₪ David Pescod's Late Edition December 21, 2006
RALLY ENERGY (T-RAL) $3.81 +0.18
CONNACHER OIL & GAS (T-CLL) $3.56 -0.03
We go to veteran oil and gas man Abby Badwi for both a little hand holding on natural gas and also updates on his company Rally Energy.
Abby does an awful lot of traveling these days because Rally has its assets in Egypt and Pakistan and headquarters in Calgary—hence lots and lots of travel.
The hand-holding is on natural gas prices and he sums up that game succinctly. “It’s simply supply and demand, inventory, and weather” he says. Nothing more than that. “All have to line up and right now if you are in natural gas which is strictly a North American commodity, you need cold weather” he suggests. “January will be key and if we do get a warm January, natural gas prices will be in the $5.00 to $6.00 if not lower and will linger there for some time. If you get some cold in January, then we can see $7.00 and $8.00 and some of the worries won’t be as present.”
But back to Rally Energy, a company whose stock chart you just dream of seeing, particularly since so many oil and gas companies have taken a hit with oil dropping and if you are a gassy stock, you’ve taken more than a stumble...you are looking at correction of up to 60% already and that’s assuming January isn’t warm.
First of all, Rally has been the subject of lots of takeover talk because of the success of Centurion Energy, another operator in Egypt. Badwi admits that “yes, there has been interest in the company and the phone has been ringing.” Centurion he suggested did a really good deal...a stock trading at $8.00 and they do a deal at $12.00, shareholders have to be happy!
As far as Rally, Badwi suggests that they are only about six weeks away from production starting in Pakistan and also some new reserve numbers from Egypt which are expected some time around mid-February. Unlike natural gas prices, when we ask him to predict oil, he suggests “it’s quite different. It’s a world-wide based commodity” and he points out that the United States, which only has 300 million people uses 25% of the world’s commodity. With so many people in China and India now wanting more power plants, more cars, more whatever, he can only see demand going up and he is very bullish on oil over the next while, while declining to give targets for next Christmas. He believes with China and India and consumption growing ever-higher, it’s a good commodity to be in.
Meanwhile, we’ve written here before that Andy Gustajtis has suggested Rally as an obvious takeover for some time this year after the Centurion takeover has had people looking for other players in the area and his target was $5.00. Today, Rally gets mentioned in the Globe & Mail as one of the top mutual fund performers of Dynamic Canadian - Manager- David Taylor - suggests that “Rally owns a significant reserve and is using advanced techniques to get the oil out.” And he gives a potential price target of $8.50, by late 2007. Either way, Rally seems to be on most people’s watch lists and has a good day today, while most aren’t.
We ask Abby for a stock pick, he stays with the stock he’s mentioned several times here and he remains very strong on—Connacher Oil and Gas.
DELTA PETROLEUM (US:DPTR) $24.00 +0.33
CORRIDOR RES. (T-CDH) $6.00 -0.15
DELPHI ENERGY (T-DEE) $2.45 +0.05
They are without a doubt, as far as we’re concerned, two of the most intriguing natural resource plays we can find on the globe anywhere, at any price.
Delta Petroleum was suggested as a play by no less than Eric Sprott when we asked him the question, if he could only buy one resource play now, what would it be? Delta Petroleum is involved in three rather significant oil and gas plays, but their big one is the Columbia River Basin and is this a basincentered gas play, or not? No, there has been no news about the company of late, but after a beautiful three month rise in anticipation of results some time out before Christmas, the stock has recently been clobbered in the last two weeks or so.
Corridor Resources is one of the top picks of Dominick and Dominick’s Andy Gustajtis, and it’s a stock that over the last year has tripled, but over the last two weeks, it too, has been hurt. Gustajtis suggests that this is a company that might well be worth two or three times what it is based on what they have already discovered and they are currently drilling a play to deeper depths on their Sussex, New Brunswick play to the Dawson Settlement sands.
If the Dawson Settlement potential is actually there, the suggestion is it might increase Corridor’s resources by a factor of possibly three, four or five. It’s a huge play...if it’s there. But again, it too has suffered in the last few weeks. Why? There is no bad news on the drilling yet, but it’s been clobbered. The answer is the price of natural gas. These two are big plays, but they are based on natural gas and with the price of natural gas weakening at a time of year it should be strengthening, it makes one more than a little worried.
There is so far absolutely no sign of winter anywhere, natural gas reserves remain near record highs and if we don’t get winter soon, the question becomes just how low natural gas prices can go this spring. One could easily envision without winter, $4.00 an mcf or perhaps even worse in spring time, when demand hits lows and how ugly could that be? With costs for some gas companies these days $5.00 or much higher, if we see those kind of numbers, you know there is going to be more than a couple of companies in big trouble.
The chart on Delphi Energy shows you what can happen to what is arguably a well-run company, but with rather significant debt, which offers leverage in both good times and bad.
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