DEZ
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 supplieswere 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.
Message 22188178 |
