David Pescod's Late Edition August 30, 2005
HEATING OIL $2.085 +0.1762
NATURAL GAS $10.847 +1.055
CRUDE OIL $69.80 +2.61
We got a reminder yesterday (courtesy of Katrina) that when
Mother Nature wants to put on a show, it can be extraordinarily
nasty.
As the press is finally able to get to ground zero and we see
pictures of the devastation and hear stories of lives lost and
family situations altered forever, we get a sense of the disaster.
Whether it’s the worst in American history or the third
worst, who really cares, it is of historical proportions. To find
out that things are apparently getting worse, with levees broken
and the water actually increasing in depth, suggests that
there is no sign of this thing getting better anytime soon.
It seems almost sacrilegious at a time like this to look at
some of the economics of the situation and the effects on
stock markets, however that IS what we’re expected to do.
We simply can’t ignore the significance of New Orleans, Louisiana
and the areas, and their importance to the energy business.
Approximately 22% to 24% of all the natural gas in the United
States is produced by the huge platforms—roughly 4000 of
them, offshore in the Gulf of Mexico. Between the offshore
production and the oil that is unloaded at the super-port at
New Orleans, roughly a third of all the energy that lands in the
United States, goes through that one area. If it is shut down
for weeks (let alone months) one can only guess how oil high
oil prices can go.
This impact could even get worse as already there are reports
that some of the huge platforms may have experienced
significant damage. According to Bloomberg, 92% of all the
platforms that were producers in the Gulf, have been shut
down in anticipation of the storm. It’s anyone’s guess when
some of those will be up and running.
The big question of course is how this is going to hit the
American economy—an economy that has been chugging
along nicely lately and supporting much of the world it seems.
Can oil prices of $70 or $80 bring it crashing down? It’s a
question that has to be asked. Up until now, it was mainly an
inconvenience as high prices at the oil pump hurt a persons
pocket book.
But just look at some of these charts. Whether it’s
natural gas or heating oil, you just know that the
heating bills this coming winter are going to make
last winters (which was probably a big one) look like
chump change.
So the question again is, while we were an energy
bull before and probably still are, could this high
price for energy bring on a recession?
As one looks at the American markets today and
sees stocks as varied and as significant as Wal-
Mart, JP Morgan and General Electric all flirting with
new lows for the year, we believe that one has reasons
to worry.
Heating Oil
Natural Gas
GASTAR EXPLORATION (T-YGA) $3.50 +0.25
It was Bill Powers, currently a money manager out of
Chicago and previously the editor of the Canadian Energy
Viewpoint that brought Gastar to our attention some
time ago. It was one of his top picks before, however
lately (after yet another public financing brought their
market cap up to very rich levels) he dropped it off his
favorite list. Not us. There are other analysts out there
that are still in love with it, including Investrend Research
(whoever they are) that have a $7.00 target. We notice
it’s one of the very few oil and gas producers today that
is up, probably because of its huge exposure to natural
gas and the Deep Bossier play in Texas. Once again,
those are incredibly huge wells that are very expensive
($10 million a pop) and will take almost half a year to drill,
test and get on production. So far they can only guesstimate
what to expect down the road from the five wells
that they’ve done. But for those that are believers in the
story, the conviction is that down the road they’ll have
six drills going full time, as they can bring the cost of the
wells down to less than $10 million and that they’ll get a
handle on what to expect from the average well. There
are those that still have confidence in the idea that down
the road, they’ll have somewhere between 200 and 400
potential wells and given current gas prices….
Gastar Exploration
www.gastar.com
DEB’S DITTY:
The trick is to stop thinking it’s “your” money
-IRS Auditor
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