₪ David Pescod's Late Edition May 8, 2007
RESULT ENERGY (V-RTE) $0.61 -0.04
One guess of why the chart has been going down so significantly on Result Energy over the last while...and if you guess it’s another one of those natural gas stocks that is being hurt by the weaker gas prices, you have it figured out.
“Ninety percent gas” company President Bill Matheson tells us during our recent visit, but he is giving some arguments that just might be good for natural gas down the road.
His first point is the huge drop in budgets for natural gas exploration in Canada for the next year...dropping from $29 billion to an estimated $22 billion this year. That’s a significant drop and when you’re not drilling, you are certainly not finding.
His second point is the usual argument these days in favor of natural gas...depletion rates are rising. With production from old fields dropping as much as 25% a year, if you are not looking, you certainly aren’t replacing either.
As far as Result Energy, Matheson reports that the junior company currently doing 1300 barrels a day (and as we said, 90% gas) has three core areas in Saskatchewan, 50% of their production comes from the Peace River Arch area of western Alberta plus west central Alberta. Sporting a net asset value these days of around $1.16, the company is trading at a discount to the bookkeeper’s numbers, but then there are a lot of gassy stocks doing that these days.
Their production growth chart has gone up nicely since 2003, moving from virtually nothing to the 1500 barrels today and while the company currently sports 70 exploration wells in its inventory, there’s one in particular you are going to be watching if you are follower of Result Energy. That’s the play called the Mearon Impact Gas Project and is in an area of Canada that has become legendary...Ladyfern, which at one point had some of the biggest gas wells in the country.
Matheson argues that at the time of its discovery, Ladyfern saw several competing companies adding ever-bigger production facilities to drain the field ever-quicker and probably caused the field some significant damage as they pumped ever-harder trying to get possibly more than their share of the big rewards.
They have a one-quarter interest in an exploration location in an area play called the Mearon Patch Reef Fairway that will be drilled, unfortunately not until first quarter of 2008.
Matheson suggests if the prize is there, and of the scale of other Ladyfern-type producers, he suggests “it could be one of those monster wells that come in at 30 to 50 million cubic feet a day and double the size of Result over night. It’s an exciting play and he reminds us that “chances of success are merely about 10%, but it’s the type of play that gets the juices going” he suggests “and you look forward to going to the office in the morning.”
There are an awful lot of gassy stocks that have charts like Result that have been straight down to really ugly numbers until recently where many have bounced and suddenly we are seeing gas flirting with an $8.00 an mcf number. When we ask Matheson for his predictions, he suggests $7.50 by July 1st, but by December 31st, we could see $10.00 an mcf.
His main arguments for that of course were the aforementioned drop in exploration and ever-increasing depletion rates, but he also suggests a normal winter will be key. He points out that this previous summer we saw the first two weeks in a long time where we actually saw withdrawals of natural gas in the summertime. If you do get some big heat in the summer, it’s the natural gas fired plants that are turned on that deliver the extra needed electricity.
There you go. That’s all you need to know. We get a hot summer and a cold winter, and you better have gas stocks...if one could only predict the weather...
Yesterday, Bloomberg did a big article that was called “Metals Bubble Poised to Burst on Increasing Supplies.” The article suggested that “copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end.”
“This is a real bubble,” says metal trader David Threlkeld ... but “we now have an enormous amount of unsold copper” he suggests.
“The metals bears are convinced that consumption may drop partly because of China, the biggest user, is attempting to reduce investment through interest rate increases…”
“Demand is also weakening” according to the article, “because of a slowing U.S. economy and a consumerdriven pursuit of alternatives to historically expensive copper…”
It’s a big four to five page article that might be good reading to make people a little more cautious on metals, but the article does point out that the bears have totally missed this recent article of some significance. They write, “An investor who acted on the advice of JPMorgan, the third-largest U.S. bank, missed gains of 67% for nickel, 30% for copper, 41% for lead…”
Bloomberg itself hasn’t been all that good at featuring articles on this sector, but once again, we do point out we are at the time of year that the junior mines traditionally do have a sell-off...Have we said that enough to the point that we are getting boring?
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