₪ David Pescod's Late Edition October 13, 2006
ULTRA PETROLEUM (US:UPL) $48.61 +0.29
FALCON OIL & GAS (V-FO) $2.66 +0.10
GALAXY ENERGY (US:GAX) $0.28 -0.02
CONNACHER OIL & GAS (T-CLL) $3.88 +0.23
TUSK ENERGY (T-TSK) $3.10 +0.10
GULF SHORES RES. (V-GUL) $0.57 +0.03
“Gas is for girls” the Calgary Cowboy tells us ... and I wish he would have sold us on that idea about six months ago, so we would have missed the current blood bath! “Gas is for girls oil is for men” he reiterates very strongly. He suggests “gas costs lots more to find, it declines faster than you would expect, the reserves are never what you want and the big guys always control the facilities. So if you ever do find gas, you have to kiss their asses (of the big companies) to get into the facilities and then wait in line for a long time.”
“Oil is for men”, he suggests, “and it’s much more instantaneous. When you drill a well and complete it you simply connect the well head to the tank and you produce oil. There is never an issue over a market for oil.”
Oh yes, did we ever mention that the Calgary Cowboy has been involved in private oil and gas companies for a few decades and that throughout his career, he has insisted on chasing oil ... and not natural gas.
At a time like this, with gas down to $5.00 an mcf, he is probably thanking his lucky stars that he has stuck with that idea. Cowboy who has been a source for us from time to time on the evolving Oilexco story (an oil story in the main mind you) probably not casting aspersions on the good folk who have been very much chasing natural gas these days and suffering…I mean I can’t see him suggesting that Peter Salamon wears pink pajamas to bed (now there’s a vision of sorts) or that David Reid wears too many frilly clothes, or that the good folks at Anderson Energy are closet dressers, but his argument on oil might be timely.
The collapse in gas prices has absolutely clobbered the gassy stocks, but are we getting close to time one should put on his best pink hat and join the girls? Is gas not getting too cheap to ignore as the cycle does what it usually does when gas goes down this low.
Suddenly you are seeing EnCana shutting down drilling for shallow gas in Southern Alberta, Apache is giving up on drilling for any coal bed methane and drilling for gas in general has been cut back severely. With decline rates of 20% it wouldn’t take much of a cut back for very long to put things back in order, although it might take longer than some of us want.
On the other hand there is Allan Laird. Talk about a believer in natural gas, this is your guy. And he’s got more than a little experience in the natural gas business. He was involved in the founding and start up of Ultra Petroleum, which has turned out to be one of the big success stories in the oil and gas patch, if not in the investment world of the last decade. A dollar invested back in 1995 was worth almost $120.00 recently.
He was also one of the founders of the Falcon Oil and Gas story that in a few weeks will probably on the verge of announcing whether they have or have not got something significant in Hungary. Mind you, they also have 500 million shares outstanding already, without having completely tested a single well yet!
Laird has a bit of an international flare as you can tell from working in places such as Russia, China and Europe, that adds to his perspective on energy. His wife for instance, is just back from visiting the folks in Russia and she talks about beautiful new shopping malls with fountains and marble floors being built in the middle of Siberia, and that’s what energy riches can do to change a country. Moscow is well aware of this and has an iron grip on the oil and gas industry in Russia as they expand into retailing and distribution in the United States and Western Europe.
He also talks about being in a Chinese airport and asking where a certain plane was going and being told that it was just going to a village. And this “village” had a population of more than a million people! So one of the reasons Laird is so bullish on energy is the growing demand coming from places like China and India. The other reason is supply. Allan feels that North America is already facing steep declines and everdwindling reserves. So he predicts that we will soon see an OGEC (Organization of Gas Exporting Countries) that “will make OPEC look like a bunch of choir boys.” He believes that OGEC will be controlled by all the countries that give George Bush nightmares… Russia, Iran, Iraq, etc. and that natural gas will become a more expensive and highly politicized commodity.
And how about these predictions. For natural gas, he’s looking at $8.00/MCF by Christmas this year and $12.00 next year. For oil he is figuring $70/BBL by Christmas this year and at least $80 by Christmas of next year. He is also suggesting there won’t be a big recession and expects a soft landing with some gentle cuts to interest rates.
As to the concerns by so many people of the current low natural gas prices, he simply says, “the cure to low gas prices...is low natural gas prices”.
We are already seeing the industry cut back its drilling, and people seem to forget that we use gas to generate electricity. There will also be a huge new domestic need for gas as we expand the oil sands projects… and then there’s those natural decline rates.
Eventually we talk Laird into doing the obvious...let’s make a little bet. You pick three natural gas stocks and I’ll pick three oil stocks for a July 1st target date and whoever’s performance is the better, receives a bottle of good wine (of Schachter quality) from the other. We continue to worry about those natural gas prices, particularly if we have a warm winter, so the bottle of wine might serve us well.
From Laird’s portfolio, his first pick is Ultra Petroleum (AMEX:UPL), that has become such a significant story under the stewardship of Mike Watford. Allan loves the asset and suggests a listen to Ultra’s recent webcast, as it describes another year of phenomenal growth and performance. For his second pick, he goes with Falcon Oil & Gas (TSXV:FO). He thinks that the recent drift in share price has been caused by the lack of news and operational delays, but believes that Falcon still has the potential to hit a massive home run in Hungary. Here his bet is on the geological genius of Ben Law and the prime location so close to the market of Europe that really needs that gas. For his third pick, he goes with a “cheapie with a chance” - Galaxy Energy (AMEX:GAX), because it’s being run by Mark E. Bruner, the eldest son of Mark A. Bruner. Laird believes that the company has decent assets and the Bruner family will soon pull together to steer this ship out of troubled financial waters.
As for us, our oil picks are Connacher Oil & Gas (T-CLL), (analyst Andy Gustajtis says we must pick this one) which we are hoping will see its price up tick as it gets ever closer to production, which is just a bit past six months down the road. Our second pick is Tusk Energy (T-TSK) (Clive Stockdale, Canaccord’s VP Corporate Finance says we must pick this one). Our third pick is our “cheapie with a chance” - Gulf Shores (V-GUL), which along with Oilexco will be drilling their Laurel Valley sometime close to Christmas. The Laurel Valley play is the biggest high risk/high reward play we can find...and if it hits...
If you would like to receive the Late Edition, just e-mail Debbie at debbie_lewis@canaccord.com |
