₪ David Pescod's Late Edition 8/18-8/22/08
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David Pescod's Late Edition August 18, 2008
Crude Oil $ 112.80 -.97
Oilexco (T-OIL) $ 13.40 +0.20
Connacher (T-CLL) $ 3.49 -.18
Talisman (T-TLM) $ 17.61 +.13
We’ve been suggesting that the sell off in the oil patch just might be just a little bit exaggerated, and maybe folks are already pricing in eighty dollar oil as a given. Well, how about this, we go back and check where oil closed a year ago, and it was yours for a mere $71.82. But, look where some of the stocks closed at that time. Oilexco (T-OIL), despite the fact that there has been so many discoveries, such as the huge one at Moth developments and positive drilling results at Caledonia, Brenda, Balmoral, and Delta, and looking like development progress at Shelly, and production that’s now up close to 20,000 barrels a day and should be closer to 45,000 barrels a day by year end. But, look at the stock, a year ago when oil was $7l.82 and Oilexco had much less to show for itself, it was yours for $11.72 cents. Today it is $13.40.
Or how about Connacher (T-CLL), a year ago they were just starting work on their pod one project , today they are producing close to 9000 barrels a day, and the company is doing over 10,000 barrels a day, and the stock which closed a year ago at $3.50 is yours today for a mere $3.49. Does it make sense?
Or how about company biggy Talisman, (T-TLM) which recently reported huge cash flow numbers, half a billion more than expected by some analysts, as the big guy gears up. A year ago when oil was $71.82 Talisman was $17.96 cents, in other words, despite much higher oil prices, and a much bigger better company , the stock is trading at less than it was a year ago at oil prices $40.00 less. Bargains in the patch?
Crude Oil, 2 year chart
Ithaca Energy (IAE-V) $1.67 - . 02
This is quite a correction that we are experiencing in the oil and gas sector, and to have our own hands held, we seem to be spending a lot of time talking with veterans of the oil patch to find out what they expect next.
Courtesy of the credit crisis created by the brokers in the United States, the question remains, how much longer can that crisis go on for before it’s over with, and before the economy can start going again? Traditionally, when you have an economic slowdown that will affect commodity prices and it certainly is these days. But, where is the bottom? And where would you see oil prices this Christmas and possibly more importantly, Christmas 2009?
Needless to say, the answers are all over the place, but the suggestion is that so many of the oil stocks have been so beaten up that maybe some are already pricing in $80.00 oil. But as an example of some of the thoughts out there, we go to Scott McGregor, currently Vice President Investment Banking with Acumen Capital Partners, but for those around Edmonton and Alberta, would know the McGregor name quite well. His grandfather was Bill McGregor of Numac fame; Scott’s dad is in the oil and gas patch and now the third generation is in the business. Oil runs in his veins.
Where does Scott see oil being this Christmas and next? For this Christmas he figures $121.50 and next Christmas $143.00. Needless to say those don’t come with any guarantees, but it’s nice to see there are still a lot of people out there with rather bullish projections.
As to picking two stocks, McGregor goes with Connacher Oil & Gas and beaten up Ithaca Energy, which becomes a producer in a year’s time or so. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition August 19, 2008
Potash of Saskatchewan (POT-T) $ 185.30 +4.16
Mag Industries (MAA-V) $ 1.70 +0.03
The commodity bubble has gone bust according to the markets over the last few days and weeks, or at least that is according to some people that figure the economic slowdown which was started by the credit crisis in the States is spreading across the world. Not everyone believes that, including us. However, we have had a bump in the markets, the likes of which we haven't seen in decades, and it’s not just lead, zinc stocks, uranium stocks and oil and gas stocks that have been clobbered, look at some of the charts of some of the Potash companies.
Some of the commodities that have really been benefiting over the last while because of increasing demand from Asia have been agricultural commodities such as corn, soy beans, and you name it, and they all need fertilizer.
Fertilizer prices needless to say have gone through the roof over the last year, although they have corrected recently. Credit Suisse takes a good look at whether those high prices for fertilizer has created Demand Destruction. They write in a recent report on fertilizer markets ‘ Demand Destruction is what the bears keep talking about, but where is it? Energy markets, not fertilizer markets. Our fertilizer team across the world sees no meaningful Demand Destruction in any key market,... we view the weakness in fertilizer stocks as a major buying opportunity.
They also take a look at nitrogen, phosphates and potash demand and prices. For those looking for an interesting Background Report on Mag Industries, Canaccord Analyst, Keith Carpenter, has a recent report worth reading for those that believe we haven’t seen the end of the world for agriculture commodities.
The charts of Potash Corp of Canada , one of the world’s big producers, and Mag Industries, currently trying to get a world class facility in the DRC on stream by the year 2011 ( and will need to get about 80 million of financing done later this year to keep things on schedule.)
Don’t think the commodity boom is over, and that more people will want to eat well, these stocks could be buys...? Meanwhile the analysts seems to like the Mag story as Desjardon Securities considers Mag one of their top picks as a speculative buy and target of $6.00, meanwhile here at Canaccord this suggestion by Analyst Keith Carpenter is it’s a buy with a $8.25 target.
For a copy of the Carpenter Report e-mail Deb at debbie_lewis@canaccord.com
Reece Energy (RXR-V) $ 3.08 +0.14
The chart on Reece Energy is like that of many of the oil and gas producers these days. It’s been swacked over the last while. It’s too bad, because the management crew lead by Lorne Swam, out of Lethbridge has done an amazing job with the company, particularly with some of their Bakken land in Saskatchewan.
Over the last six months Reece Energy has almost tripled production from 500 to 1500 barrels a day, and where they will be a year from now is open to debate, but many think it could be as high as 2500 barrels a day. Which is the good news.
For those that believe that the commodity boom has gone bust, you can tell that Reece’s stock has been affected like all others, and never got appreciation for $150.00 oil , and now has been treated as if oil will be $70.00 sometime soon. We don’t believe it, so that’s why Reece is on our watch list. Recently the company closed a financing that should raise them tons of dough for the next twelve months drilling, but there was also a financing done about four months ago that comes tradable in the next couple of weeks, and those lucky folks got it for $1/55 a share.
Considering the ugly market do you think some of those people just might let those shares go at less than current levels in the coming weeks? Well we’ll find out soon enough because we are one of those that believe the commodity boom is not over, and there is a long list of oil and gas stocks priced as if oil will be $70.00 and we don’t think it will. Reece is one of those on our list, hoping to scoop it up cheap over the coming few weeks.
The company now has a beautiful portfolio of high, medium and low risk plays (including those tantalizing Bakken plays). One to watch that almost no analysts are following so far... _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition August 20, 2008
Natural Gas $8.13 +.15
Horizons NGAS (HNU-T) $16.17 +.35
The real estate types are fond of the saying it’s location, location, location, when determining real estate values, where as in the commodity markets for natural gas, what determines it’s price is probably weather, weather, weather. Have a hot summer which cranks up the demand for air conditioning, have a cold winter which cranks up demand for heating, and have a hurricane or two, hit the huge oil and gas platforms in the Gulf of Mexico, which supplies the United States huge, (almost 22 per cent supply of American oil and gas), and you can understand the importance of weather. So far this summer, it’s been a mild one, and demand for much of North America has been less than expected...except in Alberta where we seem to have had one of the hottest summers on record.
Also, affecting gas prices a little bit, has been some of the major shale discoveries in United States, from the Barrnet Shale, to the Haynesville in Texas/Louisiana. There has been huge discoveries, although, its going to take years to get some of it on production, in the meantime, what do you do when you look at a chart like the (one on the left ), showing what’s happened to natural gas prices over the last while.
We go to Josef Schachter, who doesn’t seem to be to bothered by it all, and these days Schachter seems to be running very much, a hand holding service, as he suggests that this is the area where oil and gas stocks have become not a buy, but a “tabled pounding buy”, Needless to say, as we look at our bruised and battered oil and gas portfolio, we hope he is right!
As far as the steep decline in natural gas, Schachter, simply says that we’re seeing oil and gas now at a ratio of 13 to 1, and he suggests it never stays at that kind of ratio for too long a period of time.
Interesting to see Bloomberg doing a article suggesting the almost identical situation echoing Schachter’s thoughts immediately, that the ratio simply doesn’t exist for too long ... so what to do about it, if you have seen your natural gas stocks get pummeled, and still have faith in the commodity, when it is at a level where traditionally becomes a buy? Well, you can always buy your favorite natural gas stocks, but, if you’re the type that demands adventure and excitement, the brokers have created a new toy for you.
What the brokers have basically done, is put together a portfolio that leverages how natural gas can do, so, if you think gas is going down, you can short it, if you think gas is going up, you can buy it, and the fluctuation in the chart HNU (page 1), shows how much it can fly, or plummet, as leverage supposedly by a factor of two compared to what an average natural gas stock should do.
ANTRIM (AEN-T) $2.45 +0.22
PAN ORIENT (POE-T) $6.96 -0.16
PETROLIFERA PETROLEUM (PDP) $4.94 +0.28
When we asked Dick Gusella, Chairman of Connacher, and Petrolifera Petroleum, when was the last
time you saw an oil and gas/natural resource market this bad, he had to think for awhile … and then suggested the market in 1973/74 was an ugly one. Come to think of it he suggested, 1969 wasn’t too good either. It just shows for those that have been in the industry for this long a time, you have to go way back to see times quite like this.
Warren Verbonac, Octagon Oil an Gas Analyst, has similar thoughts. He suggests “We are currently seeing oil and gas stocks dramatically over sold, and I have never seen it this out of wack before. There is no sign of a bottom and I’ve never seen oil and gas stocks mispriced like this ever before. He is also boldly suggesting that he’s seeing oil and gas stocks giving possibility one of the best opportunities of an investors lifetime.” You get the feeling he is bullish on the sector, but he’s feeling pretty lonely.
He does suggest that currently the natural gas price at least for the domestic producers is not that good, but suggests that could easily turn around come October. When we ask him for his crystal ball, and what it seen for oil and gas prices, he won’t be surprised to see oil at $100.00 this Xmas and next Xmas between $100.00 & $150.00 As far as his favorites some of them are quite familiar, the only thing different is that they are trading for a half and some of them as much as a third of where they were earlier this year. Ithaca is one story we have followed for some time, and Antrim, another player in the North Sea, now fully funded, although there is still some dotting of i's and crossing of t’s on it’s debenture financing, and the charts show similar direction. We suspect as the two stocks get closer to production and real cash flow that might help make a bit of a difference. But the chart on Pan Orient which is an explorer in Southeast Asia shows how dramatically some Oil and gas stocks have sold off.
Meanwhile one of his favorite stories Petrolifera, has suffered of late. He suggests its trading at half of it’s asset value and that the company is getting no appreciation at all for its drilling projects in Peru and Columbia. He suggests that their project in Peru , which he admits was expected to be drilled spring of this year, now looks like May of next year, offers one of the highest impact plays he has ever seen in the Oil and Gas patch. But then that’s the kind of market we are in.
Canadian Natural Resources CNQ $88.40 +6.13
Canadian Natural Resources is getting lots of press coverage today in Alberta and also on other news outlets around the world because of some interesting visitors it had to its Horizon Oil Sands site on Monday. The two richest guys in the world, Warren Buffet and Bill Gates, well known as bridge playing partners decided to do a site visit and most of the press reports talk about the wow factor that was involved. We’ve up and seen some of the projects in Ft. McMurray and you can’t help come away impressed by the size and scale of the operations. Everything about it is big and getting bigger, but in the meantime and more importantly we notice that several of the bigger more blue chip oil and gas stocks seem to be, or hopefully might be putting in a bottom, as charts from Canadian Natural Resources, Suncor, Crescent Point and others seem to be heading the right way. Not the same for the juniors, though that seem to be facing redemption and margin calls. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition August 21, 2008
Underneath find a chart showing exactly how well the Sprott Canadian Equity Fund has done over the years. On the right hand column, you see that for most years, they’ve had one heck of a run. There’s a reason why Eric Sprott and his team are some of the most respected advisors in Canada.
Having said that, they have also had rough spots, particularly in the resource sector which they emphasize over the years as the resource sector has had its ups and downs in a big way from time to time as well. We are currently in the one of the worst we can remember.
But look at the size of some of the drops in the value of their portfolio over those periods when you had several months of ugliness. There’s frequent times when the market has delivered a 25% correction to the fund. Which is the bad news. Sooner or later, these bad markets usually end and imagine you are one of the people who picked that time precisely to buy into the fund. Now that’s performance!
So the question for those looking to try this little game again, is just when is the bottom and how good could the oneyear return be after this trough (or deep valley) be?
Sprott Canadian Equity Fund (Series A)
Sprott Asset Management Inc.
Royal Bank Plaza, South Tower Tel: 416-943-6707 / 866-299-9906
200 Bay St., STE 2700 Web: www.sprott.com Benchmark 1: S&P/TSX Composite Total Return Index
Toronto, ON., Canada M5J 2J1 Email: invest@sprott.com Benchmark 2: S&P 500 Index
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
sprott.com
On the first page we took a look at this Sprott Canadian Equity Fund, and how it has done over the years which has been amazing. We also looked at how even an amazing fund has from time to time oopsies times when the market is just not generous to them at all, and some of those oopsies have been very painful.
On the other hand, Eric Sprott, took his company public just three months ago, and we’ve seen one of the worst markets develop ever since. From the time when Sprott went public we have also seen virtually all commodities head down, some of them significantly, such as gold and oil, and suddenly the thoughts of Sprott and Don Coxe, and others big believers in commodities as the place to be, and to stay away from the America dollar are suddenly been brought into question.
If you are a believer in Eric Sprott, suddenly his company is very much cheaper. The company went public at $10.00 dollars a share, and at the time there was a great amount of fighting to get a piece of the action. The suggestion by some was that it might have been a little bit richly priced at the time, but it is without doubt that it’s certainly a lot cheaper now …. Meanwhile, Eric Sprott is featured this past weekend in Barrons magazine ... he’s long energy and short financials
Sprott Inc. (T-SII) $6.61 +0.11
Westernzagros (V-WZR) $2.46 +0.14
TWAKE, Iraq — The Canadians are squeezing oil from sand. The Brazilians want to nurse it up through miles of seawater, sandstone and salt. But, here in the far north of Iraq, oil is literally bubbling to the surface.
Oil executives lament that the age of “easy oil” is over. It isn’t over here. For companies that have stumbled into this corner of Iraq known as Kurdistan, it’s an era that has just begun.
“Look at this,” said Magne Normann, Middle East director for DNO International ASA of Norway, as he stood beside a pond of oil oozing up on a liquid shot three feet high. “Pure Oil”.
This was the start of an article by the Wall Street Journal, on July 8th, that looked at the huge potential of Kurdistan, and its weird politics. It’s compulsory reading!
Josef Schachter follows this story and suggests their joint venture with Talisman should have news late September! We buy a few. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition August 22, 2008
Bankers Petroleum (BNK-T) $4.19 -0.07
Oilexco (OIL-T) $14.31 -0.32
Delphi (DEE-T) $2.49 -0.04
Western Zagros (WZR-V) $2.40 -0.06
Nothing to this stock market business really ... just buy low, and sell high. Nothing to it right?
Well in hindsight, you look back when everyone, and I mean everyone was talking about their high tech stocks you just knew that it was gettin out of hand. At least, in hindsight right?
Voila, eighty per cent of the high tech stocks are now eighty per cent cheaper, even if they are still around. Same thing about real estate...when you hear just enough people in the United States talking about the bundle they made on real estate, and you see shows on TV called “Flip This House”, you know sooner or later its out of hand, and reality will sooner or later reassert its self. We don’t know about Vancouver, but much of the areas of the United States seem to be quickly getting back to rational levels. But here we are in the commodity boom, and in the last couple of weeks and months we have had a correction the likes which has been unbelievable. Its like trying to sell at the top, trying to buy at a bottom can be just as tricky. But there are sometime signs...such as when the people you believed in the commodity boom for years, suddenly in panic sell their mutual funds they brought for that one purpose, and those with too much leverage are facing margin calls, you just know we might be getting near bottom.
We have had people such as Josef Schachter insist that we are at that point where most oil and gas stocks are not just buys, but table pounding buys. We have Analyst, Warren Verbonac, suggest that there was such a miss pricing in oil and gas stocks, that it probably provided an opportunity of a generation, if not a lifetime. That’s the kind of stuff from reputable people that we look forward to, and its why our own margin account has been abused over the last week or so. The commodity market better come back. Of course, our own work shows us, that there are so many oil and gas stocks, at least up until the last few days, were trading at levels they saw when oil was last $72 .00 that it provided one heck of an opportunity. Oil doesn’t have to go back to $150 dollars we don’t think to make money in the oil patch these days. It just has to show the public that its not going back to $70.00 any time soon, there is an awful lot of companies that could make an embarrassing amount of money if the oil just stayed at $100.00.
We have written over the last few days, or at least quoted others, hopefully smarter than us, they think this has been an opportunity, which gets us once again to Schachter, who just had lunch with another very interesting character. It’s not one of those lunches like Schachter is known to have with Art Mulholland of Oilexco, but its probably more work related,(where as with Art there is tasting fancy expensive wines over long periods of time, and possibility even talk of golf.) Abby Badwi, the super successful management guy behind Rally Energy, is all business.
The reason we are interested of course is that Schachter and I have a little bet ,about which stock would perform better ... he picked Delphi and we picked Bankers.
As to the update, Schachter tells us that Bankers production seems right on schedule. It was sitting at roughly 5600 barrels a day in June, it’s currently doing about 6000 barrels with another 400 barrels behind pipe and four wells currently be completed which would add 200 barrels. In other words, the target of 7000 barrels a day by year end shouldn't be in any doubt. Meanwhile, they are getting additional rigs on site, where they currently have eight service rigs. They should have two more in the last quarter of this year , plus an additional drilling rig. The company should spend about 70 million on capital expenditures on the Patos Marinza project in Albania this year, and next year spend another 120 million resulting in a cash flow of about 120 million. The one big question Schachter asks how are people going value Bankers, because their reserves are enormous, while its cash flow at this point at this time is still growing. For their heavy oil they currently get about 52 per cent of Brent prices, and in the meantime, the royalty arrangement with the government is enabling them to speed up development ,while Schachter’s previous target on the stock was $7.50, and he suggests when his monthly report comes out it just might be under review.
Meanwhile, Schachter has a lot of fans through his BNN appearances and if he has been correct, (Oh he better be correct), on picking the last 10 days or so is an opportune time to pick up oil and gas stocks cheap. He’ll be on BNN again, Tuesday at 12:30 pm. (Maybe someone should phone in, and ask him his thoughts on Ryland, the ultimate real estate play on the Bakken in Saskatchewan?) As far as his three favorite picks at this time, he reiterates Oilexco, and Delphi, but his third pick now is Western Zagros, which is only about a month away from results on their enormous play in Kurdistan. It’s a stock like many others that is a lot cheaper now than it was a month or so ago.
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you on the list tonight. |
