₪ David Pescod's Late Edition October 4, 2006
PRECISION DRILLING TRUST (PD.UN-T) $31.75 -0.53
We’ve written here many times in the last few weeks and for that matter the few months of the turmoil in the natural gas sector and how some companies are going to do the one thing that might make economic sense…cut way, way back on their natural gas production and in some cases for the big companies that are big producers shut in some of that production until they can get higher prices. Well, if everyone is cutting back suddenly on their drilling - you know that's not good for the drilling companies.
Last winter, you couldn't find a rig to use no matter what kind of money you were offering and here we are just seven months later with a total reversal of the situation. According to statistics out last week, the rig utilization rate maybe down to as little as 37%. This is happening at a time of year you would expect utilization rates to be closer to 60% to 70% on average and then you get into the winter months with freeze up when usually all rigs are busy! This is obviously not a normal situation, as the industry reacts to the correction in oil prices and the enormous tumble in natural gas prices.
Precision Drilling, is one of the biggest oil field drillers in the world and to drop $10.00 a share in a little more than a month ... is one heck of a drop! So what next?
CANDAX ENERGY (T-CAX) $0.495 n/c
OILEXCO INC. (T-OIL) $6.47 +0.27
“The cure for high oil prices” says Fred Kozak, “is high oil prices.” Just like the cure for low gas prices is low gas prices...Fred Kozak is on ROB-TV today chatting about the bruised and battered oil and gas sector. And those old sayings do come to mind. If oil prices get too high, sooner or later it kills demand a bit and people find new sources of the product. It’s just like natural gas, whose prices are now so low, there are producers no longer making money, so production gets shut in and drillers go quiet.
It’s a great interview for those who want to listen in. Simply go to robtv.com to “watch past videos” at 11:30 AM ET. As far as his three picks, he goes with Oilexco, which is awaiting news on Sheryl, but Fred lists a whole series of plays through this next and year. It remains his number one pick.
Candax Energy is number two and he expects finally, after many delays, they should have a barge available shortly so they can be drilling their offshore El Bibane project, which will be costly, but could give them some significant production.
As a third he goes with Peerless Energy (PRY.A) where he is keen on management which has just recently doubled production.
Meanwhile, for those following the commodity market which has seen everything from gold to gas to oil, get absolutely pummeled, there is suddenly much debate about whether the commodity boom is a bust. Merrill Lynch today, after the CRB has already taken a huge pummeling, suggest that many of the basic commodities are still overpriced by as much as 60%. We’ll disagree with that, hopefully, and assume we are still in bull market for commodities—we are just going through quite a correction. We are counting on a booming Asia to continue, otherwise we are in trouble.
The chart on the CRB Index shows you just how big a correction we’ve had...yes, it has been that bad.
CRB Index, which is a basket of commodities, tells you that there have been bumps on the way, but it’s been mainly up. The last month however, has seen it pummeled.
Meanwhile, on commodity markets, inventory numbers in the U.S. clobbered oil today and then we people realized oil inventory was up because of so many refineries being down for maintenance, oil spiked up. Looking down the road, that means there is probably going to be less fuel, oil, distillates and the like, around for inventory for coming reporting periods.
And most interesting is natural gas. After predicting one of the most devastating hurricane seasons for this past summer,
yesterday they suggest that the hurricane season in essence is over...with barely ever having seen a single hurricane.
That meant no interference at all for the oil and gas producers in the Gulf this summer past. But the big question is, how come on a day like this, is natural gas so far up? The answer is what you would expect—weather. But not for the reason you would think. No it’s not an early winter hitting and boosting up the use of heating fuel, but the opposite. It’s hot! New York City has been 80 degrees plus for the last while as have other areas of the Southeastern States and there’s been big demand for cooling, something you don’t usually see this time of year.
Meanwhile, south of the border, some big gassy companies have done what’s obvious...if prices are low, just keep your gas in inventory, until you can get a better price. Questar shuts in 32 million cubic feet a day and Chesapeake, 150 million cubic feet a day, and...
This is now quite a correction we’ve had in oil prices, with a drop of more than $20.00 a barrel or almost 35%. Along with the absolute smashing in natural gas prices, there are some oil stocks that suddenly look an awful lot cheaper than they were not too long ago when some natural stocks were getting a lot less revenue than they assumed they would. We wouldn’t suspect that there’s a few whose balance sheets now look a lot less appealing than they did just a few months ago. But is this just a correction in an ongoing bull market or what?
It’s funny how when oil is going up, the press always accentuates that it’s going to the moon and all of a sudden everyone is talking about Peak Oil. When oil starts retreating, all of a sudden everyone is talking about imminent recessions and $40.00 oil. For those who are believers in the Peak Oil Theory, one website that does a good job of keeping you up to date on all the bullish side of this debate is maintained by Sprott Securities and keeps you up to snuff on tidbits of news from around the world on just why they think oil is going to stay high.
sprott.com
On the day that the good folks at Merrill Lynch suggest many commodities are as much as 60% overpriced, Colin Cieszynski who writes “Momentum Trends” for Canaccord, suggests that today was a very key reversal day and may have set the bottom for the energy sector. He figures oil and gas are now in a trading range and we may have seen a bottom. The biq oil and gas stocks will go first and hopefully, the little guys follow.
Oilexco Inc. - Fred Kozak’s #1 Pick |
