₪ David Pescod's Late Edition March 6, 2008
NATURAL GAS $9.75 +.009
DELPHI ENERGY (T-DEE) $2.37 +0.07
OILEXCO INC. (T-OIL) $15.00 -0.48
We asked Josef Schachter yesterday to “just get it over with.” In whatever way he wanted to, just tell us that ... he “told us so.” He had been mentioning on BNN and through some of our interviews over the last year when he had been as aggressive as heck in predicting natural gas prices would sooner or later go up, and here we sit, with prices for natural gas now above $9.50 in New York (although not quite as aggressive in Calgary). He says, “No, I’m going to save that moment for some time when there are a couple of glasses of wine involved” and he can say it in his own way.
But with gas prices so high, we do wonder though, going into this spring, how much of a correction we could be looking forward to. His arguments for natural gas price remain the same as drilling in Canada has dropped, deliverability has dropped and the old arguments of drilling smaller targets with higher costs—he remains bullish for natural gas.
“There could always be a sell off” he cautions and it’s going to remain volatile, but he can see a sell off to as little as $7.50, but he can also see a spike to short-term highs of as much as $12.00. Factors that are going to affect those prices he suggests are going to be the threats of actual problems that could affect gas when we see the hurricane season and summer heat and how bad that might be. But in the meantime, LNG shipments that definitely hurt prices earlier this year, he doesn’t think will be a factor in the coming year.
In the recent issue of the Maison Monthly that just came out on February 26th (if you haven’t had a read of it yet, email Debbie at debbie_lewis@canaccord.com to receive your copy ... it’s definitely interesting reading particularly for those natural gas bulls out there or those that want to be) his two top picks are Oilexco for the international play and Delphi Energy for the domestic play.
He suggests that Oilexco’s price may be capped for a while as the feedback from institutional investors is that they want to see an increase in production before the price cap can go up, but the two year chart beside here, shows what Delphi Energy was at when people last cared about gas and looking forward on Delphi, one of his top picks for the last while, he suggests they could see cash flow of as much as $1.00 to $1.20 per share in 2009.
In his report he writes, “Delphi has met their 2007 exit production rate of 5,800 boe/d, and we expect the company to meet or exceed their current 2008 guidance of 6,000 to 6,200 boe/d.”
He adds, “The stock is cheap, trading at only 2.3 X 2008 cash flow levels (based on modelled depressed commodity prices and activity rates which should ramp up as natural gas prices have improved).”
He mentions to us yesterday that given current levels for natural gas, Delphi could be trading as little as 1 X cash flow numbers for down the road.
Other gas stocks that he suggests a person should be looking at for a time like this would include Accrete Energy (GZ) which he suggests has a net asset value of close to $7.00 a share and Vero Energy (VRO) which is also a significant natural gas producer.
Again, we repeat, for those who haven’t read his latest
monthly it probably is must-reading for gas bulls and it is titled, “Natural Gas Prices Have Bottomed. Now Up Up and Away!”
Schachter will be on BNN tomorrow — (Market Call Tonight)
at 7:30PM/ET.
MARCH RESOURCES (V-MCF) $0.82 +0.32
This would remain, at least in our thinking, one of the plays of the day in the oil and gas business. They are in an area of the world (Chile) that is very much short energy and has seen power prices escalate 60% in the past year.
And if you talk to folks in South America, you know that the Chileans and Argentineans and Bolivians don’t seem to care for each other, particularly when you are talking natural gas supplies.
March is involved in the Pica play in Chile, in a huge play that’s roughly 12 miles by 4 miles that they own (not just a section or quarter section) and has a hoped-for bail-out zone in a shale play that could be as much as 600 metres thick, but two main zones that may or may not have the good stuff they are after...natural gas. Needless to say these days, natural gas prices are way up there in Chile, at least by their standards.
The volume tells you that people are starting to follow it closely which is the good news. The bad news is that if this doesn’t pay out, they don’t have anything else on the books to present, a pretty ugly downside. The volume is being attracted because of the size of the play and the number of possible locations they could have offers the possibility of an absolutely enormous new field in its upside.
In this market though, is it not safer to simply wait and watch and pay higher prices later knowing you are onto something?
We expect some news next week.
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