₪ David Pescod's Late Edition 5/5-5/9/08
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David Pescod's Late Edition May 5, 2008
CGX ENERGY (V-OYL) $2.71 +0.01
After being one of the stories of 2007, CGX Energy has entered another phase in its lifetime...somewhere between boring and not much to talk about until 2009, when they finally start drilling offshore Guyana. We mean finally, because border disputes have delayed their offshore drilling on the primary targets for almost seven years and in a decision out just six months ago, very favorable to CGX, gave them the bulk of the primary targets they were after. Sooner or later they have to get to drilling to find out if the goods are there. But while drilling sometime mid to late next year seems a long, long way away, there might be some taste of what the future may bear coming within the next 40 days.
President Kerry Sully of CGX recently gave the Company’s latest presentation and update to investors at the COPIC Conference and if you have a few extra minutes, this is probably must-listening. Go to www.cgxenergy.ca and click on presentations.
Shortly Repsol and Noble will be drilling the target on the Suriname side of the border that’s very close to some of CGX’s bigger targets. Sully suggests that “it’s a costfree, risk reduction” to what they may have and if it is successful, could create a change in the “emotion for the basin.”
While it’s only given about a 25% chance of success and their target is about a fifth the size of CGX’s, if successful, it would certainly give CGX a leg-up on negotiations with other potential partners down the road for their own drilling. Again, that well should have results some time around June 15th to 20th.
After hitting a high last year because of the success of the border dispute, a combination of market malaise over the last while and realization that it’s going to be some time before they drill their targets (probably in mid to late 2009) has let this stock drift down rather significantly. That’s not as if the brokers are ignoring it though, because lately four brokerage houses have come out with some pretty interesting targets. Jennings Capital has a $12.00 target; Toll Cross also $12.00, but Wellington West gives them a lofty target of $25.00 and Cormark a target of $10.00.
If you visit the presentation, you’ll notice that some of their targets on their various plays offshore Guyana are/can be absolutely enormous, and they are in the right neighborhood.
Just to the north of their holdings on the Venezuela side of the border with Guyana is the offshore Deltana Platform, which has now got assets in the size of 14 trillion cubic feet, making it one of the biggest offshore discoveries anywhere. But, is an American company going to develop it in Venezuela, where Chavez could grab it at anytime? And Trinidad has a bounty of natural gas.
Farther south on the South American continent you have these amazing discoveries of Tupi and Sugar Loaf In Brazil that are amounting to eight and 20 billion barrels, so the neighborhood has to be described as prospective.
Meanwhile, we put Sully to the task of picking a stock for us about five months ago and while we admit it’s been rather brutal, his pick of Argenta Oil & Gas (V-AZA) shows just how bad it’s been for some juniors. A company being led by people he respects, some former management team from Repsol has come upon tough times with rig problems and some technical problems on their plays in Argentina. Sully tells us he will be giving us an update shortly.
BLUE SKY URANIUM (V-BSK) $0.31 n/c
Ron Netolitzky was voted “Prospector of the Year” in 1991 and was the prospector that discovered the Eskay Creek mine and he has also played a big role in the development of the Brewery Creek, heap-leach gold mine in the Yukon. He is on a long list of boards of mining companies and is well respected in the business. But even he can have a bad day.
He’s the chairman of Boss Power, which was one of the uranium explorers in British Columbia that saw its stock get swacked when the BC Government decided it was not going to allow development of uranium mining in the Province. Which is silly, but that’s politics for you.
When we talked with Netolitzky today, he suggests that this has much bigger implications than some people think because uranium is associated with many other metals that are involved in exploration in B.C. He points out that most moly projects have an association with a high level of uranium in the ore. The same thing happens with rare earth and there are a lot of potential rare earth deposits in the Province of B.C. There is even a staking rush he suggests for phosphates in the east Kootenay area of the Province and you guessed it—phosphates usually have elevated numbers of uranium. It’s an ugly junior mining market out there and it just got uglier for anyone in BC in that sector.
When we ask Netolitzky if he saw an opportunity in the markets these days to make a buck, he responds that “anything in gold with a resource base looks dirt cheap” and suggests that he thought it was “Christmas-sale prices” back in January/February, now it’s a “fire-sale.”
If he could only pick one stock, he goes with a uranium story in Argentina called Blue Sky and the price is definitely cheap!
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David Pescod's Late Edition May 6, 2008
OILEXCO INC. (T-OIL) $15.74 +0.32
TUSK ENERGY (T-TSK) $2.42 -0.03
ITERATION ENERGY (T-ITX) $7.03 +0.05
Alex Squires, is the affable oil and gas guy with Brant Securities, that you have probably seen from time to time on BNN. Way back when, he might have been one of the first guys who started you following the Oilexco story, as Alex has been following it longer than most analysts, and when we get an update on Monday, he still has Oilexco as one of his top stories of the day.
One thing that has got him going though is all the commentary he is reading in the press these days, about the usual spring correction you see in oil and gas stocks. He suggests some people might be doing the wrong thing, as he worries about taking some small profits now to try and be cute, might exit you from some bigger profits down the road.
Right now he figures the oil and gas market is just getting started, that it is in the early days. Things are still trading he suggests, at relatively low multiples, and well below numbers that we saw at the high of the last cycle. Down the road, his crystal ball is looking for gas prices somewhere between $13.00 and $14.00 next Christmas, and oil at current levels to a $130.00 dollars a barrel. He is bullish on the sector and again reiterates its just early days.
As far as his favorite picks you’ll notice that there hasn’t been too much of a change. Oilexco is his number one pick, and he is looking for $25.00 by Christmas, and inside that price target is not included the possibility of a discovery at Moth. He suggests that play has a one in ten chance, so one shouldn’t be counting on it...he’s just expecting production from Shelley and advances at Huntington and others to bring production up significantly and the market will appreciate it.
One stock that has been a long time favorite of his as well, is Tusk Energy and he never predicted the dramatic drop we saw in natural gas prices because of two warm winters in a row, so if you owned a gas stock when prices were stumbling like that, you didn’t have any joy. Now we are back to near normal times and Tusk is on the way up. He has a $4.00 target by Christmas, which is one of the more aggressive targets out there.
Not quite as aggressive is his look of Iteration Energy as two companies combine and he suggests that if the results of the amalgamation go well, he would not be surprised to see $10.00 to $12.00 by Christmas. We suggest that might not change our lifestyle, so has he got something that a person could be looking at there?
He suggests then, that you would have to looking at some micro-caps that the market certainly doesn’t care about. He suggests that the mico-caps such as Zapata Energy (ZCO) and Berens Energy (BEN) are other juniors that currently trade at only two times cash flow and jokes that these micro-caps are now with market caps of $50 to $100 million, so maybe they are not that small. But if you are looking for leverage, maybe that’s where one has to go.
We ask Squires one last question ... about the general oil and gas market over the last few months...it’s been brutal.
His comment was that he can’t remember a time since the early 1980’s when the market was that ugly...oh yes, I remember that well, just starting as a broker. Premier Lougheed of Alberta signs the NEP with Trudeau and kills the oil and gas industry. Within months, some of the biggest corporations in Alberta went broke and then oil prices went down and the patch took almost a decade to crawl out of its hole.
GOLDSOURCE MINES (V-GXS) $4.29 -0.26
It’s one of the stories of the day, a story that a Hollywood scriptwriter somewhere must have dreamed up...drilling for diamonds in Saskatchewan, Goldsource Mines and actually finds coal and it looks like they could have found a bunch of it.
The guys that were first on the story were the Coffin Brothers and today in the Hard Rock Analyst they write, “For now the important points are the quite high caloric content, the good thickness of the upper seam and the good logistics this project displays. These holes are 5 km from rail lines and have logging roads near them. While we don’t plan to arm wave about tonnage potential too much it does appear the two holes intersected the same seam 1.6 kilometers apart. If the seam is indeed contiguous through these two holes, and it won’t take much drilling to establish that, there is 100 million tonne plus size potential on the table already …” They add, “Price swings are likely to continue to be large, but there is real potential for a significant upward move in the coming weeks as follow-up drilling nears.”
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David Pescod's Late Edition May 7, 2008
CDN. SUPERIOR ENERGY (T-SNG) $ 3.53 –.08
It’s a big target and it looks like it’s finally created a little interest in the market, as yesterday, Canadian Superior Energy saw its stock have quite the pop. We are talking about the Bounty well offshore Trinidad that Canadian Superior along with partners BG International and Challenger Energy are drilling.
This is about 2 1/2 miles from the recently announced successful Victory well that Canadian Superior announced some time ago and this area of Trinidad is providing an awful lot of successful wells for companies over the last while. IR guy Mike Coolen with Canadian Superior suggests some success Challenger has acquired is what’s putting the spotlight on the well.
Meanwhile, the Bounty as of 6:00AM Tuesday morning, was at 13,912 feet sub-sea, on its way to a target of 18,000 feet. It was originally scheduled to drill 110 days, currently on about its 80th day. So it is going to be a while before people find out whether it’s a goodie or not.
In the meantime, we remind folks that this is Josef Schachter’s favorite pick for this coming month, so there are more than a few of us who have an interest in whether this well works, or not.
GLOBESTAR MINING (T-GMI) $1.99 +.14
Yesterday, we noticed that Jennings Capital raised their target on Globestar Mining from $2.55 to $3.00. Some time ago, Wendell Zerb of Canaccord also raised his target on Globestar to $3.00 as well.
We hope one of them is right as we continue to take positions in this story. With copper prices flirting with $4.00 and record all- time highs, there are not too many copper projects that look like they are going to come on stream anywhere near cost estimates and many projects are being moved back.
It looks like Globestar may have their Cerro de Maimon project coming in on stream, on time and on budget, sometime over the next 30 to 90 days.
Wendell Zerb suggests cash flow in the first full year, could be as much as $0.76 a share. For mid-caps, he suggests, you use a four to seven times multiple to get a price target on a stock, but usually if it is a small producer and in this area that might apply to Globestar, a discount is given for the smaller guys.
We should also point out that they will be using some of the higher grade ore in the initial years of production, and in later years the grade falls off somewhat. You do the multiplication though, and you can come up with a much tastier target than what Globestar is right now and that’s without giving any credits at all to the nickel assets, which are significant. We could be quite wrong, but we are of the belief that Globestar has got to be in play and management has been with this project for a long time and wouldn’t mind cashing in something as well.
After nearly a decade of being involved with the discovery, metallurgical testing, planning, engineering and finally building of the mill and mine, you can’t fault management wanting to cash in a few chips and for long-time shareholders to experience something we haven’t seen a lot in the mining sector over the last while.
For those who would like to see Zerb’s latest report on Globestar Mining, email Debbie at debbie_lewis@canaccord.com.
OILEXCO INC. (T-OIL) $16.62 +.86
So what were you doing the day that Oilexco was under $10.00 in the recent market malaise? We have to admit, we’ve been through the likes something of which we haven’t seen in ages and to think given current oil prices, we saw stocks such as Oilexco get so beaten up over the last few months, it was hard to explain what was happening in the world out there.
But we’ve lived through it and of course everyone would love to say that they were made of the right stuff and on that day, boldly went forth and scooped up some shares dirt-cheap. Then there’s some, us in particular, on a day like that, in a market like that, well we were probably hiding under our desk wondering what next the world was going to throw at us. Oh well, we experience times like that, but we like these times a little better as Oilexco is having a great day on the markets, up significantly and it’s the annual meeting in Calgary this afternoon.
We suspect there is going to be tidbits coming out of that meeting that might get people further excited about the ongoing story (maybe some production sooner than expected?) although we do hear that the Moth, a huge story, which could have huge implications if successful for Oilexco, has been experiencing technical difficulties and is probably several weeks behind schedule.
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David Pescod's Late Edition May 8, 2008
SOLANA RESOURCES (V-SOR) $4.09 +0.04
MADALENA VENTURES (V-MVN) $0.58 -0.02
Solana Resources had their annual meeting the other day and Josef Schachter tells us he is going to have to adjust his target on the stock ... upwards! Oh gosh, oh darn.
We have mentioned Solana several times over the past year because two people kept saying it was a stock you had to own. One of course was Josef Schachter and the other was well-connected oil and gas guy Dave Antony who is President of Bridge Resources (BUK), CEO with Southern Pacific (STP) and President and CEO with March Resources (MCF).
We suspect we weren’t the only ones that were quite hesitant about Solana for one main reason...it operates in Colombia. It wasn’t that long ago that the only thing Colombia was known for was drug dealing, kidnapping and murder. So to say you needed a certain amount of nerve to invest in that country, would be very much an understatement.
But under Colombia’s new President, Alvaro Uribe, things have changed dramatically as kidnapping is down, business is booming and their economy is almost totally opposite of what you see happening in nearby Venezuela. Venezuela with all that oil seems to be simply nationalizing one industry after another, corruption is rampant, food shelves are having shortages and the like, while Colombia is going the other way...capitalists, pro-business and booming. It’s a big supplier of trade to Venezuela of the products that Venezuela can’t seem to produce themselves. Who would have thought? In the latest edition of the “Economist” magazine (April 19-25) they take a great look at the country and how things have changed so dramatically. The chart on Solana shows that it didn’t even experience much of the huge correction most stocks around the world suffered in the last quarter or so. It’s been straight up.
Mind you, things in Colombia still aren’t perfect, as Canaccord’s Fred Kozak tells us that sometimes when he is off to see sites for Pacific Rubiales (PEG) and others in Colombia, he still needs a military escort sometimes.
Schachter tells us that the annual meeting featured new discoveries, a bigger exploration budget and all things positive. But we ask him if he had to take some profits and buy something else, what would it be? He sticks with some gas stocks such as Accrete Energy (GZ), Profound Energy (PFX) and Delphi Energy (DEE).
Meanwhile, Antony who has repeatedly touted the Solana story now picks another stock that is even more terrifying to us than Solana was a year ago. He goes with Madalena Ventures. What’s so terrifying about that story? Well folks, it’s in South America ... but it’s in Argentina. Ah yes, another country with politicians you have to wonder about. Argentina was one of the wealthiest countries in all of the Americas back in the 1900’s, and from time to time seems to go through political messes, bankruptcy and you-name-it. They still have the resource, but it always seems to be poorly managed.
Dave Antony simply says, “you have to go with the right management team, with the big projects” and he suggests Madalena has both. In the meantime, for those who like excitement, Madalena also has results coming shortly on a high risk/high reward play in Tunisia.
CONNACHER OIL & GAS (T-CLL) $4.48 +0.06
It’s nice to see the boys of Connacher getting out and about these days. It seems their headline speakers are at many of the oil sands conferences of the day.
Dick Gusella, leader of the pack at Connacher recently spoke at COPIC in Toronto, followed by the Raymond James Oil Sands of Canada Conference in New York.
Meanwhile today, some of the people that actually understand oil sands from Connacher, are speaking at the TD Leverage Financial Conference in Miami. And most importantly, the market is starting to care. At $122 oil, oil sands is suddenly back in vogue again.
It seems like just yesterday, the stock was plunging as markets around the world were getting battered, despite oil prices rocketing and despite Connacher’s production heading upwards. Those were not some of our best days. We remember hiding under the desk when Connacher had that dreadful spike down (we now figure we are a leading market indicator…anytime we are found hiding under the desk, ask just what it is that has us terrified now).
When we caught up with Gusella hoping to hear how soon he thinks approval on their second Pod on the Great Divide project, he suggests that their time frame was always mid-year, but all the paperwork has to be done, the regulators are busy and of course, they want it done right. He reminds us that the SAGD projects have never been disallowed, it’s simply that regulators want it done right.
Gusella adds that they’ve lined up many contracts and have pre-built some sections when the second Pod gets the okay, but they still need government approval to proceed.
Meanwhile, we check up on Andy Gustajtis, a longtime fan of Connacher and he reiterates that the stock has to break through the $4.75 level, but once through there, he would be disappointed if it isn’t $7.00 by Christmas, should they receive approvals shortly. After what we’ve gone through in the last few months, boy, do we hope he’s right!
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David Pescod's Late Edition May 9, 2008
CORRIDOR RESOURCES (T-CDH) $8.77 +0.37
If you read the financial press on a regular basis, it was hard to miss one of the lead articles yesterday and that was a report by CIBC showing that Canadians were sitting on records amount of cash in their investment portfolios and more than a little bit nervous.
The Financial Post wrote, “The credit crunch fears of a U.S.-led global economic slowdown and heightened levels of sustained market volatility have made Canadian investors hoard a record $45-billion in excess cash, but CIBC warned yesterday that they will miss a huge opportunity if they try to wait out the turmoil.” They add, “Clearly, safety is in these days,” said Benjamin Tal, senior economist at CIBC World Markets.
The article continues, “The bank noted that investors who stayed on the sidelines after the 2001 market correction missed out on more than $30-billion in gains—a pattern that is emerging again in 2008. Looking back further to the October, 1987, stock market correction, which lasted two months, investors sat on their cash for 16 months, during which time the stock market rose more than 20%.”
At times like this, when many investors, particularly those new to the market are looking at beaten up portfolios, it only makes sense that safety is big concern. And what the heck is going on in the markets anyway?
Andy Gustajtis, the oil and gas guy at Dominick and Dominick gives a good example of how ugly it’s been. He tells us that his own portfolio in the last 60 days was down 50% from last August. Now that’s a hit folks and when it can happen to sophisticated chaps like Andy, it can happen to anyone.
“Now it’s down about 20%” he says, but we were on the phone to Andy about something else...how come one of his favorite stocks, Corridor Resources is having such a run over the last two days? “It’s all the do with the Quebec Utica shale gas play that is attracting so much attention to companies with names like Questerre Energy (QEC), Petrolia Inc. (PEA) and Junex Inc. (JNX). And people are suddenly starting to look around for other shale gas plays to participate in and “what could be better than Corridor” he suggests, who has 220,000 acres that they virtually own 100% of instead of small chunks of.
Andy is one of the analysts to first give credibility to the shale play and he still asks the question, is the Utica another Barnett shale? It will take time to prove or disprove that, but in the meantime, if he could only buy one stock today, he suggests based on $100 million in cash flow next year and the potential for the shale plays which will be tested this fall, Corridor remains his pick of the day.
We note that Corridor is really lacking in IR and promotion and suggest you take a look at their website for information. Who else at a time of $11.00 gas, using $7.25 gas for their calculations? Just a short pipeline away from those juicy Boston/New York City gas prices.
BNP RESOURCES (V-BNX.A) $1.48 +0.21
Your accountant probably wouldn't let you buy any shares of BNP Resources...just too many bad numbers. For a company with 22 million to 25 million shares outstanding roughly, to be only doing 300 barrels of oil equivalent a day, isn’t much to show for it and their costs are through the roof for everything! Stay away from that story, I’m quite sure he would be saying, or at least, should be saying.
Of course on the other hand, there is your Hollywood scriptwriter just waiting to write the story of this stock for the rest of the year as a group of experienced executives from Canadian Natural Resources set up the Company some time ago, have farmed into a play on the Montana border from Encana Resources and the scriptwriter will be keying in on a play called Jensen. Jensen so far has come up with three wells and with the cold winter and warm spring, they haven’t been able to spend a lot of time testing it, but it looks like they may or may not have some pools on the Alberta side of the border that on the Montana side, have seen wells with low productivity, but extremely long life. They have delivered as much as 10 million barrels of oil over the last 50 years. That’s what they are hoping they have at Jensen.
One follower of the story that we’ve been listening to for a while tells us that equipment mobilizations start any day now and they will be drilling six wells at Jensen over the spring and summer and should have a handle on what they have/don’t have by this fall.
Not everyone has the time or money to dwell on a play quite like this, that once again, features low productivity but an extra-long reserve life, and one or two technical problems to face, but his suggestion is that if it is proven to be successful, the Company will probably want someone with deeper pockets and deeper management to take a look at it and give this play the probing and testing it deserves.
One to go on your watch list at this price. |
