₪ David Pescod's Late Edition 11/10-11/14/08
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David Pescod's Late Edition November 10, 2008
WESTERNZAGROS RES. (V-WZR) $0.75 +0.02
We mentioned the other day about Josef Schachter’s
latest Maison Monthly which was titled, “Generational Buying
Opportunity” and how he wrote, “With blood running in
the street, we are not heading into a depression. Once winter
is here, energy prices will lift materially and energy
stock prices will follow.”
It’s an interesting report and Schachter remains much
more bullish than just about any other commentator on the
face of the earth and we hope to make our own comments
on that tomorrow in that his title, Generational Buying Opportunity
may be right—it’s just that our timing might be
different than his.
Nevertheless, we note that one of his top picks, Western-
Zagros Resources has a chart just like many other oil and gas
stocks, but some time in the next couple of weeks it’s going
to attract attention...either one way or another!
Schachter has some interesting commentary on Zagros,
but today the Big Picture Speculator also makes some
comments on WesternZagros as Jim Letourneau writes,
“We’ve been watching the progress of WesternZagros for
some time now. Initially we were confused when Western
Oil Sands announced the addition of Kurdistan assets as
most oil sands investors were looking for stability.” But
“Marathon Oil stepped up to buy Western Oil Sands and
WesternZagros was spun out of as well funded international
explorer.”
Letourneau continues, “WesternZagros has a 2120 km2
Production Sharing Contract (PSC) with Kurdistan Regional
Government (KRG) in northern Iraq and they have a
staggeringly well funded treasury (~$180 million) that will
let them complete a 6 well program over the next 3 years.”
He adds, “There aren’t many places in the world where
you can have a shot at finding a billion barrel oilfield. Indeed,
WesternZagros President, Simon Hatfield’s eyes light
up when asked why he’s exploring for oil in Kurdistan.
The answer is evident if you check out the neighborhood
that WesternZagros’ PSC is in. It is surrounded by
fields like:
• Bai Hassan - 2.2 billion bbls
• Taq Taq - 600 million bbls
• Kirkuk - 25 billion bbls
• Naft Khaneh - 430 million bbls.
“Hatfield has been working in Iraq since 1995 and patiently
put together the deal that led to the creation of
WesternZagros. Their first well, Sarqala #1 is located on a
reef trend with stacked seismically defined structures.
Structures are nice but there is no guarantee that oil will
be contained in them.”
“Most of the adjacent giant fields consist of stacked
reservoirs (ie oil in more than one zone). We take comfort
in the fact that the Sarqala #1 ran into drilling problems at
a depth of ~2300 m when overpressures were encountered.
A likely source of these overpressures is the vertical
migration of hydrocarbons from deeper depths.”
Letourneau continues, “Despite the drilling challenges
encountered in this well, we have seen nothing which
changes our enthusiasm for the prospectivity of this block
and the reservoirs we are targeting.”
“More importantly AFTER this announcement, Hatfield
purchased 87,000 and Executive Chairman, Fred Dyment,
purchased 200,000 shares on the open market.”
Bottom Line for Letourneau: “In a market where losing
less is a tout-able achievement, we remain cautious. However,
we see outstanding quality and value in WesternZagros.”
CRUDE OIL $62.40 +1.36
NATURAL GAS $7.41 +0.45
After the Chinese announced a huge stimulus package
today, the markets had a decent time...at least for a couple
of hours they did.
Meanwhile oil was up as much as $4.00 in the morning,
down $1.00 at noon hour and closed up 1.36 at the end.
In the meantime, we remind ourselves that the “Mystery
Oil and Gas Guy” tells us that it will be time to plunge into
the oil and gas stocks again, as soon as we see a few
things: First of all, the Shanghai Index in China showing
that it’s bottomed and is moving up, showing that the Asian
economies are recovering.
Secondly he says, you’ll see some take-overs by the Big
Five in the United States who are lousy with cash such as
Exxon, Shell, BP, Chevron and Total, and will find it
cheaper to buy other producers than to go discover it themselves.
Today Bloomberg talks about just that point as they suggest
Anadarko Petroleum and Dana Petroleum might be
take-over targets because right now they write, “it’s
cheaper to buy a barrel on Wall Street instead of a barrel
that companies need to find and develop. The numbers
they suggest are that Anadarko’s proven deposits now
have a stock market value of $6.00 a barrel after its shares
have stumbled 45% and Dana’s are worth $7.80 a barrel,
which is 39% below the $12.87 a barrel Royal Dutch Shell
spent last year to find and develop its own fields...cheaper
to buy someone else than to go look for it yourself!
When does the M&A game start? _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 12, 2008
HATHOR EXPLORATION (V-HAT) $1.75 -0.14
While markets in Canada and the U.S. look to test their old
lows, in the world of commodities, with the world-wide recession
peaking, commodities have continued to fall off a cliff. Oil
is now less than half of where it was at the peak; gold attracts
no attention at all despite the crisis that is supposed to create
a demand for gold; copper is approaching a level that is close
to a third of where it was and now commodities like molybdenum
join the group that are disappearing quickly in price.
About the only commodity adding a little bit to its valuation
these days is uranium. Mind you, it had its big run a year ago
before it collapsed and now it seems to be attracting attention.
Again, the main focus for uranium is power production and
plants continue to be built in places like India and China
(although not at a big rate) but plans for down the road continue
to accumulate at enormous rates. Which is the good
news.
The bad news is these plants can take anywhere from four
years to get okayed and built in China to 13 years in the United
States. But back to the matter at hand and that’s uranium
prices. TradeTech, one of the followers of the uranium price
suggests that there are several developments regarding uranium
that is helping to strengthen its price involving negative
news from the production sector, increasing demand and the
establishment of a new uranium fund.
They report that Kazakhstan’s national nuclear company,
Kazatomprom, announced this week that it expects 2009 production
to be roughly 14% less than previously forecast.
A second item is that Cameco reported that the McArthur
River project had experienced a “modest increase in water
inflow” which doesn’t bode well for increased production
down the road.
Meanwhile, it looks like New York Nuclear and Deutsche
Bank announced plans to establish an uranium fund, an investment
vehicle in which the primary asset will be physical
uranium.
In the operation of nuclear powered hydro plants, the cost
of uranium is an incredibly small portion of all costs, particularly
construction. So it’s starting to look for the short, medium
and long-term that uranium may have a future...and
meanwhile, we just wonder when all the other commodities
might just bottom...which year?
Meanwhile, today in research by Credit Suisse on the
“Uranium Market Review” they write, “The month of November
is showing entries of new buyers into the market which is having
a positive effect on pricing…Currently, a non-US Utility is
seeking to purchase ~2Mln lbs U308 for delivery by July 2009.
This new demand in the spot market is motivating sellers to
increase their offer prices, resulting in the third increase in
spot price in a row since July.”
BREAKWATER RESOURCES (T-BWR) $0.09 -0.01
TECK COMINCO (T-TCK.B) $6.56 -2.19
The chart to the left shows you what kind of a market
we’ve been having in commodities over the last while as
the worst world recession or whatever it is in our generation
hits markets around the world and has seen indexes
such as China and Russia fall as much as 70%.
Here is Canada, this chart on Breakwater Resources (but
also blue chip Teck Cominco) is typical what happens
when you are involved in the base metals business and
the price of zinc and lead fall off a cliff. They’ve now
closed two of their four mines and one wonders with $16
million in the bank, how they will survive.
Which gets us to the point...there have been stocks
like this all over the place and investors/speculators
have been beaten up the likes of which they will be telling
their grandchildren about. Because of the mess,
there is probably one thing everyone should be considering
in Canada with our tax system and that’s tax-loss
selling.
Recently the Financial Post did a front-page article
and talked about the Feds already expecting to have to
give $3 billion worth back to speculators/investors just
because of the tax-loss selling.
Make sure you talk with your accountant that you can
go over all that money you made over the last three
years in the good times and maybe get some of it back
by wrapping up some losses in the next 30-odd days or
so.
As Jim Letourneau of the Big Picture Speculator
writes, “With the markets extremely oversold, now is not
a good time to be selling stocks, except for tax reasons.
Tax loss selling will be a big factor in Canadian markets.
The Canada Revenue Agency won’t be collecting much
on the capital gains side this year. It is better to take a
loss and get some value out of it, both in terms of personal
tax and psychological relief.” Well put Jim! _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 13, 2008
FIRST QUANTUM (T-FM) $21.67 +2.32
TECK COMINCO (T-TCK) $6.95 +0.32
The charts to the left shows you what’s been going on in
the commodity-related business over the last while...it doesn’t
matter whether you were in mining, oil and gas, nickel,
lead, zinc...it’s been absolutely brutal! To the left are two
mining stories—First Quantum with its mines in Africa, was
one of the success stories of the last five years…well, up to
the last six months. And Teck Cominco which is facing financing
difficulties.
The charts probably look identical to some of the things
you’ve probably experienced in the last while. It’s happened
so fast and so quick, the only thing left of course, is
to figure out how to get it back. We have to be aware too
that we have to have the economy to turn around before the
commodities will probably follow which suggests it’s down
the road.
But interesting actions in the markets today as both Toronto
and New York were down almost 300 points, testing
old lows from a few weeks ago and bouncing back, same
with the price of oil.
When looking for prognosticators, one looks for someone
who have been correct in the past and one of the more
accurate ones (at least up until recently) has been Jeff
Rubin of CIBC World Markets. He said just a few days before
his theory was tested in the last 48 hours, “We are cautiously
optimistic that we can ride out the balance of the
year without any further systemic shocks.”
He predicts Toronto will close the year at 9500 and the
end of next year at 12,000. He points to big government
cash injections, China’s new financial fiscal stimulus package
and he expects more stimulus from the United States as
stabilizing factors. But he does point out that the building
blocks for a sustained rally are not in place yet.
He says, “Until sentiment changes and the economy improves,
the market will remains well below its recent highs.”
Interestingly on BNN, Rubin suggested that he can see
oil in the next while hitting as low as $50, but he fully expects
it to recover to $70 by the first quarter of next year
and see triple digits by the end of next year.
You have to admit that Rubin is one of the few brazen
bulls out there. Murray Edwards, arguably one of the more
successful investors in Calgary thinks it’s going to take
longer—figuring it could be a year before things turn.
In the meantime, we do note several, usually astute, oil
and gas guys that tell us that they just nibble here and
there, assuming that sometime down the road, things turn,
but if we had to ask the average time before we see that turn
in the oil patch, they all seem to say about six months.
Merrill Lynch and their group out of Australia back on October 2nd, was one of the first to predict the ugliness of the
down turn with an article entitled, “Oil price to hit US$50? Is the super-cycle over?” In it, they lowered expectations for
oil prices but one comment they wrote has to be noticed when they write, “We argue that structural under-investment in
the energy sector remains a key concern and once the economy re-emerges from its current decelerating trend, energy
demand will likely start to strengthen…” This seems to be the thing that Rubin, Merrill Lynch and others talk about...the
under-investment in oil and gas outside of OPEC.
Credit Suisse in their November 3rd issue when they reduced estimated oil demand from China and the global economy
also writes, “Behind the headline-grabbing shocks to the oil demand curve, however, is the steadily building story
on non-OPEC supply, which remains far from robust. When oil demand eventually recovers, non-OPEC supply is likely
to be falling faster than market consensus expects, we think.”
And you can see that happening everywhere as they cut down work everywhere from the oil sands, partly because of
the credit crisis and oil prices, regular oil and gas exploration everywhere now has to work from existing cash flow and
even GazProm, the industry biggie in Russia, which has seen drops in production for the last 10 months, is dropping
exploration by 25%. I guess the bottom line is that we wait for the economy to recover (for those of us who aren’t nibbling)
and when the charts start going up, some will nibble but it sure feels like cash (what’s left of it) is king.
OILEXCO INC. (T-OIL) $4.07 +0.07
CRUDE OIL $59.44 +3.28
There are lots of analysts that follow Oilexco and their
targets are frankly all over the board because of different
expectations for oil prices and how management will be
able to navigate the choppy markets of much lower oil
prices, the credit crisis, plus the general economy.
We featured some bullish analysts on Oilexco from
time to time, but it’s time to look at the comments made by
Scotia Capital’s Gavin Wylie, who today writes, “There is
no doubt in our minds that the tightening of global credit
markets and declining crude oil prices is painting a much
different picture for many energy names heading into
2009.”
What It Means: “We continue to view Oilexco’s asset
base in the U.K. North Sea as one that could offer significant
production and cash flow growth potential, but uncertainty
around its financing ability in the near-term is likely
to slow its pace of development on its major developments,
including Huntington.”
He continues, “The significant capital outlay expected
over the next 12 months to satisfy its rig/operating commitments
($400-450M) and debt obligations ($161M) may
not be achievable at lower crude prices and as such, the
company is reviewing financial options that we see potentially
including additional debt, farm-outs/dispositions or
equity.”
Scotia says, “We are reaffirming a 3-Sector Underperform
rating on Oilexco and our one-year target price of
$6.25 per share.” _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 14, 2008
COASTAL ENERGY (V-CEN) $2.00 +0.46
As we mentioned yesterday, we are keeping our eyes out
for who will lead the next bull market in commodities and in
particular, junior oil and gas stocks...who will be the winners
in the next cycle (and will we remember to put in a sell at the
right time?)
Yesterday, Coastal Energy announced their second well in
the Songkhla field offshore Thailand and as we've mentioned
before, with Coastal and Pan Orient, this is an area of
Thailand that isn't very deep and yet seems to have some
particularly big structures with some amazing flow rates. In
Coastal's case, the first well came in at 4500 barrels a day,
but is now producing at 5000 barrels a day and it looks like
their second well is going to be equivalent to that.
These are some pretty big production numbers for a company
that had virtually zilch not too long ago. The question
of course is, can they continue to increase production anywhere
near this and of course down the road, will they need
money?
Definitely a story to have on your radar for if and when oil
ever matters again and we hope to be doing an interview
with Company President Randy Bartley shortly.
HATHOR EXPLORATION (V-HAT) $1.79 +0.01
This is our nominee for "Play of the Day" or better make
that “Speculative Play of the Day” for the mining sector.
Part of it is, is that most metals are in free-fall right now
and are attracting no interest at all. Uranium on the other
hand, seems to be putting in a bottom and going up. With
mine closures in some areas of the world and the appearance
of increasing demand, there are those suggesting
strongly that uranium is on its way from the $48 level to $70,
at which level long-term contracts are signed.
In the meantime, Hathor Exploration and its Roughrider
project in northern Saskatchewan resumes drilling when the
lake freezes up around January 1st. Then they will know if
their deposit is as big as some people think...or not as they
go for additional tonnage.
It was interesting to see just a week ago, some of the
richest grades or uranium ever found on the face of the
earth and the market in its past state couldn't care less.
We are doing an interview with Steve Stanley in about a
week when he is back from China, so whatever your questions
are, we would like to hear them so we would have your
thoughts on this story as well. Just e-mail your questions to
Debbie at debbie_lewis@canaccord.com.
DOW JONES IND. AVERAGE: $8497.70 +337.60
The markets yesterday were truly an example of volatility
at its worst...or best. When you come in and see things
in a virtual free-fall and the Dow Jones down almost 400
points, your gut just wonders how much more of this an
investor or the economy can take. Then in the afternoon,
the Dow is up more than 500 points. So what’s this all
about? Well the chart shows you that maybe, just maybe,
the Canadian and American markets are trying to put in a
bottom and testing the old lows we’ve seen of a few weeks
ago and holding at that level.
True, all the economic news is terrible out there, but
that’s what happens during recessions as consumers cut
back from everything from travel to shopping. And as for
the market of course, people always want to be buying
(hopefully) close to the bottom.
The sign that the previous lows held (at least yesterday)
was perceived as good news.
Hopefully we are at the bottom and putting in this bottoming
process and down the road, things do get better...
hopefully.
GOLD: $743.20 +38.20
There’s all sorts of charts out there these days showing
what they are doing with money supply in the United States
and to get the economy going, they are printing it like crazy
to try and get the credit markets and the banks loosened up
and hopefully down the road, the people start spending
some of it to help revive the economy.
In the meantime, with the G-20 meeting this weekend,
the suggestion is that there’s going to be even more money
printed by governments around the world and when gold
bugs see a chart like this, they get excited because they
believe sooner or later, inflation comes back. So far the
gold bugs have been truly disappointed because with the
crisis, people have learned that when you are really scared
it’s an American dollar or an American T-Bill that you want
to be sheltered in—apparently not a bar of gold.
However today, with the G-20 meeting coming this weekend
and high expectations of ever-more money being
printed, sooner or later inflation might become a factor and
gold has one of its bigger runs in a long time. Interestingly,
most of the gold stocks don’t respond at all despite the
huge move. |
