls out less oil than what the available output is.

Bankers’ management gave three reasons for this:

1. Several wells required service rigs

2. Others were in proximity of new drilling

3. Wells were also shut in because they couldn’t get rid of all the water for wells with high water production.

The company has sourced another service rig which should arrive in Q3, and one or two more in Q4.

Service rigs are required to maintain producing rigs and complete new wells. Wells require regular maintenance including pump changes, with re-activation wells often needing additional work due to deterioration over time. These service rigs should bring the shut in production down to normal levels of 1050-1100 bbl/d but service rig requirements will continue to grow as more production comes online.

Wells being shut in due to proximity to new wells – they are draining the same area of the reservoir and the new wells are modern and do a better job. This is common in the global oilpatch and largely considered good oilfield management.

Water disposal wells are being equipped to handle additional water volumes which should alleviate this issue.

With oil prices higher, especially Brent crude, BNK was able to get better pricing with the average price received increasing 13% over Q1. Despite this increase in revenue per barrel, overall sales lagged. One key factor for this is a major order which was delayed and will be included in Q3 results instead – this accounted for about 600 bbl/day leaving 221 bbl/d unsold.

With increased oil production, Bankers now has the critical mass that it can get several refineries to bid against each other for their heavy crude. Between this competition and overall higher oil prices, its profit per barrel (called the NETBACK) has increased year over year from $20.98 per barrel to $37.22 per barrel – a 77% increase.

Company oil inventory levels went to 239,000 barrels, up from 168,000 barrels on March 31. This is not an issue if it is short-term, as new site and storage tanks required certain operational minimums. If inventories continue to climb, affecting sales, this would have a dampening effect on financial and stock performance.

Several analysts dropping price targets also likely played a role in BNK’s stock value decline, yet ultimately shouldn’t have, as analysts continue to like the stock. According Thompson/First Call, the 16 analysts covering the stock hold a median and average price target of $11 and $12 respectively.

New Projects with Promise

Successful new projects on different areas of Patos-Marinza field will be major factors driving Bankers’ oil production higher.

New test wells in the northern Gorani area of the field is one such project where the company is looking to expand production–if those well tests continue to produce good results. Gorani has heavy oil which is accessed by vertical and horizontal wells.

A third Gorani well is awaiting completion in (Area-1) with the first two wells already producing 170 and 180 bbl/day. Canadian brokerage firm Raymond James says this is a big positive, as those rates are higher than what the independent reservoir engineer used to calculate reserves here. The company stated in their Q2 (2011) Operational Update:

The success of these two wells has now validated primary productivity from the Gorani formation in the northern area of the field and the Company intends to further develop this formation with the addition of a large number of horizontal wells to access more than 220 million barrels of oil in place.

BNK also maintains plans to drill six to eight Driza and/or Gorani wells in another area (Area-2) of this field which, according to Raymond James, could allow for even further reserve potential. Successful results will lead to a much larger program with expectations in the 50-100 well range over the next several years, saysDundee Securities Ltd. “Driza” wells refer to the vertical or horizontal drilling of the area below the Gorani formation where the oil is less heavy, or lighter.

As mentioned, the company plans to drill 82 re-activations of old wells, and to drill 79 horizontal new wells. Bankers’ says 34 horizontals have been drilled through Q2 making it possible to hit the 79 target, yet they are currently behind. Well re-activations are well behind management’s projections, with only 22 so far this year.

That said, they have many re-activation candidates as the company announced in April it would be acquiring 140 active Albpetrol (former sole-operator in the Patos-Marinza field) wells. So the number of re-activations could increase quickly.

NEXT STORY: Part 2 — The technical outlook and conclusions for Bankers Petroleum’s stock.

— Cory Mitchell, CMT

Disclaimer: The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell any security. Much of the fundamental information is based on company statements and therefore are dependent on company honesty. Trading involves substantial risk and may not be right for everyone. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete.

Cory Mitchell owns zero Bankers Petroleum. Keith Schaefer owns zero Bankers stock. Neither the author nor the publisher have any affiliations or associations whatsoever with the company.

Keith’s Interview with Michael Campbell of MoneyTalks Radio

By
1940bkg
-
0

Dear OGIB Reader,

Recently I sat down with Michael Campbell, host of the MoneyTalks radio show, AM980 Canada, to discuss the oil market… along with a few oil stocks in the Oil & Gas Investments Bulletin portfolio.

Here’s the transcript of our conversation. Enjoy.

– Keith

—————————————

Michael: Very pleased to welcome back to the show Keith Schaefer with me — he is the publisher of the Oil & Gas Investment Bulletin.

We will go over your individual stock recommendations, but first the big news coming out in the latter part of the week was the IEA releasing 60 million barrels from the strategic reserves. We saw oil taking that as an excuse to drop. But 60 million barrels is what, five hours consumption in the world?

Keith: Yes that’s about it; it’s actually about 17, 18 hours but certainly less than a day. So it was a bit of a head scratcher as to what they were thinking with that amount of fuel being released, because really it truly is a drop in the bucket fundamentally.

Michael: Did that release just provide an excuse for Oil to trade off in the direction it was moving at that point, anyways?

Keith: Well, that was my initial reaction.  I think if you try and make sense of what they were trying to do here, they were trying to act towards speculators. Politically Obama has said that the speculators are becoming a problem again, that they are increasing the price of oil more than it should be, which is hurting the average American.  You know, a great flag waving statement. So the number of long contracts had gone down, the price of oil had gone down. It was a perfect time to do a little pre-emptive strike and just shake the market out.

All the speculators who were still long a bit would get nervous, and it was interesting that they only did that small amount because the street has been saying for fundamental reasons they are not going to do that again. I could see them doing this several times again over the next year because it is such a small amount it doesn’t really affect anybody’s strategic reserves. The United States’ portion of this strategic reserve release was probably 3% or a little bit less of what they keep in their strategic reserve – so it’s not a big deal. So if the traders know that at any given time there’s going to be a coordinated action in the market to put down the price of oil, that is going to give them a little bit more caution in deciding how big a bet they are going to make in the oil speculative market. I am thinking that might be their thinking.

Michael: Only 60 million barrels and they got a $5 reaction at one point in the day. Every investment is a speculation, but if somebody buys a Bell Canada what they are speculating on is future earnings and when you buy oil at this price you’re speculating it will go up. What should the Oil price be if you just looked at the fundamentals, the supply and demand right now?

Keith: Well, mine would be lower but not a lot lower. I know there are other people there who are talking $30 lower, I would say probably $15 lower but that’s obviously a very difficult number to think about; the reality is that oil demand is going higher, the mount of spare capacity in the world therefore is going lower and so we’re getting closer and closer to the world’s true ability to produce as much oil as we need and of course that’s not a geological issue that’s a political issue.

Michael: It’s very interesting, but I mean when we got into that 110, 120 range for oil clearly a lot of that froth was about worry about North Africa, that we’d get a supply disruption. So sometimes it’s good to at least have a marker as I say where current supply demand would be to sort of at least get an estimate of how much is really being added in anticipation of other things.

Keith: Yes and it’s interesting because most of these strategic reserve release was truly geared towards Europe and Asia where there is lots of demand, and in North America where there is so much supply we are absolutely drowning in oil on this continent right now.

Michael: Looking at some of the storage problems they have for oil etc, people are having trouble wrapping their heads around that we are absolutely awash in oil in North America.

Keith: Yes and the main reason for those is because of a lot of the Shale oil that’s being developed down in Texas and North Dakota in the Bakken, and all these new conventional reserves are getting a new life with all the horizontal drilling.  Shale gas, the Shale oil technology that’s being developed – and the big problem is that there is no pipeline, no major pipeline, out of the major US oil storage space which is in Oklahoma. For some strange reason the Americans put the major oil holding place in the middle of the country, not down in the coast where it has access to shipping. So there are no pipelines out of there and all the tanks – they’re actually about 86% full and it’s going higher. So it’s going to be very interesting to see what happens over the next few months as oil production continues to increase in the states. Oil production has not increased in the states for 30 years up until about last year.

———————————————————————————–

The “Next Great Shale Oil Play in the World”

One small oil company – operating in the heart of the play — has all the leverage and potential I like to see in a junior oil play.

To learn more, follow this link.

———————————————————————————–
Michael: I am a long term bull and I think you need exposure to the oil market.  What’s the bottom line on Oil, should we look at corrections as an opportunity to get involved?

Keith: Absolutely, there is a strong bid under the price of oil for the next couple of decades because of the Asian industrialization story. Nothing has changed there, there are going to be ebbs and flows but the reality is that demand for hydrocarbons is only going to get greater. The world’s political situation and just the fact that we all have to get along and make a decision together means that those things take a long time and so the infrastructure to get that oil to the market is going to create a constant bid under the price of oil for the next 20 years.

Michael: Let’s talk about varying investments. How price sensitive are junior exploration companies, mid-tier producers and senior producers to the change in the prices of oil?

Keith: You will find that the intermediates have the best data towards the oil price, towards the underlying commodity. The juniors have had a very interesting ride lately, in that as the oil price went from $100 to $120 a barrel, the juniors actually went down. They had an inverse relationship which I have never seen in any commodity market before. Really, what the market was saying is we’re pricing in a recession and so we’re selling our risky assets and that was our first indication that the oil price at $110 and $120 a barrel was unsustainable. They were kind of a canary in the coal mine. So now that oil is coming back down to $90 the value button is being reset on the juniors and I think they are getting ready for another run.

Michael: With junior companies, what are you looking for?

Keith: I am looking for a couple of things… one is I would love to see a management team that’s already built and sold a producing junior and the other thing that I am looking for is a company that has a large land position around a new discovery. With these new shale plays, what they are finding is that they are actually fairly consistent over a large area so, what happens is if one discovery well gets made in the Shale play the market is much more willing to price in future growth very quickly. Much more than they ever did in the old style of deposit.

Michael: It is all geology in the end, is it not?  What you appear to be saying is that if somebody, for example, has a simple one acre lease and the geology is correct for oil and gas, then you know the chances are very good of the structure extending beyond that one acre claim and into a broader area.

Keith: Yes, much more so then ever before. It’s analogous to potash in Saskatchewan, where it goes for hundreds of miles and it’s very consistent. The new Shale plays aren’t quite like that but they’re close. They have that style of consistency over large areas and you can have big area plays in oil and gas now because of that.

Michael: You follow a huge number of companies, can you tell me about of a couple of situations that we can put on our radar screen?

Keith: Sure, one of my favourites right now is a company called Tag Oil (TAO.V on the TSX.V) that has gone into New Zealand. They have an unproven management team which is why we were able to buy the stock so cheaply a little over a year ago. Nobody really knew them but what they did was go in and they’ve gone from about 300 barrels a day for oil up to where they will be doing almost 5,000 barrels a day by the end of this August, September.

They have been able to use new horizontal technology in an area where it hasn’t been used before, on the North Islands of New Zealand, and discovered a lot of oil and gas. What they have discovered over the last three to four weeks, with the different flow rates they have announced on four different wells, it would take them from 1,000 to 4,000 barrels a day in the next few months. Those are the type of stories to invest in, where the geological risk is gone. They have discovered the oil they are just waiting to bring it on stream now and that’s a great opportunity for investors to basically get a low risk entry point in that type of stock.

Michael: Especially if you can catch it in a down market I would think that provides even a better opportunity. I like the idea of it producing and once it’s in the production mode you’ve taken out the exploration risk out and you protect yourself a little bit. Any other name for us?

Keith: Locally here in Canada there are a couple of plays that I really like and they are both Bakken plays. A company called Painted Pony (PPY.A on the TSX) and their management team has done an unbelievable job in assembling two land packages. One oil play in the Bakken where they’ve got a lot of land and probably three to four years worth of low risk drilling to do, and gas up in the Montney gas play in north east BC where they have just a huge land position. They have been very successful in developing it, each quarter they are increasing production like clockwork and the stock is always expensive. But I like expensive stock, that means the Street likes the team and will always reward them.

Michael: Are there any mid-range stocks, perhaps significant juniors that you think are just about to enter the mid-range, or a mid-range about to move to the senior sector?

Keith: Well a few of the juniors that are just busting through that 10,000 barrel a day to 15,000 barrel a day range where they go from being a junior to an intermediate. One is called Angle Energy – NGL on the TSX). They are a very profitable gas company, one of the best gas companies. They have a lot of liquids in their gas — things like butane that goes into your BIC lighter and propane that goes into your barbecue — value added gases that really increases their profitability.

I have to say my favourite company is probably a company called Peyto (PEY on the TSX), they are the lowest cost producer, they are the fastest growing. That team has the best cost structure, their discipline and their management is just second to none in the business.

Michael: Keith, you mentioned the Bakken play and I wanted just to give an outline of the Bakken possibilities.  I think it’s a play that people should be aware of.

Keith: The Bakken has turned into the biggest discovery in North America in decades. It boarders the North Dakota/Saskatchewan border and when it first started getting developed about ten years ago everyone thought it was huge, that they could recover as much as 4 billion barrels of oil, which is a lot of oil. Now that number is up to almost 24 billion barrels, so the industry has done a great job very quickly, very efficiently stretching the boundaries and figuring out ways to get more and more oil out of out if each individual Bakken well. So there are lots of Canadian juniors that are on both sides of the border and actually the report that’s on your website for your listeners is one of my favorites. A little junior company.

Michael: Interesting, Keith thank you so much for taking the time with us today.

 

Speculators Leaving the Oil Market: A Bullish Case for Oil?

By
1940bkg
-
0

This chart is bullish for oil.  It shows the number of non-commercial net long crude oil positions in the NYMEX (New York Mercantile Exchange) is moving down – these are the people we all call “The Speculators”.  Getting these (politically unpopular) people out of the oil market is what I think one of the primary goals of the IEA was, when they announced a globally co-ordinated release of 60 million barrels into the market in late June.

This shows the speculators leaving the market – but the oil price is not declining.  This shows real demand is taking the place of speculators.  Now of course it could be argued that without the IEA intervention, world oil prices could be $10/barrel higher right now.

With expected demand rising up 4 million barrels a day more through the fall (this seasonal increase happens every year; it’s not a guess) it shows oil investors are going to have to see a dramatic decline in the world’s economy to keep oil lower.

Source: BMO Nesbitt Burns Research Comment July 4 2011

Want to learn more about investing in junior oil and natural gas stocks? If you have a Facebook account, just “like” this article and a hidden link to Keith’s 10 page how-to on oil and gas investing will appear:

[facebook-like id=”1″ ]

The Outlook for Canada’s Oil Sands Production

By
1940bkg
-
0
With an oil pipeline to the west coast, Canada’s oil sands could be the big swing producer in the global energy market, says Ralph Glass, Director Energy Valuation and Operations of AJM Deloitte, an oil and gas technical consulting firm in Alberta.
But without a pipeline Canadian oil production could actually get shut in, he warns, as US oil demand is flat four years in a row and their Cushing oil storage facility in Oklahoma is almost full.It is a feast or famine future scenario for Canadian oil sands production.

“If we had alternative markets, Canada could possibly be the swing producer in the world, not the Saudis,” says Glass.  “We would have enough spare capacity that we could help fill the (world demand) gap and influence prices.”

Right now all western Canadian oil is shipped to one place: The USA.  Alternative markets means: Asia, via a pipeline to the west coast where tankers would transport it across the Pacific.

Glass points to the oil sands projects that are now on the table (you can see them all here: http://www.oilsandsdevelopers.ca/index.php/test-project-table/) which total over 7.5 million barrels a day of production (bopd), though much of that won’t be online for years.  Current oilsands production is roughly 1.5 million bopd.

All this oil supply will be great for consumers, and Canada’s economy (jobs and royalties) and for geo-political stability in energy prices.

But with the US increasing oil production for the first time in 40 years – thanks in large part to the shale revolution in the Bakken oil formation in North Dakota – Glass says there is a chance that the US might not need Canadian oil as much – in the same way he says Canadian natural gas is vulnerable to being shut out of the US market because of increased US natural gas production.

“There is more than ample (oil) supply in North America, so everybody is going to have to line up as take less, and they’ll have to produce less,” he says.  “And as with natural gas, the US will take their product first.”

He adds this problem is mostly long term, but there could a short term production glut in North America as soon as the next six-nine months.

“We’re coming into a lull now – Q3 is usually a slow point in world demand.  But then we see a dramatic increase in Q4 of 4 million more barrels per day of demand over Q3.  What I don’t know now is, can supply meet that increased demand in Q4/Q1 2012 in the world?

“If it cannot then this is a mute point – but if can then Cushing could get filled (and producers) may get their product reduced.”

Not everybody agrees with Glass’s concerns on Canadian crude.  Adam Bedard is Senior Director with Bentek Energy, an energy market analytics company based in Denver Colorado.

“Canadian heavy crude trades back about $20 from WTI, which makes it very competitive to bring to market.”

If any foreign crude gets shut out of the US, says Bedard, he expects it would be imports from Nigeria.

“I think Canadian crude squeezes out other crudes.  I would sure be surprised” if Canadian crude was displaced out of the US.  He added that doesn’t see Cushing ever being full – the builds in supply are slowing, and rail and pipeline capacity out of Cushing is being developed.

Bedard said he didn’t think that storage at Cushing will be the bottleneck, but there could be a limit on refining capacity which could push back on demand for Canadian crude – though the U.S. Gulf Coast refining complex has added capacity allowing them to refine heavy crude.

There is no stranded oil sands production right now, but Glass says that $20/barrel discount that Canadian heavy crude is getting compared to other world oils is costing the Canadian economy.  Assuming 1 million barrels a day of oil sands production going overseas, instead of down into the US, Canada could stand to gain about $3.65 billion for every $10/bbl more revenue it could get than it’s receiving now.

“Price and volume (of Canada’s oil exports) are being impacted without a pipeline to west coast.  We’re getting significantly less for our products than they could on the world stage.”

This chorus is getting louder.  Scotiabank’s head commodities analyst, Patricia Mohr said in a June 28 note that “In my view — given the substantial forecast growth of Alberta oil sands production in the next 5-10 years… in the face of only limited U.S. consumption gains — building further export infrastructure… to the B.C. Coast to reach fast-growing Asian markets is vital for the Canadian economy.”

She estimates oil sands production will grow by 600,000 bopd per day by 2015 and by 1.2 million bopd by 2020.

– Keith Schaefer

 

 

How the IEA Announcement Could Affect Junior Oil Stocks

By
1940bkg
-
0

A couple quick thoughts on today’s Big Oil News – the IEA releasing 60 million barrels from Strategic Reserves around the world to help lower global oil prices – before I get into who will benefit from this (and there’s a surprise here).

In terms of fundamentals, this really is a cry for help.

a. 60 million barrels equals about 18 hours of global production – hours, not days or weeks. It’s inconsequential.

b. The world is already well supplied with oil – there is no shortage of oil anywhere on earth that I can see.  North America in particular is overflowing with oil.

c. Oil doesn’t trade on its fundamentals, or it would be $60-$70 a barrel right now. Or pick your own number.  But it would be lower.

In terms of market psychology however, the IEA may be smarter than the pundits think.

Oil, like all markets, trades on fear.  And there is now so much liquidity in the world that often (if not usually) the tail wags the dog in commodity markets.  What I mean by that is that the financial derivatives surrounding oil – the ETFs, the futures contracts etc. – help determine the price of commodities as much as the underlying demand.  So managing their fear and greed of investors in those products is a bigger job than ever before.

With this new reality that has developed over the last decade, but especially since QE1 & QE2, I would suggest the governing elites of the world (DAD) need a new way to communicate to the capital markets (MUSCULAR INDEPENDENT TEENAGER) to really get their attention that they will pull out all the stops to obtain a semi-permanent lower oil price.

But what it could do is convince many of the new entrants in the futures market to dump their “oil long” holdings.  Speculators have been buying oil long contracts in record amounts up until a few months ago. See this chart from Canadian brokerage firm Canaccord Genuity:

Now, the chartist in me says that after a recent round of weakness, a dive in oil prices will weed out the latent longs – cause them to give up hope.  And then the liquidation of ETF holdings, of futures contracts, begins in earnest and causes a waterfall effect on oil prices.

If/when that speculative liquidation happens, trend lines get exacerbated – things go up higher than fundamentals would say they should, and go lower than what fundamentals indicate.  So I suggest that when oil traders and other market players say oil is going HERE, wherever here is, you can likely count on it going 10% past that.

That’s the tail wagging the dog, and why we have so much more volatility in the commodity markets now.

So in one sense, this chart tells me the timing of the IEA announcement was perfect, if they were targeting a large part of the market – the speculators.  They’re saying we will do everything we can to keep oil lower for longer than you think, this lower oil price scenario is not short term, so you will lose money on your trade.

(I have this mental image of the head of the IEA saying to oil long speculators – SOLDTOYOUSUCKA!)

Perhaps the IEA was looking at fundamentals saying hey, there is no need for this oil price as supplies are plentiful and the western world’s economy is weak, so if we can just change market psychology a bit, we can get what we want – $80 oil.

So who will benefit from today’s news, i.e. how can I use today’s news to make money?

One place is obvious, the other one is…counter-intuitive.

Certainly if you want lower prices, bring on more supply.  And that means more drilling, which should be music to the ears of investors in energy services stocks – the drillers and their sub-trades, like the fracking companies and the supply companies to them.

The energy producers of the world ARE increasing their spending to find new supply – a whopping 25% more in 2011 over 2010 to $133 billion, says US securities firm Raymond James.  Here in western Canada, producers will be spending 32% more this year over last, according to Canadian brokerage Wellington West Capital Markets.

But the strangest sector to benefit from lower oil prices, I think, will be junior oil stocks.   For the last two months the overriding psychology in this space has been backward.

That is – the oil price has to go down before junior oil stocks can go up.

_________________________________________________________________________________________

Did Fracking Just “Go Green?”

There’s nothing like it in the industry…

…A fracking process that’s more environmentally friendly than the competition — and also more profitable.

Learn all about this company’s new fracking process – and how individual investors like you can capitalize on it – in this special video presentation.

_________________________________________________________________________________________

Junior oil stocks were having the same inverse relationship to oil that the Dow Industrials were; a high oil price will cause recession so sell riskier and junior stocks – including junior oils.

The first clue that this thinking was affecting junior oil stocks was when they did not benefit from the last $20 move in the price of oil, up to $125/barrel.

Then as the Arab Spring did NOT move into Saudi Arabia, the world’s largest oil producer, the political risk premium came out of the global oil price, and oil fell back to $100.

But that was not enough for junior oil stocks to move again.  Partly that’s because it’s summer – many investors leave for holidays, and trading volumes dry up.  A lot of these stocks have raised hundreds of millions of dollars and now have hundreds of millions of shares issued – and need lots of volume to keep their share price up.  So in one sense, the value reset button has already been pushed on many junior oil stocks.

For over a month now I’ve been reading into the junior energy markets that until oil gets under $90 and stays there for a short while, the market is not willing to buy the juniors in such a wave that a rising tide will lift all boats like it did from September 2010 to March 2011.

Another way of saying this is that junior oil stocks aren’t low because the market has no faith in the oil price; rather, it’s because the market has too much faith in it.

So once the market is convinced the oil price will stay low enough to not cause recession, it will again buy the juniors, as even at $80/bbl these companies make GREAT money.  Some valuations will get reset (though much of that is now done), but the fast growing, discovery making juniors will once again get rewarded.

The outlook for natural gas: the stocks with upside around the corner

By
1940bkg
-
0

Timing is everything in the market and being able to spot trends is critical for locking in attractive returns.

Natural gas producers have taken a beating over the past three years but there are encouraging signs that natural gas might be ready for a break to the upside.

Despite a seasonably weaker shoulder season, NYMEX prices are inching above 10-month highs and observers are finally buying into the idea that stronger prices are around the corner.

Longer term outlook expected to strengthen

The International Energy Agency (IEA) said this week that natural gas is about to enter a “golden age” with world-wide gas use to increase by 50 per cent by 2035.

That might seem far away, but the immediate present has also been encouraging of late.

Calgary based energy economist Peter Tertzakian is now predicting declines in existing production will trump new production adds from the big new shale plays, driving prices higher.

All the while, US industrial demand growth is the highest in a decade, according to the Energy Information Agency.

Add some hot weather in big consuming markets and we’ve seen a nice steady rise since May.

The contrarian view: buy low sell high

Already we’re starting to see some movement on analyst price forecasts.

FirstEnergy is a boutique brokerage firm in Calgary specializing in oil and gas.  Their analyst Martin King said Tuesday that a longer-term average gas price of $5.50 is “reasonable” heading into 2012, although his own 2011 forecast still calls for an average of $4 for the year.

The difference between the two numbers sums up the opportunity in a nutshell–almost 30 per cent on price alone. It’s not unreasonable to expect stocks to follow suit with higher multiples and valuations.

Unfortunately the pure play gas producer has become an endangered species and it’s hard to find a lot of names with growing production exposed to rising spot prices.

The gas trainwreck survivors: lean and mean

The good news is that the producers that managed to stick around over the past three years are bonafide survivors. They’ve taken a beating and still managed to be profitable through the down cycle.

In fact, many have thrived and have quietly posted nice share price appreciation. (See our story on the Surprise Junior Stock Performers)

Although some, like Birchcliff Energy (TSX-BIR), are near 52-week highs, there could be even bigger upside around the corner. In fact, there WILL be more upside with higher gas prices.

The company has been furiously developing its Montney play in Alberta and says it can still make money at a natural gas price of $3/mmcf . The company has posted positive earnings for nine consecutive quarters and has all of its production un-hedged to sell into a rising market.

It’s spending more than $260 million this year to double its processing capability which will give it room to ramp up volumes.

Peyto Exploration (TSX-PEY) has been in the wilderness forever it seems, but it is also testing year-highs. Both companies have made solid share price gains Peyto alone has quadrupled since the market low in 2009.

Crocotta Energy (TSX-CTA) is another survivor that was forced to sell assets and recap the company in September of 2009.

Since then its share price has doubled while it works liquids rich gas near Edson in central Alberta.  Liquids are in big demand in the heavy oil patch and amounted to almost a third of Crocotta’s first quarter production. Notably, Tourmaline (TXS-TOU), which just bought out Cinch Energy (TSX-CNH), is just to the west of them.

Advantage Oil and Gas (TSX-AAV) posted a small loss of three cents in Q1, which wasn’t bad considering it spun off its oil assets to focus on its core Montney development. It has 28 million cubic feet a day hedged at Canadian prices of $6.25 a gJ, which will protect the balance sheet until a full-blown recovery takes hold.

_____________________________________________________________________________________

THE NEXT 6 WEEKS WILL BE CRITICAL

I’m convinced the next six weeks will present some of the most extraordinary buying opportunities ever seen in the oil and gas markets.

At this very moment, there’s a tidal wave of change that is sending shockwaves thoughout the industry.

And as a result…a handful of companies will provide early investors with some astounding profits.

Let me show you how you can claim your share of these profits – and what simple steps you should take right now to take full advantage – in my FREE special report.

Click here to read this Free report right now.

_____________________________________________________________________________________

Longer-term exports hold promise

Looking even longer term, big players like Encana, Apache and EOG are looking at exporting LNG, or Liquid Natural Gas, off the West Coast of Canada.  Natural gas prices in Asia are about double what they are in North America, and even after shipping costs producers will be making a lot more money selling gas in Asia.

But smaller players have bought in as well.  Earlier this month Progress Energy (TSX-PRQ) teamed up with a Malaysian company, Petronas, one of the world’s largest LNG companies, to develop unconventional gas and build a second LNG export terminal in B.C..

These are huge multi-billion dollar investments, and the risk is all going to be project execution and raising enough money to stay in the game. Having a huge multi-national for a partner is a huge plus in that regard. But this is definitely a five-year payback; patience is the key here.

But it suggests things are looking better in a previously dead-end sector with nowhere to go but down. Six months ago, few if any analysts gas prices would be close to $5/mmcf in North America – almost everybody was predicting lower prices.

It remains to be seen if this is a sustainable recovery for producers and their investors. Timing and finding ways to profit from a rebound will be the test.

Want to learn more about investing in junior oil and natural gas stocks? If you have a Facebook account, just “like” this article and a hidden link to Keith’s 10 page how-to on oil and gas investing will appear:

[facebook-like id=”1″ ]

How To Use ETFs to Predict Price Moves in Oil

By
1940bkg
-
0

ETFs, or Exchange Traded Funds, not only track the price of oil, but they can actually provide clues as to where the oil price is going.   I’ll show you how to read their charts, and show you the ETF that I think most accurately follows and even warns investors of oil price moves. (Hint – it’s not who you think.)

Currently Light Sweet Crude futures remain in an uptrend, over the last month price has tumbled from former highs at $114.83 in May to $95.25 currently on the July contract.  The two-year chart below, in 2-day increments, shows the course of oil prices with a continuous futures chart.

ETFs allow individual investors to partake in the price fluctuation of oil in a way very similar to simply purchasing a stock.  (For further information on ETFs, see Keith Schaefer’s report: ETF Investing in the Oil & Gas Market).

The chart below shows the price of light sweet crude in yellow/red, and two ETFs – USO-NYSE, which is the United States Oil Fund (purple), and an ETF which gets far less attention – XOP (light blue).  XOP is the symbol for the SPDR S&P Oil & Gas Exploration & Production ETF traded on the NYSEArca exchange – so it is an ETF that covers oil stocks/equities, whereas USO tries to track the commodity.

How to use ETFs to predict moves in the price of oil How to use ETFs to Predict Moves in the Price of Oil

Source: Thinkorswim

General Chart Comments

From the chart above much information can be extrapolated.  Namely we can see that at this time oil still remains in a primary uptrend, even though we have seen a sizable correction.  There are two trendlines shown on the chart – the first one is red and indicates an aggressive upward trend.

At some point all aggressive moves slow down.  The green trendline is also present which marks the more stable rise of oil prices over the last year.

If oil prices move below that red line, currently intersecting at $92 (this will change over time as the line is sloping), it indicates that oil is correcting to its primary uptrend level (green line).

The green line currently intersects at $80, but will rise over time as the line is sloping. An upward sloping trendline such as this helps a trader gauge when longer term trends are shifting.  Markets move in waves – in an uptrend, markets have progressively higher low prices and progressively higher high prices.

If oil can hold above the $92 level it indicates strength, based on this simple method derived from former price action.  On the other hand, if the commodity moves below that level we could see prices in the low$80s, where there is likely to be buying interest once again.

Using ETFs as a Form of Analysis

The ETFs shown in the chart are not only investment vehicles, but they are also analysis tools.  USO (purple on chart) has already broken below its trendline (yellow line) indicating that lower prices are likely for that security.  This provides some confirmation of the decline in oil, although XOP is a better gauge.

XOP provides valuable information.  Not only has it been the far more profitable play from rising oil prices, but also generally leads oil prices – providing a bit of a snapshot into potential moves in crude.

This occurs because XOP is an ETF that doesn’t track crude – it tracks oil exploration and production companies – which provide a large input the for the oil market as a whole and thus the price of oil.  If investors are buying these securities, which are held by a sector ETF such as XOP, it indicates that the market is anticipating rising oil prices.  The same situation applies if investors are selling these securities help by the XOP ETF in anticipation of falling oil prices.

Looking at the chart, XOP (light blue) has moved aggressively higher over the last year.  Rarely did it pull back significantly, even when oil declined.  I have highlighted a few sections of the chart for educational purposes.  The first, light blue highlighted box on the left s (#1) hows XOP making a lower price high, while oil made a higher price high (all contained within the rectangle).  This was a warning for oil prices and quickly oil prices corrected by about 15%.  This is commonly called divergence.

The next box to the right (#2) shows oil correcting to the prior low yet XOP pulled back very little in comparison – oil quickly moves higher following XOP’s lead.  The next highlighted blue box (#3) shows a similar situation to the last – XOP leading oil higher.

The final box is highlighted in white (#4) and is a potential warning signal similar to our first highlighted area.  For the first time in over a year XOP made a lower high, while oil made a new high.  This was a warning signal for the correction in oil, and remains a warning signal.  XOP has shown a strong tendency to lead oil prices and now it is retreating, leading oil lower.

You will notice at the far right of the chart, which shows June 15 price action, that while oil has paused near recent lows, XOP has retreated below its recent low.  This makes further declines in oil likely, as long as XOP continues to decline or fails to rally on oil price rises.

Tying it together

Investors can use the XOP ETF to help them see the likely course the commodity will take.  XOP has been a sound indicator for the strength of oil prices.  It pointed to strong oil prices through the rise, and even when crude corrected, it indicated a correction which has come and currently it is pointing to a further correction in oil.

In the beginning of this report the low $80’s was discussed as a potential target for the oil price.

If oil continues to drop below that level, we can look to the XOP indicator as a sign of a potential bottom.  When oil makes new lows (compared to recent price action), but XOP fails to make new lows, oil prices have a high probability to begin moving higher as well.

While USO comes to mind when looking for a place to take advantage of a rise in oil prices, it has proven not to be the most efficient vehicle.  XOP, when oil prices are rising, has proven to lead oil and also generally outperform.

Investors must remember XOP will also lead on the way down, retreating fast and more aggressively than oil; therefore, a prudent exit strategy is required. XOP also lacks the trading volume that USO has (still 2-10 million shares a day), yet it functions as an excellent analytical tool for oil prices.

– Cory Mitchell, CMT

1...105106107...119Page 106 of 119
© Copyright 2023 - Profit Prospects
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.