₪ David Pescod's Late Edition February 12, 2008
OILEXCO INC. (T-OIL) $14.41 -0.71
DELPHI ENERGY (T-DEE) $2.11 -0.09
TUSK ENERGY (T-TSK) $1.62 +0.02
NATURAL GAS $8.38 -0.14
Josef Schachter has been bullish on natural gas for the last six to eight months and maybe he was a bit early, but all of a sudden his call on gas is looking pretty good.
Meanwhile, one story he’s been talking about for ages continues to make him look good and that’s Oilexco. So we caught up the Schachter yesterday for his comments ranging from Oilexco to natural gas to some of his current favorite natural gas stories.
These are Josef’s comments on natural gas...“Natural gas prices have recovered beautifully, $8.54 today (Monday) because of the inventories coming down very materially. In the last couple of weeks, we’ve had numbers that have been exceptional - $274 b’s, two weeks ago which is the highest draw-down ever. Last week we had 200 b’s. The weather in Eastern North America has been pretty cold so we should have another good draw-down again this week. So it is very likely that we may see storage at the end of winter at under a TCF in U.S. storage, which would be very, very positive.
Because of the cold weather in February, we are now getting commodity prices recovering materially. We’ve seen natural gas prices recover almost $2.00/mcf in the last two months and we think it is quite possible we may see natural gas prices go through $9.00/mcf and maybe even as much as $10.00 during the second quarter if it becomes very clear that the industry deliverability is down and therefore storage which doesn’t build as quickly as last year.
It should look better than last year for a couple of reasons.
One: The LNG that came in last year is now going to Europe and into Asia. Europe because of very high commodity prices and Asia because of the nuclear plants being shut in Japan. In terms of North America, we also have the fact that drilling activity in the States is down materially and in Canada, our deliverability, because of low commodity prices, the Stelmach’s taxes and also the previous situation with the royalty trusts, the industries deliverability in down maybe ¾ of a bcf, which again implies that we won’t build storage enough. So we think prices will firm up.
Our top pick when the last time David Pescod and I did our little contest (for 2008), I picked Delphi Energy for our pick.
The company put out a press release on January 15th and reported that they had exited the year in excess of 5900 boe’s a day which was our number and they also had fourth quarter average of 5800, which is what we expected. So they should do about $0.20 in cash flow in the fourth quarter and we think that they are going to do about 6,400 boe’s a day in 2008, exiting over 7000 boe’s which would give them a cash flow of about $1.25 annualized by year end. We think the company should trade at $3.50 based on that so we look for the stock doing quite a bit better. The NAV at December of 2006 is $2.85, so even with the rally we’ve seen in the last few days (the stock is at $2.24) is still trading at a discount to its NAV. So we like the stock a lot.
We think other names are attractive as well and that’s Vero Energy, Accrete Energy and Tusk Energy that are very, very cheap and on the large cap, those that are mixed with oil and gas, we also think Galleon Energy is cheap.”
These are Josef’s comments on Oilexco: “Normally, when you get a pay thickness, you are looking at 50 to 60 feet of pay and when you have 452 feet of pay – that’s a pretty enormous number. So the market is reacting very favorably.
The stock is up over $2.00 today (Monday). The stock went down to just under $10.00 with the shakeout we had a few weeks ago. This is the first good piece of news (since the market shakeout of recent weeks) that’s come out talking about the size of the Huntington prize, also the drilling at Mallory also has nice potential as well in that they want to go back and drill more. But what we are waiting for now are two pieces of news. One that they’ve tied down a third rig which would be a big jackup rig so they would use that for development drilling at Huntington and the next piece of good news which we would be watching for is that they get the equipment they need to upgrade Balmoral, so that Balmoral will be able to ramp-up production from 21,000 or 22,000 boe’s a day for Brenda/Nicol to over 30,000 boe’s a day and that requires upgrades of the gas separation equipment, etc,.
So hopefully in the next few weeks, we get that kind of information and that should lift the stock back above the old time high of $17.92.”
ITHACA ENERGY (V-IAE) $2.69 +0.06
Yesterday, Ithaca Energy announces an oil discovery at Polly and we thought we would print here, some of the comments of Canaccord analyst Fred Kozak.
Event: “On February 11, Ithaca Energy announced that the company had completed drilling the Polly prospect in the Inner Moray Firth area of the UK North Sea. The well encountered oil in the Middle Jurassic Beatrice ‘A’ sand and tested oil with no water in a wirelineconveyed testing and sampling tool. The well is suspended for future evaluation. The company is currently moving the drilling rig off the Polly prospect and over to the Manuel prospect, which lies southwest of the Beatrice field. Drilling is expected to commence at Manuel on February 19.”
Impact: “Positive. With oil testing in 10 out of 60 feet of reservoir, this is a confirmed oil discovery. The question remains as to whether or not it is an economic discovery as noted by Ithaca’s management. However, the proximity of the Polly discovery to the Beatrice Bravo production platform means that the next well into Polly can be drilled from existing offshore facilities, removing the requirement for an offshore jack-up rig.”
Valuation: “Our target price of C$4.50 is based on a sum-of-the-parts valuation for Ithaca. We use our estimate of NAV for the company of C$3.70/basic share (3P reserves), plus a portion of the value attributable to the potential exploration upside. On a risked basis, we attribute $0.78/share to the Polly prospect.”
Next Catalyst: “Drilling results from Manuel should be available approximately three weeks from spud date of February 19. Exploration success would be a material positive event for the company.”
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