₪ David Pescod's Late Edition November 27, 2007
CDN. NATURAL RESOURCES (T-CNQ) $65.61 -5.44
Canadian Natural Resources is one of the bigger companies in Canada’s oil and gas patch and is currently producing just over 600,000 MBOE/d. It has interests from the Horizon heavy oil project that goes on stream next year to conventional oil, plus one of the biggest natural gas production numbers in the country.
So when their numbers were to be reported today, you bet the market was paying attention. The market is obviously not too happy. They are suggesting that while the market expected next year to see 650,000 MBOE/d, the guidance is now somewhere between 550,000 and 618,000 MBOE/d, mainly because they are going to be doing so much less drilling for natural gas, that they expect next year’s natural gas production to be down by 12% year over year. A decision to drill less natural gas was made because of the “eroding economics due to low commodity prices and the new royalty regime.”
We would also add in that we suspect the much higher Canadian Loonie, which is affecting all oil and gas producers these days, has played a big role.
Some analysts such as Phil Skolnick of Genuity Capital are reminding the company that just last year, they spent $4.6 billion to acquire Anadarko’s western Canadian operations which is 87% natural gas. Ouch!
If you are looking for some good news to find here (and there’s not much) it is that if this one company of this size decides to cut back natural gas drilling like this, natural gas might have its day in the sun. It will probably be next winter at the earliest, but apparently there might be a future. The stock today gets absolutely swacked!
PACIFIC ENERGY RES. (T-PFE) $2.20 +0.14
Just a little item, but rather important as Pacific Energy Resources and their San Pedro Bay pipeline has been inspected by GE Pipeline Solutions and it looks like their old pipeline passes the test. Now that the pipelines has been okayed, that means Pacific Energy can begin the formal effort to redevelop the Beta Field offshore California.
Pacific Energy was one of the picks of one of our better oil and gas guys over the last few years—Andy Gustajtis and we hope to have an interview with him within the next week when he is back at the shop to find out just what he thinks about this debacle we’ve been facing in the oil and gas patch over the last while despite near record high prices. When is this mess going to end?
NOVAGOLD RES. (T-NG) $10.08 +0.83
COPPER FOX METALS (V-CUU) $0.56 +0.10
COPPER CANYON RES. (V-CPY) $0.35 -0.015
BREAKWATER RES. (T-BWR) $1.60 -0.06
Yesterday we talked about NovaGold and how suddenly a project has gone from somewhere between $1.3 billion and $2 billion in costs to possibly as high as $5 billion and because of that, Teck Cominco and NovaGold have decided to suspend construction on the mega project.
For those looking for some good news out of this, it’s simply that there’s an awful lot of gold, silver and copper that won’t be hitting the markets anytime soon. The bad news is that there are some pretty ambitious little juniors in the area that also are sitting on a lot of metal that all of a sudden, the market realizes that at this time, probably aren’t going to be economic anytime soon.
Copper Fox Metals is one of those players and they have a nice little website set up where they show that their Schaft Creek project has 1.3 billion tons of measured and indicated resources at 0.2% copper equivalent. That’s a relatively low grade, but included in it is 7.7 billion pounds of copper, 8 million ounces of gold, 584 million pounds of moly and 69 million ounces of silver. Once again, these are at low grades, but that’s a lot of metal.
The Schaft Creek project is in a rough, hard to get to, expensive to operate in the area of northwestern B.C., a mere 35 kilometers from NovaGold’s big endeavor. Copper Canyon has an inferred resource of 1.16 billion pounds of copper, 37 million ounces of silver and 2.8 million ounces of gold and NovaGold was to have earned a 60% option on the property following completion of a drill program started in July of 2007, according to their website.
The market suggests that nothing is going to come of that. Once again, it’s a reminder that the Canadian dollar and expensive areas of Canada are going to cause considerable concerns about getting projects that some of us might have high hopes for, getting built. It’s also causing people to take a long, hard look at feasibility studies.
Meanwhile, the resource sector continues to be rocked at a time of year that usually it’s Christmas time. Take a look at the chart to the right here with Breakwater Resources, one of more heavily-traded base metal producers, Canadian based with interests over North America. The chart shows you it’s had a nice, long ride up and a very quick and sudden clobbering in this time of questioning what next for the general economy.
COASTAL ENERGY (V-CEN) $3.75 +0.40
We mentioned just a few days ago, on November 23rd, that Fred Kozak was becoming a bit of an international follower because of the new Alberta Royalty Review and basically just trying to find the best place to make a buck in the oil and gas patch.
One of favorite picks at the time that we mentioned it was Coastal Energy, which he calls a speculative buy and gave it a target of $6.00 based on their “exposure to material exploration upside onshore and offshore Thailand.” He has written that is was “trading at a significant discount to NAV...trading at approximately 40% of its 2P NAV of $6.98 and has a 3P NAV of approximately C$10.00.”
Today the company does an update on their exploration and the latest results from their Phu Horm-10 gas well which is in northeast Thailand and recently brought into production. So it has a nice little pop, but notice there is very little volume involved. Kozak reminds us that this is a very, very, thinly-traded stock with one significant shareholders having roughly 46% of the company. Liquidity here may be a concern. Anyway, it was nice to see in a sea of red today, something in the resource sector that was actually up.
For a background look at the company and to read Kozak’s report, e-mail Deb at Debbie_lewis@canaccord.com.
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