₪ David Pescod's Late Edition May 18, 2006
NATURAL GAS
WHEAT
Here in Edmonton yesterday, it hit 31 degrees Celsius and for
those still on the prehistoric system, that works out to 88 degrees
Fahrenheit. I’m sure you know how far north the “City of Champions”
is, but if not, take a look at a map. We are up there. So it’s a record
historical high yesterday and signs again that the weather patterns
are changing, which is not the point.
Look at what has happened to wheat prices yesterday. When most
commodities were getting absolutely clobbered, wheat prices in Kansas
were hitting nine-year highs. Why? Well, it’s the weather, silly!
Big heat everywhere, particularly where they grow wheat and eventually
we get to our point. Natural gas.
If you had any doubts before, this past winter showed just how
dependent natural gas prices are on weather. The chart on gas shows
how it soared like so many other commodities last fall and winter and
then plummeted. Last winter had a big surprise – there was no winter.
Here in Edmonton, center of the resource financial world and good
hockey, we had no snow until February.
Gas prices plummeted to a third of what it had been in just a very
small period of time.
There are few big river systems left in North America to dam and
there haven’t been many nukes built in decades and coal takes a lot of
money to get a plant built and usually they are quite dirty. So if you
are a big utility and want a quick and easy power plant that’s got off
the rack engineering, and want it built in two years and sometimes
shorter, these little natural gas powered plants are the answer. And
there have been plenty built in the past few years. But with no demand
last winter. And remember, the big utilities run their billion dollar
nuke plants or coal plants non-stop—the little gas plants service
seasonal demand.
Now comes summer and a hot summer with power demand for air
conditioning could help the gas sectors woes. With drilling costs
through the roof, service costs so high, trouble finding labor and land
costs setting ever new records, six dollar gas means a lot of companies
aren’t making much money, if at all. There have already been
announcements by Encana that they have cut their exploration budget
for natural gas by half a billion dollars and corporate biggie CNQ has
cut exploration by 150 wells, which helps (if you are not looking for
gas, you are certainly not finding it). But inventories remain high—
currently at 2,080 bcf, 494 bcf higher than last year and 722 bcf higher
than the five-year average!
So this heat that’s hitting much of North America early this year,
gives hope to the gas bulls who ideally look for a hot summer, then a
big hurricane season to knock off production in the Gulf Coast, followed
by a cold winter.
INTL. BARYTEX (V-IBX) $2.61 +0.43
Just yesterday we were talking to Canaccord mining analyst Wendell Zerb
and Raymond James analsyt Eric Zaunscherb and we asked them what
companies one should be watching for, for news and excitement in the
short term? Zerb had suggested Intl. Barytex which is run by mining legend
Dr. Roman Shklanka (Chairman & Director), who is also the previous Chairman
of Sutton Resources and an equally successful Canico in Brazil. Today just
as if he had planned it, IBX announces 4 drill holes on their Shituru Copper-
Cobalt project in the DRC and Zerb tells us that the results are significant!
The best intersections include 32 meters – yes that’s 32 meters grading
5.6% copper and 44.1 meters grading 4.8% copper—that is incredibly rich!
Zerb also tells that this Shituru was intermittingly mined on a small scale for
high grade copper that averaged 10.5% copper between 1916 and 1954, but
only minor exploration work has been conducted over its history and there
is no historical resource estimation. He suggests that the mineralized zone
has been identified over roughly 1,000 meters along strike. IBX is earning
86.7% in East China Capital Holdings, which has an option to earn 75% in
the project, but folks this in the Democratic Republic of the Congo (DRC),
which can be a scary place to be! Needless to say, had this news come out
in a better market environment and with the company only having a little
more than 40 million shares out…..this could have been a much better day!
If you would like to see their PowerPoint presentation, email Debbie at debbie_
lewis@canaccord.com.
INTL. FRONTIER RES. (V-IFR) $1.60 -0.20
Yesterday, was an ugly day across the board. It didn’t matter
whether you were in the banking sector or the mining or the
oil and gas sector, it was universally ugly. Caught in the
down-draft was International Frontier Resources, a junior that we
follow because of their number of high profile, high reward,
high risk plays in the North Sea and also their joint ventures
with Husky, EOG Resources and Pacific Rodera up in the
Mackenzie Valley of northern Canada. Every winter drilling
up there tends to attract a little attention. Yesterday though,
the partners announce some of their drilling results and the
market was less than impressed. What the market heard was
that in two drill stem tests on the shallow primary objective,
yielded a combined flow rate of 5 million cubic feet per day of
sweet gas. A 5 million mcf/d well in Alberta or Texas or most
other places is a dream come true for many oil and gas companies,
but up in the high cost Mackenzie Valley where there
is also no pipelines, some people consider it disappointing.
What got missed in the news release was the fact that they
only tested between 13% and 33% of what could be a huge
hydrocarbon column which could as little 164 feet, but also
could be as large as 328 feet. In other words, there is a whole
bunch more testing to be done here and there is still lots of
upside. Then again, there is that ugly market. |
