₪ David Pescod's Late Edition June 25, 2007
NATURAL GAS (July Contract) $6.94 -0.19
CORRIDOR RES. (T-CDH) $11.68 +0.08
There’s always been volatility in commodity markets and I’m sure that going to continue, but oil and gas over the last few days has led the way with some pretty big ups and downs. Oil was up sharply because of the strike by Nigerian Oil and Gas workers and then down significantly today because the workers were back to work.
Then the market takes another look at the work put out by Bear Stearns, the big investment bank which examined how well the oil majors are doing at replacing reserves and have found a rather bullish argument for oil. According to their work, “Reserve replacement for 2006 were only 91% of reserves versus the previous year, 2005 when the oil majors replaced 92% of their reserves.”
There seems to be a trend in effect and Bear Stearns also pointed to the rapidly increasing costs of replacing those reserves.
Meanwhile, not having so much joy was natural gas as gas prices today hit 3-month lows. In today’s Canaccord Adams piece they quote analyst Michael Fitzpatrick, vice president for energy risk at Man Financial Inc. that “there has yet to be an extended period of very hot weather that is needed to boost cooling demand and put a dent in storage.”
Meanwhile, for those who are bullish on natural gas, they argue that with drilling budgets drastically reduced by as much as 25%, plus the normal depletion rate these days of 25% a year, it’s only a matter of time before natural gas prices go higher. The other argument that we put forth for the bears is simply that they have not had the cost pressures in the drilling sector in the United States like Canada, and while drilling in Canada has fallen off, drilling and exploring for natural gas in the U.S. continues at record levels.
In the meantime, the big story continues to be weather. If we do start to get the heat of summer and the need for power for air-conditioning, that could change natural gas demand dramatically (and of course a cold winter to be following). But right now there is plenty in inventory and we are seeing gas under $7.00 an mcf today.
Meanwhile, if there has been one natural gas company that’s avoided the huge and painful sell-off that we’ve seen in many natural gas stocks, it’s Corridor Resources, which sometime this week (presumably Wednesday) will finally start production from their McCully to the New England Pipeline and production overnight moves dramatically. Of course this is now almost a billion dollar company but if you are following natural gas, it’s still one of the better plays to be following.
While the stock now might be considered a tad pricey, any success on their Frederick Brook Shale formation play or in the last quarter of this year, their Dawson Settlement deep play, this could introduce to a very different stock price.
ANDINA MINERALS (V-ADM) $3.23 +0.14
GOLDCREST RES. (V-GCL) $0.91 -0.02
It’s a sea of red today as most commodities took it on the chin and the Toronto Stock Exchange ended down 146 points and the Venture Exchange down 45 points.
But in a sea of red, little Andina Minerals was up. When we got a hold of company President Carl Hansen and ask him what’s happening, he says, “there is no news at all, it’s just that simply Andrew Kaip (the highprofile Haywood mining analyst) is currently marketing in Boston and New York.” Marketing simply means that one analyst is visiting associated brokers and telling his favorite stories and Andina is definitely one of Kaip’s favorite stories. There are lots of reasons for stocks to be up or down on a day right? (For a copy of Kaip’s report on Andina or the Canaccord report, just e-mail Jennifer at Jennifer_lagdamen@canaccord.com.
Anyway, we ask Hansen when he thinks people are going to start to care about gold stocks again because while we have enjoyed decent gold prices over the last six months, gold stocks (as a group) are probably down about 25%.
“It’s the summer doldrums” Hansen suggests “and it has been for a couple of weeks. I think things will get going again when people get back to work, probably August/September later this year.”
As far as other mining stocks he suggests a person either own or be watching these days, he sticks with Goldcrest Resources. “That was quite a sizeable step-out they announced the other day” he suggests and there are going to be a lot more drilling results out from the company shortly as they have a lot of holes in the lab.
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