₪ David Pescod's Late Edition 11/24-11/28/08
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.
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 24, 2008
CRUDE OIL $54.60 +4.67
SUNCOR ENERGY (T-SU) $22.95 +2.33
It seems as if it’s been a script from some sort of horror
movie...that in just a few weeks or months we can go from
a time where we have a booming world economy and oil
hitting record highs to just a fraction of time later, where a
credit crisis cripples the world and suddenly oil is hitting
$50 a barrel and seeing levels we haven’t seen in five year.
And suddenly, a few months ago when people were talking
about the potential for $200 oil, now you hear the warriors
talk about $40 or even $35 oil. Who would have thought?
So it’s an interesting time to see Forbes Magazine come
out with a feature issue called “Energy and Genius” and
looks at basically everything from lithium (lithium helps
power your Bloomberg, but it may also power the electric
car down the road) to the future of ethanol, a questionable
product to what next for wind power, the hybrid car, coal
and energy boondoggles that governments have financed.
One of the most interesting of the articles is that on
Saudi Arabia and obviously the Forbes people had access
to areas of Saudi Arabia that many haven’t. From the articles
in Forbes, it certainly looks like the Saudi’s are trying
to increase production over the 10 million barrel a day
mark and certainly seem to have some of the fields to
make it possible.
Their Khurais field is a field that could have 27 billion
barrels of reserves and could produce 1.2 million barrels a
day next year at a cost of $12 billion…
Their Shaybah may have 18 billion barrels in place and
output is rising from 500,000 barrels a day to 750,000 barrels.
And then offshore is Manifa, which has 18 billion barrels
of less desirable heavier oil, but which will give up
900,000 barrels a day starting in 2011.
All this seems to show that the Saudi’s have expectations
to add another 50 billion barrels of reserves based
on current exploration and show that the world (or at least
the Saudi’s) don’t have any shortage of oil anytime soon.
Mind you, the Saudi’s have suddenly become one of the
biggest users of their own product as Forbes reports that
Saudi Arabia now consumes a massive 2.3 million barrels
a day of its own oil, up 50% since 2000...and climbing.
Of all the sectors they look at for energy, we find some
of their articles the most intriguing that center on nuclear
power. They write regarding the Saudi’s, “To feed its nonoil
industrial development the kingdom hopes to turn to
nuclear power, which could absorb much of a $120 billion
plan for doubling power generation to 60 gigawatts by
2020.”
This section on nuclear energy shows that some of the new products being developed for the nuclear energy could
have incredibly small plants built solely for small northern towns or remote industrial purposes and just how flexible
nuclear power could become down the road.
Which all sounds relatively good at a pretty depressing time such as now and at least in the last few weeks, it looks
like because of delays in production from mines around the world, uranium may be the one commodity to be watching
for the next while as demand perks up with plants being built from Saudi Arabia to India to Finland and acceptance by
ever more environmental groups that nuclear power just might be one fuel with an ever more promising future.
NB1:
For Albertans or Americans used to thinking they are
lucky if they get an oil well that does 30 or 50 barrels a
day, the Forbes piece on Saudi Arabia noted this:
“Aramco’s oldest operating well, Ain Dar 1, was drilled in
1948. This single well in the Ghawar complex has produced
152 million barrels from its original casing. The
well currently free flows at 8000 barrels a day still, but
Aramco restricts it to 2500…”
NB2:
With these humongous numbers about oil in Saudi Arabia
bother one that maybe oil (particularly in today’s crisis)
doesn’t have a future, just remember Saudi Arabia is
one of only two or three countries in the world that is seeing
actual oil production increases.
More typical is the news just announced by Mexico’s
Pemex as they announce that “Mexico produced 2.81 million
barrels of crude oil a day during the first 10 months of
this year, down 9.6% compared with the same period of
2007.”
Meanwhile, production at Mexico’s big monster field
Cantrell, hit 1.04 million barrels per day, down 31% from
the same period last year.
NB3:
Today oil, gas and gold have a great day as some people
start to think that things are so bad, they can only get
better. The American dollar is getting clipped today and
that is responsible for a big chunk in the rise of virtually
all commodities today.
CAMECO CORP. (T-CCO) $19.60 +2.91
HATHOR EXPL. (V-HAT) $2.05 +0.17
While oil and most other commodities have been
crashing of late, uranium had its crash a long time ago.
Suddenly, lots of folks are starting to think with the revival
of the nuclear business, maybe uranium has bottomed
and for the last few weeks, the spot prices have
been heading up.
Today, Scotia raises Cameco to outperform, mainly
because of positive perceptions on the uranium sector.
A chart of Cameco shows just how it and other uranium
players have been clobbered.
But for those looking for the one speculative play of
the day, it’s probably Hathor Exploration and for those
who might not have received a package yet, e-mail Debbie
at debbie_lewis@canaccord.com. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 25, 2008
GRAN TIERRA ENERGY (T-GTE) $2.89 -0.05
Blackmont Capital reports today “Yesterday Gran Tierra
announced the temporary shut-in of production from the
Putumayo basin of Colombia. This follows an announcement
by Petrominerales that was made late last Friday.”
Blackmont analyst Alexander Klein writes. “The production
curtailment is a result of a general strike that has hit the
area in conjunction with other protests in the country relating
to a financial crisis whereby thousands of investors have
been defrauded of their savings in a widespread pyramid
scheme. The Colombian government has declared a state of
emergency to increase its search and seizure powers. Several
key perpetrators of the fraud have been arrested. The
general strike was a way for the population to spur the government
to action and was not specifically directed at oil and
gas companies. None of Gran Tierra's employees are on
strike but oil volumes through the Orito pipeline have been
curtailed resulting in the production shut-in…”
The primary reasons for the recommendation on Gran
Tierra:
1. Management team with significant international experience.
2. Near-team production growth visibility.
3. Very strong balance sheet with US$140 million of cash.
(And these days, we know cash is king)
Blackmont has a target on Gran Tierra of $7.00 and many
other analysts have targets that vary quite widely...many of
them very dependent on their own different ideas for where
oil prices will be down the road.
NEXEN INC. (T-NXY) $20.22 +1.71
After a good day on the markets yesterday it’s back to
the bad old days and oil is down over $3.00 and looks like it
might want to test its old lows. However, we notice Nexen
having a great day on rather big volume.
That might be interesting or might not, but the rumors
are that three of the companies that big players might be
looking at buying out would be Talisman Energy, Nexen
and Suncor Energy, so it would be interesting to see if
there is a possibility for any take overs happening soon.
Why we find that interesting is the suggestion by many
and that’s one indicator that we might be close to the bottom
is when the big boys with the big bucks in the bank
decide to buy out dirt-cheap, those that they think offer
value, particularly since many companies could be bought
cheaper now than a person could by drilling for oil.
CGX ENERGY (V-OYL) $0.31 -0.005
There are a lot of charts that look like this out there
in the oil and gas patch these days, although this might
be a little more severe than most. Even rock solid,
blue-chip companies like Suncor Energy have been
beaten up badly, but the all-important point for any oil
and gas company is access to money and cash flow.
Without it, there are no brokers or bankers opening
their wallets to give anyone cash as the credit crisis
continues. Without that credit or cash flow, there’s
unfortunately going to be more than a few stories disappear.
Kerry Sully of CGX Energy tells us that as of the end
of September, CGX had $36 million U.S. in the bank,
which will take them a long way into the future and they
expect to start an aggressive seismic program sometime
in the next few months. They will also be opening
a data room once again to let the big boys from around
the world take a look/see at what they may have.
The all-important question though, is what do you
see down the road for oil prices? The question we ask
just about everyone because without a price in mind,
how can you build a plan? Sully’s target is $60 by July
1st and next Christmas would now expect to see
around $80. His comment is there is still huge demand
on the face of the world of about 85 million barrels a
day (or close to a billion barrels every 12 days) and
while that may be down a bit, demand remains huge.
If Sully’s predictions are right of course, that means
an awful lot of beaten up, out of favor oil and gas
stocks could have one heck of a ride later next year...if
that $80 oil target is correct. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 26, 2008
CRUDE OIL $54.64 +3.87
After what we saw today in the oil markets, we just wonder
if everything going on in the stock markets and commodity
markets of late just isn’t one incredibly bad acid trip
gone wrong. There are a lot of things that don’t always
seem to make sense. For instance today, we get the weekly
inventory report out of the United States which shows an
absolutely enormous increase of 7.2 million barrels of oil to
320 million barrels, according to the Energy Department.
That made it the ninth straight increase and while the inventory
was expected to increase, it was only by one million,
not seven.
On that kind of news, you would have usually expected
the price of crude oil to get swacked badly, but instead it’s
up. There was other news out there though that had people
for the first time in ages, a little bit hopeful. Out of China
comes the news (and in China, fuel demand has dropped
significantly) that China has lowered their interest rates for
the forth time in ten weeks, but this time they’ve done it in a
huge way...dropping their lending rate 108 basis points to
5.58%. Yes, that’s dramatic and it doesn’t mean people will
actually go out and borrow money and buy things, but it’s
certainly an aggressive move.
If you are looking for good news though, it was another
report showing that energy demand is actually coming back
as last week they noted an increase of 510,000 barrels a day
being used by consumers. Maybe the lower prices will get
the consumer back to the pump.
We spent much of the last two days asking CEO’s of
companies, analysts, former analysts, and oil watchers one
question…“Where do they think the price of oil will be over
the next quarter, by July 1st of next year and by Christmas
of next year?” Because with so many oil and gas stocks so
beaten up, if there is a future…
One has to remember that of the dozen or so people we
talked to, many are in the oil business and would probably
hope to think their business would still be around, so they
are optimistic. None of them had a crystal ball that predicted
this credit crisis and many of them are in situations
where they admit they haven’t a clue what to predict and
some of them are in positions where they may have to
hedge their production and the like and imagine trying to
predict that at a time like this.
One thing many talked about, was the new President
Obama and while many of the oil guys have concerns about
what his alternative energy strategies might be, his tax policies
and the like, they are huge admirers of the team he’s
put together to ge
As far as predicting what next in the short run, there
were guesses anywhere from $45 and $60 with the argument
being made that if OPEC this weekend does cut
production a little further, maybe we have seen the bottom
for a while.
As far as looking forward though, there was an amazing
consistency to the group suggesting that by July 1st
they would expect to see $60 oil which isn’t that much
higher than today’s prices, but for the economics for
most oil companies, it would be significantly better.
As for Christmas next year, the group ranged between
$70 and $80 with a large chunk of the group settling on
the higher number and the reason for everyone to be
optimistic was “supply destruction.” Supply destruction
is getting a lot of talk these days because with the huge
drop in oil prices, oil companies around the world from
GazProm to PEMEX to particularly the North Sea, are
having projects delayed due to the credit crisis and
budgets slashed for exploration and if you don’t go look,
you don’t find.
While decline rates in the Mideast may only be 2% or
3% a year which helps make OPEC such as significant
force, many areas of the world such as the North Sea
have decline rates of as much as 20%. With Mexico
dropping 10% over the last year and Russian Oil expected
to be peaking, the suggestion by many is that if
Obama’s team is able to encourage the economy and talk
consumers into believing there is a future and that they
will go out and spend on a bed, car or whatever to revive
the economy, it wouldn’t take much of an uptick in the
economy (provided of course it’s around the world) to
suck up what oil production did exist, even if OPEC did
start to turn on taps again a year down the road.
That was our terribly unscientific look down the road,
but needless to say there are a lot of different view points
out there. Tristone Capital came out with a 33-page report
today taking an in-depth look at what they see for oil
over the next year and are big believers that the recession
is going to be deep and harmful and will cut American
demands more than expected and hence they come
up with a really scary scenario...that oil will average $45 a
barrel in the first half of next year and $55 in the second.
There are a million different ideas out there, one of
which might be correct. _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition November 27, 2008
NEXEN INC. (T-NXY) $26.13 +3.85
We’ve mentioned several times here one popular theory
about when we will have a definitive bottom for the oil and
gas sector is when the biggies with big bucks start using
their cash. With close to $80 billion sitting in the pockets of
companies such as Total, BP, Exxon and the like, when we
start seeing the take-over game happen is the time that the
big boys think it’s just too cheap not to buy out other companies.
Three Canadian stories that seem to attract the most interest
are Nexen, Suncor Energy and Talisman Energy. The
chart on Nexen tells you that this must be attracting some
real interest and Nexen does have some interests around the
world that are of some value. Nexen’s major assets include
its Long Lake Oil Sands, it’s Horn River shale gas, but the
jewel to many would be its Buzzard Oilfield in the North Sea.
While there are several potential buyers for Nexen, Total
seems to be getting most of the attention.
Meanwhile, we continue our poll of oil analysts, market
followers and the like for their prediction on where oil will be
July 1st and December of next year and we can’t believe
how consistent some of the answers seem to be…$60 by
July 1st and $80 by next Christmas.
If everyone agrees on a price, you can count on it not
happening, but if oil is $80 next Christmas, there are a whole
bunch of stocks that are dirt-cheap today.
WESTERNZAGROS RES. (V-WZR) $0.67 +0.16
While we would call Hathor Exploration our exploration
play of the day for the mining sector, at this price and for
those who still have faith that oil might have a future sometime
down the road, we will have to nominate WesternZagros
Resources as a speculative play for the next while in the oil
and gas sector.
Their chart looks like that of many other oil and gas companies,
but this company with a fair chunk of shares outstanding
and $160 million in the kitty, is drilling the Sarqala-
1 well in Kurdistan and as frequently happens in new areas
with extremely high pressure to deal with, the project is way
behind schedule. Spudded way back in May, it was expected
to take 3 1/2 months. Now they expect to be at target
depth the end of December.
As they gain experience in an area like this, traditionally
costs come way down as do time commitments. Why
should this company be watched? They are drilling in an
area of the world (Kurdistan) that has the potential to have
enormous targets (we are talking billion barrels) in the
neighborhood and that fact that Talisman has now joined the
venture, tells you that there are some relatively smart people
that have given it quite a look/see. All they need is one of
the five wells to hit...
HATHOR EXPLORATION (V-HAT) $2.34 -0.06
Yesterday, we had a good day on the markets and we
also note that for those who follow BNN and other trend
setters, that all of a sudden uranium is being talked
about. Hathor Exploration had a huge move yesterday,
but then again when a company comes up with some of
the richest uranium drilling results ever discovered on
the planet, you would expect a little interest sooner or
later.
President Stephen Stanley tells that there is not anything
new with the company, that they do hope to have
crews up building ice roads as early as next week and
that provided winter weather does come, they should be
drilling off the ice as early as January 1st.
Yesterday in Canaccord’s Morning Coffee, Gord
Chan wrote: “I'm even more important to you now! How
does Denison's (DML) decision to postpone development
of the Midwest uranium joint venture in Saskatchewan
impact Hathor? The postponement, to be
reviewed every six months, is due to "economic climate",
delays in permitting, increased costs and "the
current market for uranium".
Canaccord Adams Metals and Mining Analyst Eric
Zaunscherb believes that the interminable delays in
bringing Cameco's (CCO) Cigar Lake ore to the dependent
McLean Lake mill has as much to do with the delay
in the Midwest project as anything else. Zaunscherb
says this impacts Hathor because: a) the "best fit" for
Hathor’s potential ore at Roughrider would be with the
nearby McLean Lake mill, b) Denison, Cameco and
Areva are "natural buyers" for Hathor in order to fill the
newly-expanded McLean Lake mill; and c) talk of capital
cost increases has negative implications.
In Zaunscherb's opinion, Hathor's Roughrider deposit
becomes even more important to the mill operators;
Midwest and Roughrider would have to be developed
in concert in order to optimize mill throughput,
especially in the absence of Cigar Lake ore. Terra Ventures
(TAS) owns a 10% production carried interest in
the Midwest NorthEast property.” _____________________________________________________________________________________________________________________________________
David Pescod's Late Edition, November 28, 2008
BANKERS PETROLEUM (T-BNK) $0.98 -0.06
In the old days there use to be an interesting sign for a
companies future...if you saw insiders in the company buying
their own stock in the market. After all, you wouldn’t
think they would be doing that if they didn’t sense a chance
to make a buck, right? Common sense. Or at least it used
to be in the good old days.
After all the insiders and their positions would have access
to just about everything that’s going on and you
would think, should know better than most.
We notice Abby Badwi and several of his directors at
Bankers Petroleum have been picking up stock in the market
so it was time for another quick visit with the man who was
so successful with Rally Energy. First of all Abby uses the
joke that so many are talking about these days—about how
“Freedom 65” might be a little more in the future as he
looks at his own portfolio and jokes about how he might
have to count on Canada Pension to supplement his income.
His leading comment is about the market and in oil in
particular—how this cut has been so deep there is very
little to compare it to. He is 62 years old with 40 years in
the oil and gas business and he said he’s gone through
many cycles, but nothing like this. One of the worst that he
can remember was back in 1999 when oil fell to $10 a barrel
and nobody made money at that price early in the year. At
$10 oil, no one could make any money, but the Saudis and
many companies were on the verge of an abyss, the industry
felt like it was in its death throes and oil had no future
(feels like today, right?) But later that year (by mid-year) it
was $18 and was $24 by the end of the year and life was
good again. So, oil prices can swing dramatically.
As far as what he sees next for oil, he points out that the
oil strip for a year out is currently at $64 and when we force
him to pick some dates for down the road, he suggests it
would be $60 by July 1st and in the high $60’s maybe $70’s
by Christmas.
Which gets us to Bankers Petroleum and their heavy oil
project in Albania which has enormous reserves but when
a credit crisis is going on...you watch costs and that’s what
he is doing. He says their estimates are that break-even for
them is $40 a barrel, so they are counting on $40 and budgeting
for $40, but might be able to get a little more aggressive
by March/April, should oil start making a bit of a move.
In the high $60’s, they can be very nicely profitable, he suggests.
We look at the chart on Bankers, which looks like a lot of
oil and gas companies these days that are of a junior or
intermediate capitalization, but Bankers might have been
hurt more than most.
When we ask him about his purchase of stock in the market, he mentions that he had put his original money into
Bankers when they founded the company at $1.50 a share, so at $0.87, he said he couldn’t resist.
But what does he know?...Because he says the next day after he paid $0.87, it was down to $0.60. Undoubtedly
tax-loss selling or fear in the market had something to do with that.
When we ask him about stock picks, he suggests that the big caps will always be the first to move up and suggests
Canadian Natural Resources and Encana as two obvious ones. When we ask him the concern of many about natural
gas prices possibly being capped because of so many shale discoveries in North America, he suggests that natural
gas is weather dependent…“All you need is three weeks of cold weather and the price of natural gas can change
dramatically.” Mind you, where does a person find a good weather man these days?
CRUDE OIL $55.14 +0.70
NEXEN INC. (T-NXY) $25.50 -0.51
In the longer-term we suspect oil prices are going to be
higher six months and a year down the road, because of
government stimulations around the world (or at least we
hope that’s the case) plus supply destruction as with all the
cut-backs in exploration around the world and high decline
rates, that would be our prognostication anyway.
However in the short-term it’s demand destruction as a
weaker economy around the world means fewer people take
airlines (28 airlines disappeared in the last while and there’s
many more in trouble) less freight need to be moved on
trains and trucks and people are cutting back to the point
where despite gas at the pumps is less than half of what it
used to be, people are simply not using their cars.
So in the last week, we’ve had quite a bounce in oil prices
and some stocks such as Canadian Natural Resources,
Nexen and Suncor Energy have had beautiful bounces. But
now reality is hitting this weekend with the OPEC meeting
and will they be able to support the price of oil because in
the short-term it’s still ugly.
But notice the chart one should be following at to what
insiders are doing in different oil and gas companies over
the last week and as we mentioned earlier, if the people inside
a company seem to be buying, it’s an interesting tidbit,
don’t you think?
* Pacific Rubiales—very interesting company—e-mail Debbie
at debbie_lewis@canaccord.com for analyst report if you
think oil has a future. |
