₪ David Pescod's Late Edition August 23, 2006
DELPHI ENERGY (T-DEE) $4.35 n/c
ACCRETE ENERGY (T-GZ) $7.50 n/c
DIAZ RESOURCES (T-DZR) $0.94 n/c
RIDER RESOURCES (T-RRZ) $13.17 -0.01
As they say, sometimes a picture is worth a thousand words and these charts probably speak volumes, not just words. Is there something wrong with these oil and gas companies? No. In fact, there are some analysts that just love different ones, but yes, something has caused all of them grief.
They are mainly gassy companies which means the price of natural gas has affected them much more than those companies that are mainly oil producers. So what next?
Well, if you think natural gas prices are going up, they are all buys. If not, forget that idea. How should one judge where natural gas prices are going? Well, that’s a big problem because gas prices are very much weather dependent. So in other words, if your psychic tells you that it’s going to be a cold winter, consider buying them. If your psychic says it will be warm...forget it. I guess you get the drift.
Meanwhile, Josef Schachter who admittedly has had a few bumps in his predictions of things gassy and oily over the last few months, does have one interesting point in his Maison Monthly published today—as he points out the following five companies that do have a big natural gas component, have reduced their drilling significantly and over time, that should affect supply.
Canadian Natural Resources (CNQ) drilling activity for the latest quarter versus last year is down 40%. Compton Petroleum (CMT) is down 22% , Encana (ECA) is down 45% and Husky (HSE) down 24%. That should make a difference.
PETROLIFERA PETROLEUM (T-PDP) $19.30 +0.30
Veteran Oil & Gas man Dick Gusella has had a couple of bumps along the road in an extensive and international career in oil & gas, but there has been no bumps for Petrolifera at all except, of course, when they did the initial financing ... and it’s hard to believe that they had to reduce the price to get this story off and running. Since then, it seems that there has been no news if it wasn’t for “absolutely spectacular news”!
Today we get more of the same, as results from the first hole of their new 20-well program comes up with test rates of 2,800 barrels a day. Unbelievable!! Gusella tells us today that he expects to go onto production at around 2,000 barrels a day and more importantly he suggested that drilling shows that it is a very thick intersection and very porous. But, for those looking for stuff like cash flow, he hopes to see pipelines in the area up and running by the first of October and yes cash flow is important to a lot of folks. Meanwhile, there is more seismic being shot in the area and the 20-well program they are doing is mostly within five miles of this latest successful well, so some of it could be considered in-fill drilling. Oil and gas analyst Andy Gustajtis of Dominick & Dominick who has been supportive of this play since day one asks us if we think his potential long-term target for Petrolifera is still too aggressive?
Today, the U.S. National Association of realtors announced that sales of previously owned homes dropped to the lowest level in two years and the supply of unsold homes hit a record high! While many Americans have some of their assets in the stock market, many more Americans have a big chunk of their equity tied up in their homes and a pretty aggressive article in Barron’s Magazine this weekend may have scared more than a few people. In the article they wrote, “The national median price for new homes has dropped almost 3% since January. New-home inventories hit a record in April and are only slightly off those all-time highs. Existing-home inventories are 39% higher than just one year ago. Meanwhile, sales are down more than 10%”. The very negative article on what next for house prices in the United States is downright scary and one has to remember that if a person is worried about the value of his house crashing, he certainly cuts back in other areas. More from the article; “Consider a typical $250,000 three-year adjustable-rate mortgage with a 2% rate-hike. If the monthly payment now is $1123, after the first adjustment, the monthly payment is $1419. After the second adjustment, the monthly payment is $1748, a $625-per-month increase. That’s $7500 more per year just to maintain the same mortgage”. How about some more numbers they use in the argument and some are definitely frightful.
• 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000.
• 43% of first-time home buyers in 2005 put no money down.
• 15.2% of 2005 buyers owe at least 10% more than their home is worth.
• 10% of all home owners with mortgages have no equity in their homes.
• $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.
Another argument in the article suggests that if American houses do stumble, would Americans suffer through what the Japanese did when they took almost 15 years to sort out the mess of their real estate debacle?
We mention this because we’re starting to wonder if real estate prices in Vancouver, Edmonton and Calgary aren’t getting out of hand and getting to the “silly season”.
DAVE’S DITTY:
My wife is always talking about a trip to Europe.
I have no objections, I let her talk.
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