₪ David Pescod's Late Edition March 10, 2008
ANTRIM ENERGY (T-AEN) $4.08 -0.14
On a day like this in the markets, with oil hitting $108 a
barrel and natural gas over $10, you would think those in the
oil and gas patch would be having a lot of fun. We aren’t.
Today Toronto is down and ugly and New York is not doing
much better as once again, there are concerns about the
bankers and brokers and everyone is paying for that concern.
It’s a good time for Warren Verbonac of Octagon Capital
to write a piece called, “Can Investors Be Bullish in This
Market? Yes—Due to the Persistent Strength in the Oil
Price.” He makes one comment, “We don’t believe any producer
anywhere in the world is holding back oil production
at these prices, and to the extent that we may have reached
peak oil production, the supply is constrained with Asian
economies continuing to demand more energy.”
Verbonac covers several stocks from Antrim Energy, where
he has a target of $11.00 to Ithaca Energy (IAE) which should
have news shortly and a target of $6.00, to Pan Orient (POE),
which has just flown in the last year for Verbonac, but he is
holding out for $18.00, and Petrolifera Petroleum (PDP) with
a target of $25.00.
It’s a nice brief piece and does help a bit in a day like today
...
if you would like a copy, e-mail Debbie at debbie_
lewis@canaccord.com.
DELPHI ENERGY (T-DEE) $2.34 +0.03
TERRA ENERGY (V-TTR) $1.43 -0.01
We had hardly started chatting with David Reid, the President
of Delphi Energy, when he joked that “No, we have not got
pictures of Josef Schachter in a compromising position” he
chuckled...and of course he is referring to the fact that it has
been one Josef Schachter who has been mentioning Delphi
Energy positively over the last while and undoubtedly helping
get their story told.
Delphi is a natural gas-based Alberta story that stands
out because it has a significant debt load. Not too long ago,
over $100 million, now getting closer to $82 million, but still
big. It means that the company has lots of leverage and when
gas prices were low and getting lower, that’s not the most
comfortable position to be in. Now all of a sudden, gas prices
have been going up almost precipitously fast. One assumes
this coming spring there will be the usual warming up correction
in this sector, but things have definitely turned for the
gassies in Western Canada.
For those who don’t understand this concept of leverage,
I’m sure you will understand it when we make the real estate
comparison. You buy a house and you do it with only say,
$10,000 down on your $100,000 house.
It doesn’t take much of a move upward in the real estate
market of say, 20% or 30% for you to make a fair
chunk of cash on that real estate investment, but imagine
what’s happened if you put $5,000 down on your $100,000
house and the real estate market just dropped 20%. You
got it...you’ve lost all your equity, plus! And that’s how
leverage can work for you...or against you. And Delphi
has definitely got leverage.
While Delphi has suffered over the last two years from
lower natural gas prices, higher service costs in the oil
patch, higher drilling costs and a pop in the Canadian dollar,
now things are suddenly changing because of gas, in
record time, ascending to almost $10.00 an mcf (spot gas
prices aren’t nearly as good in Calgary as they might be in
New York City). So things are definitely changing.
Currently doing close to 6000 barrels a day, they hope
to be up to 6500 a day and we ask Reid for his prognostications
on oil and gas prices and he is pretty adamant that
he is quite happy with current prices. “The last thing we
need is a spike to levels that are simply too high of $14.00
or so” he suggests and as far as for the summer, he is
hoping to hedge up to a third of their production just in
case things do sell off in the spring or summer.
As far as oil, he figures it’s going to stay north of $100,
between $100 and $110 for much of the coming year. And
the big question seems to be, what kind of cash flow numbers
this year will be and with Schachter already predicting
cash flow for Delphi of $1.00 to $1.20 for next year,
there could be some considerable appreciation for the
stock if the analysts get over their concern of the leverage
that Delphi has.
As Reid is the first to point out, Delphi currently trades
at a lower valuation from most other gassy stocks out
there.
Meanwhile, we ask Reid if he could find a stock out
there that he would recommend and the usual rules apply...
if it doesn’t double, he owes us a good bottle of wine!
And actually, he responds that he thinks he’s got it.
Terra Energy is another one of the natural gassies out
there that has had some debt and when gas prices weakened,
it got pounded as well. Reid suggests that he is a
big fan of Terra’s technical team and Reid says that if
Terra Energy can successfully market its Montney mineral
rights near the City of Fort St. John, BC and get a decent
price, that could take care of some of the debt that Terra
currently has.
Josef Schachter on last Friday’s visit to BNN again, he
picked Delphi Energy as one of his top picks! |
