The Only Stock I Own That’s NOT Oil and Gas

By
Keith Schaefer
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My personal portfolio is always 100% oil and gas—except for this one stock.

When I heard how revenue is soaring at this company—in a multi-billion dollar industry that is one of the fastest growing in all of North America—I rushed to visit management.

They confirmed what I had been hearing—that they have a product with a massive competitive edge.  And they’re attracting attention from the biggest players in the industry, all of them looking to grab market share in this burgeoning sector.

This company’s technology allows them to lower costs and increase profits while still growing at an unbelievable clip.

I made it my largest position in terms of number of shares.  And now it’s becoming my biggest winner of 2015—even bigger than Pacific Ethanol (PEIX-NASD) which last year went from $3-$23 in just nine months.

You will only read about this company in one place—at my other newsletter—www.smallcapdiscoveries.com.

The chart looks great.  Business is booming.  It’s one of the few products the world actually needs.

I can’t believe my good fortune that our editors found this stock so early, and that the business is performing so well.

I want to make this simple for you.  SmallCapDiscoveries is an exclusive newsletter, with a very small subscriber list.  That’s because
we provide access to bottom level financings in micro-cap stocks with positive cash flow.

It’s a powerful—and winning—combination.  But it means we are only allowing 50 new subscribers to learn this stock’s symbol, and read the full report.

And I’m going to let you do that for just $5. But only for the first 50 people who sign up.

It’s my largest position.  I’m confident it will be my biggest winner of the year.  That’s what you should expect from a premium service.

If you’re serious about growing your wealth from the bottom up–read the full report—RIGHT HERE —before this company’s next operational update comes out.

 

What happens when the Marcellus’ Biggest Producer Gives Up?

By
Keith Schaefer
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By: Bill Powers

Sanford Bernstein is a boutique brokerage firm that the Market considers “smart money”.  But I have hard time believing their May 4th call that Marcellus/Utica gas production will jump a net 10 bcf/d by 2018.

My main doubt comes from Chesapeake (CHK-NYSE) as they are in the process of going from 9 rigs in the Marcellus to just one.  Chesapeake is the largest producer in the Marcellus.  When the top producer is forced—for whatever reason—to essentially give up on the play, it’s tough to see how production rises 33-50% in three years.

After producing 2.15 bcf/d from the Marcellus in 2014 or approximately 15 percent of the play’s total, CHK is quickly ramping down activity in America’s biggest gas field.  (Source: http://marcellusdrilling.com/2015/04/envelope-please-top-5-pa-marcellus-shale-gas-producers-for-2014/ )

As you can see from the below table which was taken from CHK’s May 2015 UBS Global Oil and Gas Conference presentation, the company plans to reduce its year end rig count in the Marcellus to 0 or 1 by the end of the year:

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Source: http://www.chk.com/Documents/investors/20150519_Latest_IR_Presentation.pdf

It should surprise no one that CHK has moved the Marcellus to the bottom of its capex barrel for 2015 since the company has already made public its plans to shut-in some Marcellus production until prices improve.

More importantly, with Marcellus gas at the Leidy, PA hub selling for only $1.44 per MMBTU (Aug 5), CHK and its fellow producers are not even covering operating and overhead costs at today’s prices.

While I firmly believe there is a lot of gas left in the Marcellus, it has become increasingly clear from recent production trends in Pennsylvania that material growth from today’s levels will not happen anytime soon.  In fact, if recent data trends continue, it is looking increasingly likely the Marcellus is now past peak. More on this below.

While the EIA and many analysts focus on rising rig productivity and initial production (IP) rates as signs of increased drilling efficiency, I believe this focus is somewhat misplaced since increased efficiency is largely a result of prospect high grading.

A more important measure of the potential growth of a shale play is well productivity. During the early years of drilling, as activity is ramping up and operators are finding the play’s sweet spots and rapidly improving drilling and completion techniques, productivity per producing well rises despite the steep initial decline rates of new wells.

However, as plays mature and operators slow down activity levels, productivity per rolls over and soon thereafter production from the play declines.  This is exactly what is happening in the Marcellus right now.

As you can see from the below table, production in the Pennsylvania portion of the Marcellus rose only .5 bcf/d from May 2014 to April 2015 despite the addition of 782 wells.   In other words, the average PA Marcellus well produced 2.22 mmcf/d in May 2014 and only 2.01 mmcf/d in April 2015–a decline of 9.5 percent.

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Source: DrillingInfo

But won’t Chesapeake’s inventory of wells in the Marcellus allow it to offset natural declines for years to come?  Unlikely.  While the company did not disclose the number of Marcellus wells in its inventory awaiting completion in its Q1 filings, I suspect its inventory will be largely depleted by the end of the 2015 given annual natural declines rates of ~600 mmcf/d and the company shutting down its drilling program.

Without a major turnaround in CHK’s drilling plans between now and the end of the year, 2016 could see a steep fall off in the company’s Marcellus production.

Additionally, while there is additional pipeline coming online to service the Marcellus that will alleviate some of the basin pricing differential, at today’s rate of drilling and the rapidly maturation of the sweet spot in Bradford and Susquehanna Counties, it’s possible that much of this new pipeline capacity will never get filled.

Ironically, the Rockies Express Pipeline (REX)–which was recently reversed to carry Marcellus gas into the Midwest–was once expected to flood the East with cheap gas.  However, Rockies gas production began declining soon after the pipeline was commissioned and the pipeline was never fully utilized for its original purpose.

In conclusion–Sanford Bernstein analyst Bob Brackett’s May 4th piece titled “The Gas Shakeout (8): As the Marcellus Impact Creeps Westward, Who Loses?”–in which he predicts Marcellus/Utica gas production will grow a net 10 bcf/d to 23 bcf/d by 2018–seems quite detached from the current reality that I see in the Marcellus.

When a play leader abandons it and stops drilling as CHK is currently doing in the Marcellus, falling production is usually soon to follow.   Stay tuned–things  are about to get interesting in America’s largest natural gas play.

In a Tough Market, I Own the Best

By
Keith Schaefer
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How many energy stocks are seeing their profit margins increase in this environment?

That’s exactly what I expect to happen when my favourite company announces their next quarterly in mid-August.

That’s right—the main product group for this company will almost certainly see a higher top line and bottom line in 2015.

Profit margins for their core business are increasing because demand for their products is increasing—despite $45-$50 oil.

AND I’m confident they are actually going to lower their debt this year.

All the while paying a 5% + dividend.

They’re able to do all this because

  1. they continually innovate, bringing new and improved products to market
  2. Management  owns a lot of stock, so that dividend is important to them
  3. They make money over the entire life of an oil well—get customer, sell to them for 20-40 years.

 

In this market, you only own the best.  This leader is still expanding its reach—and its profits.   The next earnings call is mid-August. Get my updated report—risk-free—with the name and symbol of this stock before then—CLICK HERE.

Keith Schaefer

 

This Trade is So Simple Your Grandma Would Get It

By
Keith Schaefer
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The Obvious Trade That The Entire Market Has Missed

It is as plain as the nose on your face but it has been missed by virtually everyone, especially the analyst community. Yesterday (Monday) was the first time I saw an energy analyst on TV talking about this issue.

There is a surge in the level of Canadian oil production on its way in the coming weeks that is catching the market completely off guard.

This production surge isn’t something that might happen, it is a certainty.

And there is a great way to profit from this.

I’m amazed this hasn’t received more attention–the size of the production increase is staggering.

There is a lot of attention on how much additional oil production that Iran might be able to bring back online in the coming year…well, that same 500,000 barrels of oil per day (bopd) increase is coming this quarter–from Canada.

In fact, we could be talking about a production increase of almost 600,000 bopd.

So forget about the end of Iranian sanctions which has the attention of the media–here is the next big disrupting event in the oil markets.  And I’ll show you how I’m profiting from it.

This spring, refinery maintenance and wildfires in western Canada choked out roughly 400,000 bopd of production that was heading to the US refinery system. But that’s mostly under control now.  Now that Canadian production is coming back–as this chart from Morgan Stanley shows:

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As I said, there is no speculation involved here.  This is happening folks, and it’s happening now.  That’s the #1 reason why US oil inventories are up in the middle of the summer this year–when they’re normally down.

Most of this Canadian production flows to US refineries via the Midwest–right beside the Bakken.  Canadian and Bakken oil prices will now go back to competing for refinery and pipeline space.

It’s a race to the bottom for regional oil prices–just like 2012.

There has been no mention of this production surge in the mainstream media and I have seen exactly one analyst report that referred to it.

That has created a tremendous opportunity for those of us who are prepared for what is about to happen.  And it just so happens I’ve got the perfect stock to profit from the surge in Canadian oil production and its negative impact on Canadian and Bakken oil prices.

This company has input costs that are entirely determined by the price of Canadian and Bakken oil.   Meanwhile its revenues are based on Brent oil pricing.

The wider the Brent and Canadian oil differentials get from Brent, the more money this company makes.  Those differentials are already starting to trickle wider as some of that oil is beginning to have an impact.

Over the next three to six months this company’s profits are going to explode.

But that’s just the icing on the cake.  The cake is the dividend this stock pays out–double digit yield.  And it has very manageable debt.  It is a sound company that I owned back in 2012 as it made its First Big Run, from $14-$33.

Yes, this company is already sporting a double digit dividend yield without the benefit of Canadian and Bakken differentials widening.

But if I’m right and those Canadian and Bakken differentials really start blowing out–getting BIG–the market will rush into this stock in a hurry.

That is why NOW is the time to act on this, before everyone else gets wind of it.

I’ve prepared a full report on this double digit yielding company that is starting to benefit from the Canadian oil production surge.

For a limited time get the name, symbol and my full updated report RISK-FREE by clicking here….

Keith Schaefer

Sell Your Oil Stocks. Here’s What I’m Buying. And Here’s Why.

By
Keith Schaefer
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Rig productivity increases dramatically as the rig count in an area decreases—data from the EIA show productivity increases as much as 50%!

It means US oil production will not follow anywhere close to the same trajectory the rig count has (i.e. falling off a cliff), and it also means the number of rigs needed to simply sustain US production here at 9.5 million bopd is much lower than the Market currently believes.

Look at these two EIA charts—the first shows rig productivity in the Bakken (which is almost all in North Dakota) over the last eight year overlaid against the rig count in the Bakken.  The second one shows the same  for the Permian—which is located in west Texas.  The charts are from the EIA’s Monthly Drilling Productivity Report.  They show the same thing happening, but the Bakken chart is a bit more stark.

Look at the left hand side of the Bakken chart, back in 2008-2009.  During the Financial Collapse, rig countspredictably fell.  Production per rig unpredictably shot up over 50% during the same time—from 200 bopd (barrels of oil per day) to just over 300 bopd.  Then as the rig count rose over the next four years, productivity per rig didn’t hit the 2009 peak until 2013.  (That’s a very important sentence, read it again–rig productivity DECLINED for two years as the number of rigs INCREASED).

 

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 Move to the right on the Bakken chart—to last year/this year.  This year as the rig count collapsed again, rig productivity soared in the Bakken.

The Permian chart below is showing the same effect back in 2008-09, just more muted as there were few horizontals in the Permian then.  But in 2014-15, the chart shows the same dramatic increase in productivity.

2

It certainly looks like productivity jumps 50% as the rig count drops 50%.

That’a stunning statistic, and it’s surprising to me that it’s not being discussed in the Market right now.  To me it doesn’t seem to be part of the equation in determining oil prices.  And these charts and my conclusions are quite bearish for oil.
There’s one other important point about these charts—to me, these charts separate productivity increases from the drop in rig counts from the productivity increase that comes from better fracking techniques.  The industry consistently increased productivity per rig throughout the Shale Revolution, but the impact of fewer drills overshadowed those productivity gains in the Bakken for almost two years—productivity bottomed in 2011—and it took another two years—not until 2013—for productivity to hit new all time highs.
I’m an investor first.  All I really want to know after reading this is…how do I make money from this information?  The answer is really quite simple.  And it helps explain why my two largest positions this year are actually in the black (that means up ;-)) as the rest of the energy market is down severely.

Learn how to profit from this information and make money this year in energy while your peers don’t—click here. 

 

My Biggest Position of 2015

By
Keith Schaefer
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Dear OGIB subscriber,

I don’t often write my readers with this level of urgency.

But recently I came across a situation so profitable and so pressing…

I did 2 things right away.

1. I put $400,000 of my own money on the line in this single investment idea.

2. I dropped everything at once to rush you the research on this opportunity.

What is it, exactly?

In short, it’s an “energy loophole” I’ve discovered.

And it’s been green-lighted – in a highly unusual move – by one of the biggest, most controversial corporations in the world.

You can get my brand-new write-up here. 

But before you do, I want to be very clear…

I strongly believe this is a once-in-a decade opportunity.

I see it as my “retirement” stock — paying me huge dividends for a long, long time.

And as I’m about to show you, this small company’s revenue and cash flow is about to go through the roof…

All thanks to my “energy loophole.”

Follow this link right now for the full story. 

You won’t hear about it anywhere but here.

Kind regards,

Keith Schaefer
Editor, Oil & Gas Investments Bulletin

I’ve Never Seen A Market Like This

By
Keith Schaefer
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I’m going to run through a few seemingly unrelated facts here fairly quickly, but the message is: the North American energy market is so opaque right now—because fundamentals are changing so fast—that my #1 2015 credo—SMALL POSITIONS—still holds true.  And be prepared to change your mind in a hurry.

This is the chart that is giving oil investors around the globe—but especially in North America—complete fits:

Chart

This custom chart comes from my colleague Steve Zachritz—the Zman in Zman’s Energy Brain (I’m a paying subscriber and nobody covers US E&Ps better).

It shows what we all know and talk about—the increasing US production after such a sharp drop-off in the rig count.

First off, nobody expected the upstream producers to have so much discipline in dropping rigs that fast (though considering how much debt they have it should not have been).

Then we all waited for production to drop….and we are still waiting.  That is, if you pay any attention to the EIA weekly production number.   As the oil price crisis hit late last year, I wrote a story—and it was my most widely read story at www.seekingalpha.com that the EIA Wednesday morning production number was the #1 factor investors were using to move oil prices (you can read the story again here: https://oilandgas-investments.com/2014/oil-prices/the-oil-price-is-all-about-one-number-right-now/ ).

Well that number has now become…shown for what it is really…is the best way to say it.  The EIA guesses at that number every week—though assuredly based on some methodology.  On May 22, they made a big revision to US oil production—up some 300,000 barrels a day, from 9.2 to 9.5 million bopd.  (Now strangely the oil price did not react to that news—which was bullish for oil.)

The EIA at the time admitted they do the best they can—but that number has lost a lot of credibility now.  It’s not completely meaningless, but most investors are now much more focused on oil inventories than production.

They don’t trust it anymore.  And from my talks and from my own sense of the market, most—but not by a lot—think that US production number is lower than the EIA is reporting.  I wrote about that last week, referencing the Raymond James research from June 2015—you can read that story here: https://oilandgas-investments.com/2015/energy-services/how-the-iea-and-eia-are-getting-it-wrong/

This week there is another big draw in oil inventories, which gives the bulls—and anyone not believing the EIA weekly production stats—a lot of ammunition.

And there’s a lot on the line here—stocks have gyrated crazily—everyone down 50% + Oct-Jan, then the leaders bouncing back 50% of that loss, then everyone coming down to lows again last week….

So there are a lot of capital gains on the table here with such low valuations on a few stocks…when oil MAY not deserve to be down here at $50—if in fact the EIA numbers are not just wrong, but VERY wrong.

Now, not only is the supply side wrong, the demand side could be wrong as well, as my article last week shows.   The Market was wrong last fall when it said that oil demand was historically inelastic—meaning demand wouldn’t change much if prices lowered.  That was clearly…wrong.  Demand has soared…but it may be even higher than we think.

Oilprice.com published some proprietary info by Mike Rothman of Cornerstone Analytics in New Jersey.  I’ve spoken to Mike and asked him for an interview, but he declined and I respect that; he runs a very high end newsletter that talks oil supply and demand.

He’s kind of like a barrel-counter.  He is very well plugged in at the highest levels of OPEC.  And he has been a big believer for years that overall oil demand is under-reported,  but right now it’s REALLY under-reported—to the tune of some 2.5 million barrels a day.  I would never republish Mike’s stuff myself (nor would any of you right…??), but if it’s in the public domain from somebody else, well, here it is.

You can check out Mike’s graphs at the Oilprice story – http://oilprice.com/Energy/Crude-Oil/The-Multi-Trillion-Dollar-Oil-Market-Swindle.html )

If Mike is correct, oil is actually about to undersupplied very soon, and the world could see dramatically higher prices this fall.

But really…when will we know? Basically when one big customer runs out of supply.

It’s like the natural gas theory—is supply peaking now and about to head into a hard decline?  We won’t know until it’s too late and some source is exhausted to the point it can’t meet demand (the imminent REX pipeline reversal could be a potential for that…)

Natural gas production has been flat in the US for most of the year now, but is up 3-4 bcf/d over last year.  That has kept prices 50-60 cents higher/mcf than I expected so far in both Canada and the US (I actually expected Canada to be more like a full dollar/mcf lower than the current $3 or $2.80/GJ).

Is the Marcellus peaking?  Will the new pipelines out of the Marcellus flood North America with even cheaper gas?  Nobody knows.

What does ALL that mean for investors like me and you?  Long term, I don’t think that much.  I now have just small positions in all my other junior oil producers, and whether I win or lose on those is irrelevant to the size of my portfolio.

The lesson? SMALL POSITIONS.  There is such a good chance that the energy supply and demand numbers we see are SO WRONG because things are happening SO FAST.  It makes writing a newsletter where you make your trades public bloody humbling I’ll tell you that.  But I’m not shy about admitting when I’m wrong and changing my mind.

I still see oil prices capped at $65, as international supply still seems robust and the US industry has made it clear a lot of production comes back at that price.  The EIA supply and global demand numbers would have to be VERY wrong for oil to go above that IMHO.

Certainly here in North America, Canadian production coming back online negates the first half million barrel a day drop in US shale production.  I would think that’s a year out. Canadian discounts, or differentials, are already increasing and we could see rail once again become economic this fall to transport oil. (Though, the way stocks are trading the Market is clearly not concerned about this right now.)

One other reason for my $65 cap idea is that the spare capacity in the world is no longer just in Saudi Arabia.  In the lead up to $147 oil in 2008, only the Saudis had spare capacity.  Now Iran, Iraq, Libya and most importantly, the USA—has spare capacity.

Editor’s Note–I only have ONE BIG POSITION in 2015.  And it’s in an energy company in where the price of oil doesn’t impact it’s bottom line. It’s an out-of-the-box story.  It falls in between analysts’ coverage. Nobody knows about it–a true undiscovered gem.  And yet it pays a huge dividend, and the latest quarterly financials says the business is growing strongly. Here’s the name and symbol–RISK FREE

Keith Schaefer

 

These Companies Have the Fattest Profit Margins in the Energy Sector

By
Keith Schaefer
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Everyone thinks energy stocks are doing really poorly.  But look at the charts of these energy companies—they’re at 52 week highs:
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They’re kind of similar aren’t they?  That’s because they belong to the same energy sub-sector.

There are three main sub-sectors in energy:

  1. Upstream – the oil and gas producers and service companies that revolve around drilling; getting the hydrocarbons out of the ground
  2. Midstream – companies that transport oil and gas by land and water, and the companies that support them—pipeline companies, trucking, railroad, barge, tankers, transloading comapnies all fit into this category
  3. Downstream—refineries and companies that support them, including petrochemicals

No matter what is happening in the energy sector, one of these sectors is in a bull market.  The problem for investors is that they see the oil and gas sector as too narrow—meaning, it’s just the producers.

And North America has the most vibrant, transparent, well-funded and technically savvy junior producer market in the world—by far.   But it really is a small part of the market.   If you’re determined to only play in that sandbox, you will suffer long periods of…ambivalence at best, and depression at worst.

Plus, I like my money to be working for me all the time.  When I see stock charts like the ones above, I know I’m in the right spot where my money is working best.

There’s actually a set-up right now in the oil markets where this sub-sector can’t lose the next period of time.   That’s the real secret of investing—finding a sector where everything is going your way.

I outline my thinking, and the actionable investment idea that I’m using to increase my net worth right now.
You can see them on the charts above—it’s working great this year while other investors are crying in their oil.

Click here to find out more.

Keith Schaefer

 

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