David Pescod's Late Edition February 20, 2006
ACCRETE ENERGY (T-GZ) $8.50 n/c
FIND ENERGY (T-FE) $9.70 +0.45
STERLING RESOURCES (V-SLG) $1.64 +0.07
CENTURION ENERGY (T-CUX) $12.95 +0.84
While, we seem to be dithering right about now wondering whether
we are in a correction for the mining sector and worrying about going
into the spring season (when usually oil and natural gas stocks sell
off, mainly because this time of year gas prices usually weaken as
demand disappears), there is one guy out there who has an idea what
you should be doing right now and that is Josef Schachter.
Schachter is the key-guy at Schachter Asset Management who
does the hard work in oil & gas for the good folks at Maison Placements
Canada. His interesting and must read 22 page report, just out,
is headlined “Great buying Opportunity, Become Fully Invested!”
There is absolutely no doubt to Josef (right now) as to what you
should be doing and that is despite concerns about inventory numbers
for both oil & gas. He writes, “The warm weather of January kept
North American oil and product inventories above the normal 5-year
band. In January world oil demand was 83.98MB/d while supplies
were 85.95MB/d…..With weather getting colder in February, he writes,
we may start to see more of a draw-down, but it is late in the winter
season and any cold spells should not push prices materially higher
in the short term.” He then points out that, “The correction in the
price of oil from the high of US$69.20 in mid-January to below US$60
this week has reversed the over-bought condition in the market.” He
suggests that, “This occurred last month due to the saber rattling out
on Iran regarding its nuclear ambitions as well as the moderate supply
disruptions in Nigeria….”
He points out that, “While Canadian stocks were stellar performers
in late January, particularly tar sands related stocks which rose due
to the media frenzy by Mad Money’s Cramer, Barron’s magazine, and
CBS’s 60 Minutes……..We now see value in the sector and particularly
in the Maison Universe….We therefore again recommend clients
become fully invested”, he suggests. Further he writes, “We expected
in a normal winter for energy inventories to decline to below
950MB in storage. However, with this year’s moderate winter we may
not decline much below 1,000MB……and this large inventory cushion
could keep a lid on prices into the summer. However, we expect the
upcoming U.N. Iran hearings in March to be very contentious and
prices may rise during the process, rather than when summer energy
demand and Hurricane season add their upward seasonal pressure.”
Also interesting to note, as he writes, “As a result of the weak
demand, natural gas prices have retreated from over US$14 to
US$7. We think this price drop is excessive and a bottom in
prices should be reached shortly. Natural gas producers have
been hit very sharply in this correction and appear to us to be the
best bargains.”
The bottom line appears to be, according to Josef is, “Buy the
Junior E&P Sectors.” He writes, “Investors should become fully
invested taking advantage of the very depressed stock prices
resulting from the correction. From a high of 371 in the S&P/TSX
Energy Index in late January, the correction has brought the index
down to 320”, he also suggests, “During the next up-leg into
the summer we expect the S&P/TSX Energy Index to breach
400” (See the chart to the left) and he says “We remain very bullish
on the energy sector long term into the end of the decade and
expect this index to breach 1,000 before the peak is reached.”
Interesting….but what to buy? The February 15th article looks
at several stories, but the ones that we find the most interesting
include Accrete Energy, which we recently featured in our Late Edition.
They had a two year business plan, which means in a couple
of months (according to their business plan) they should be
selling themselves. Schachter writes, “Our 12 month stock price
target of $11.85 is based on 2006 cash flow estimate of $2.37.
They have a Proven RLI of 5.0 years, he writes, and based on
$75k/boe less debt – gives a takeover value of $12.28. An Explore-
co might be spun out with some unexplored acreage and
modest production if the Olympia Energy format is followed.”
Another of his favorites over the years has been Centurion Energy,
which he has been off and on hot on, but he sure picked the
last huge run on it perfectly! Centurion is now trading at just
over $12.00 and he has a target price of $20.50, “based on a significant
upside from natural gas and natural gas liquids over the
next few years in Egypt.” He says, “Following further success,
production could exceed 300 mmcf/d in 2006…..and cash flow
could exceed $1.60/share.” He also points to the “high impact oil
exploration in Block 2 Egypt plus the Sao Tome play, which is
involved in a large offshore block (an extension of the Nigeria
offshore play). This involves 6 prospects ranging from 300 MB to
900 MB, which probably won’t be drilled until 07 and depends on
rig availability”. Their 7.5% interest could become significant!
Another company that he has high hopes for is Real Resources,
currently around $22.50, but with his target price of $42.00. They
have some high risk/high reward drilling in West Central Alberta.
As far as his top picks for the month, he goes with Find Energy,
which is currently doing about 5,100 boe/d and with their Blue
Rapids gas plant coming on stream just recently, it is expected to
be processing almost 30 mmcf/d shortly. |
