₪ David Pescod's Late Edition September 20, 2006
ANDERSON ENERGY (T-AXL) $3.97 n/c
CORK EXPLORATION (T-CRK) $3.75 n/c
WIN ENERGY (V-WNR) $1.58 -0.06
We finally found the cure for those suffering from natural gas-itis. That’s the cruel disease that’s hit so many natural gas stocks over the last six to eight months as gas prices have pummeled from $15.00 an mcf last Christmas to a low of $5.00 now. Needless to say, it has seen many gassy stocks dropping from 30% to 50% to 70%. Just look at the chart of Anderson Energy.
The cure, is a good batch of a very infectious remedy called “Peter Linder.” The former award-winning oil and gas analyst with CIBC who was considered the top oil and gas analyst in the country for years 1997, 1998, and 1999, Linder was through our shop the other day for a little bit of salesmanship and hand-holding.
He figures that now is the perfect time to be looking at oil and gas stocks. As I said, he’s into a little bit of salesmanship because the former analyst who now runs money through Strategic Energy Fund, is now also branching out into Flow Through shares. He is suggesting that purchases of oil and gas stocks or shares in his flow through are now at a perfect time and he compares the oil and gas patch now, with a year ago.
A year ago he says, “prices were high, oil and gas companies were flush, their balance sheets had never been better and they didn’t need anything called money.” Today, he says, particularly those that have a big gas component, are suddenly seeing momentum head the wrong way, the sectors perceived not to be so good and suddenly with the lower gas prices, there are a lot of balance sheets that suddenly don’t look so hot.
Several he suggests, are going to have to sell shares into this market and it’s going to be a great time to be buying. It’s a great time to be buying because he remains bullish on both oil and gas.
His background take on the commodities sector he suggests is that when you go back over time, the difference today is that OPEC is no longer the player it used to be in the method it used to be. “Every other oil price shock going back to 1977 was supply driven. In the 1980’s OPEC had 13 million barrels extra production capacity and in the 1990’s was down to 5 million barrels a day.
Today, he suggests, there is virtually no extra capacity at all so no matter what happens to OPEC, they have more difficulty affecting prices.
The coming surprises he suggests, will be more so on the demand side, although that might be a little bit hopeful, viewing the last few weeks. He is a big believer that oil going into the end of the decade will vary between a low of $60 and a high of $80. Also on oil he reminds us that we have heard for years if not decades that if oil ever hit $50.00, it would kill the U.S. economy, which would in turn, drive oil prices back to where it was. It hasn’t happened!
As far as natural gas, he admits that it’s very much a weather-related situation. There was no winter last winter he points out, and so far there have been no hurricanes in the Gulf of Mexico to delay production there and we should add that while the summer started out warm, which can boost demand for air conditioning, the last part of summer hasn’t been helpful in that sector at all.
Now he suggests we are going into the shoulder season and after that, we hit the high demand season. As far as the natural gas market, 95% of gas these days, comes from North America and 5% from LNG. For the last four years he suggests, the price has been pretty good. What’s going on now, he suggests, you might compare to 2001. In that year, he was quite bearish on the commodity and gas did get hit, dropping almost 50%.
Then in the fall of that particular year he tells us he was doing the due diligence and visiting the different companies that he does on an ongoing basis, and happened to be visiting the good folks at Canadian Natural Resources (CNQ). There he learned that they were announcing their huge Lady Fern project in B.C., had 70% less reserves than they thought and also because gas had fallen almost 50% in prices, CNQ, like many other players at the time had decided to cut back their drilling significantly.
That comparison can be used today. Nowadays he suggests, while inventories are currently high, you are looking at decline rates on new wells of almost 50% in the first year while many of the older fields will continue to decline between 20% and 30% a year. “If people stop drilling, particularly of the bigger companies that have done just that, it doesn’t take long for the cycle to adjust.”
“All we need” he admits, “is simply a normal winter”. “You need some winter to take this cycle back into the bullish camp” but he is obviously counting on that (no he is not counting on what the “Farmers Almanac” is saying), he is expecting winter gas prices to hit the $9.00 to $12.00 range. Now that’s huge, it’s more than a double from where current levels are. And he won’t be surprised to see many of the gassy oil and gas stocks move 30% to 50% from current depressed levels or levels that might even be a little cheaper over the next few weeks.
www.andersonenergy.ca
Which of course gets us to asking him, “Of the big universe out there, what oil and gas stocks would you be buying over the next while to take advantage of what you see next?”
Two stocks stand out to him. Both are relatively new to the market and both are 100% natural gas. Yes, you heard it, 100% natural gas. Obviously, he believes big-time what he is suggesting.
Cork Exploration, run by the old Meridian crew is 100% gas currently doing about 1300 barrels a day equivalent of production, which he feels could be as big as 2600 barrels a day by year end based on ongoing projects and 4000 barrels a day by mid-year next year. He wouldn’t be surprised at all to see this company taken out some time late next year.
www.corkexploration.com
The other company is called Win Energy and it too, is 100% natural gas.
www.winenergycorp.com
We have to point out that his infectious enthusiasm which comes across on the frequent ROB-TV interviews he does, should be visited first-and as it’s nice to see anyone excited about gas these days.
We should also point out that while he is a wellrecognized authority (we note that Canaccord’s Clive Stockdale suggests Linder is possibly the expert on natural gas in Canada and like him, Clive is also expecting at least $7.50 on gas by Christmas) Linder’s Delta One Energy Fund has averaged a tidy 42% annualized return since inception...not bad.
His predictions: Gas by Christmas 2006 - $11.00; Gas by
Christmas 2007 - $13.00; Oil by Christmas 2006 -$68.00 and
Oil by Christmas 2007 -$75.00.
www.delphienergy.ca
Natural Gas
Gauntlet Energy
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