₪ David Pescod's Late Edition September 11, 2006
GOLD $597.30 -20.00
CRUDE OIL $ 65.61 -0.64
OILEXCO INC. (T-OIL) $ 6.84 +0.09
PETROLIFERA PETE. (T-PDP) $ 19.00 -0.15
It should have been a great day for a couple of stocks
that we have been following for sometime…..First of all,
it was announced on Friday, after market close, that
Oilexco will be included into the TSX Index. This means,
that depending on who you are talking too, it should
generate somewhere between 7 to10 million shares of
buying, because all the index funds out there would
have to act accordingly.
Then there was also the announcement, after close
on Friday, of Connacher’s subsidiary Petrolifera hitting an
absolutely enormous hole, the RN.PM a-1013 in Argentina.
These are the kind of wells that you pray for and
the reaction today to both instances…...well that’s kind
of tough when commodity markets are getting absolutely
clobbered. Gold is down 20.00, crude oil is off
0.64, and natural gas hits a new two year low and virtually
all other commodities have gone the same way also,
which brings up the question—is the run over for commodities
in the big emerging market story of demand
from China, India and the like?
According to a Bloomberg article today, Stephen
Roach, the chief global economist at Morgan Stanley,
which happens to be the world’s biggest securities firm,
is suggesting that we are at the end of the five-year bull
market in commodities as global growth slows and demand
falls. “The mega-run for commodities has run its
course,” Roach says. He was also quoting in May saying
that “the surge in oil and metals was a bubble about
to pop!”
Of course of the other hand there is James Gutman,
who is a senior commodities economist in London at
Goldman Sachs Group, which happens to be the world’s
second-largest securities firm and he says that “the
commodities losses are nothing more than “cyclical
fluctuations”.
“We’re certainly not at the end of the long-term bull
market,” says Gutman in the Bloomberg interview. “If
there are any near-term corrections, I’d view them as a
buying opportunity.”
Well there you go and one of them might be right!!
SOLANA RESOURCES (V-SOR) $1.26 -0.06
CORRIDOR RESOURCES (T-CDH) $6.18 -0.06
REAL RESOURCES (T-RER) $21.48 -0.69
STERLING RESOURCES (V-SLG) $3.20 -0.23
INTL. FRONTIER RES. (V-IFR) $1.12 -0.03
It’s been more than a little bumpy in the resource
sector for the last four or five months and many of the
gurus have had a bit of a stumble here and there, and
one of them has been Josef Schachter.
Josef Schachter is the President of Schachter Asset
Management and great commentator on oil & gas
stories and when we caught up with him the other
day, he seemed just a tad grumpy!
That’s probably because sooner or later he has to
deliver a good bottle of wine regarding a bet we had
made some time ago.
We had a year and his oil and gas exploration play
in South America, Solana Resources, didn’t deliver the
goods where as Corridor Resources (thank you Andy
Gustajtis) has seen its stock almost triple over the
last while as their McCully project has worked out
nicely…...with the Dawson Settlement yet to be
drilled.
But, Schachter is always an interesting commentator
and always brings a lot to the table as far as information
on stuff that is oil and gassy.
Let’s get to the gassy stuff first, because that is a
sector that has been more than a little beaten up of
late! Schachter suggest that he wouldn’t be surprised
to see gas prices drop lower, possibly much lower
until November and December. Inventory is high, he
suggests, gas prices could even get worse. What to
do we ask?
Follow your favorite stocks and simply put in stink
bids! He mentions Accrete Energy (GZ), which is one of
his favorite stories, that just yesterday dropped as
low as $6.10 (it is illiquid as heck) but still closed the
day at $7.00. Find your favorites, he suggests, and
just stick in stink bids until we get closer to Christmas.
As far as oil, though, he wouldn’t be surprised to
see oil prices drop to $65.00 (that happened today)
but he doesn’t think oil prices will drop much farther
than that and the whole reason why is once again
inventory.
He suggests that the strategic reserve in the United States
will need topping up and how about the Chinese, which are
hoping to develop their own strategic reserve which they
hope to have up and running by the 2008 Olympics.
“Obviously, that’s going to create a big demand”, he suggests.
As far as stock picks at this time, his first pick is Real
Resources (RER), a company that has grown through the drill
bit and he suggests has an aggressive exploration program
based in five core areas in Alberta and Saskatchewan. He
expects the company to exit this year with 16,500 to 17,000
barrels a day of production and has an aggressive $38.00
target on the stock.
His second pick is a story he has been following for
some time—Sterling Resources (SLG). First of all he points
out that Sterling is partnered with Oilexco in the Cheryl
play in the North Sea. This play he suggests, could produce
15,000 barrels a day which would net 5000 barrels a
day to Sterling and could be (if it’s there on production) as
early as the fourth quarter of 2007. If it’s there, it could
also generate cash flow of $1.25 per share.
He also points to their big land holdings in Romania of
almost 1.5 million acres. They are starting to drill the first
of three wells there he suggests, and each of those three
plays could add $2.00 in net asset value to the company...if
successful.
The third part to the story he suggests is their 42-13
Breagh (Gaelic for beautiful) Project in the North Sea, one
that had been drilled by Mobil Oil almost 20 years ago and
had come up with an interesting gas discovery. If this play
is as big as they think it is, it could add somewhere between
$4.00 and $8.00 of net asset value. He thinks there is
little downside in the play and he has a $5.00-plus, 12-
month target on the stock.
His third pick is one that we’ve been following for some
time through its ups and downs and that’s International
Frontier Resources (IFR). The company run by Pat Boswell
that through much of its history was focused on exploration
plays in he Canadian Arctic.
The interesting play though, is the Laurel Valley prospect
where they are paying nothing he points out, to earn a
10.4% interest along with Oilexco and tiny Gulf Shores Resources.
While he suggests they may only have a 20% success
rate, if successful, the well would give their little company a
net asset value potential of over $5.00 on the upside. Also,
the company owns several other prospects in the U.K./North
Sea that should get drilled in 2007. |
