Continental Resources BUY

CLR : NYSE : US$72.88
BUY 
Target: US$92.00

COMPANY DESCRIPTION:
Continental Resources is a U.S. exploration and
production company with operations in the Williston
Basin (ND & MT) and the SCOOP play (OK). CLR is
headquartered in Oklahoma City, OK.
Energy — Oil and Gas, Exploration and Production
A LARGE SERVING OF THE WB WITH A “SCOOP” ON TOP; INITIATE WITH BUY
Investment recommendation
CLR is the largest leaseholder in the Williston Basin (WB) with 1.2 million
net acres and is also an industry leader in downspace and enhanced
completions testing in the play. Successful downspacing can add
meaningful value for shareholders, as could increased EURs from
improved completion techniques. Additional upside could come from the
development of the SCOOP in Oklahoma, where the company is the
largest leaseholder and producer in the play. CLR’s upcoming analyst day
could provide meaningful catalysts on all fronts. We initiate coverage with
a BUY rating and $92 price target.
Investment highlights
 Continued success in WB downspacing can add further upside to
NAV. CLR will conduct three more 660 foot (160-acres) density tests
this year, the results of which could serve as major catalysts when
released, likely by year’s end. Its first such test in McKenzie County
posted strong IP rates in the Bakken and the Three Forks (TF)
benches. These next three pads will target other areas of the WB.
 We feel enhanced completions techniques, including the use of
slickwater fracs and increased proppant volumes, should have a
positive impact on EURs going forward. CLR’s latest wells employing
these techniques have solidly outperformed offset wells. It plans more
enhanced completions at its next high-density pads.
 We believe the SCOOP will continue to grow at very robust rates
(~50% Y/Y in 2015E) and thereby bolster CLR’s oil/condensate
volumes in the coming years. The testing of extended and stacked
laterals are positive steps, in our view, towards adding further upside
to its already solid position in that play.
 The company is on very solid ground with regard to liquidity, in our
view. Combined with internal cash flow generation, CLR should have
more than ample capital to fund WB and SCOOP development.
Valuation
Our $92 price target is based on a 10% discount to a ~$103 NAV

Whiting Petroleum

WLL : NYSE : US$83.53
BUY 
Target: US$108.00
COMPANY DESCRIPTION:
Whiting Petroleum engages in the acquisition,
development, exploitation, exploration, and production of
oil and gas properties. The company primarily focuses in
the Permian Basin, Rocky Mountains, Mid-Continent, Gulf
Coast, and Michigan regions of the United States.

Energy — Oil and Gas, Exploration and Production
POISED TO UNLOCK EVEN MORE OF THE WB & NIOBRARA; INITIATE BUY
Investment recommendation
We believe WLL has substantial upside given its ~845K net acres (pro
forma) in the core of the Williston Basin (WB), which can be further
exploited via downspacing and enhanced completion techniques. The
pending acquisition of KOG bolsters its inventory in the core of the WB.
Strong production growth in the Niobrara excites us as well. WLL trades
at a discount to its peers that we consider unwarranted. In our view,
continued solid execution will result in a narrowing of the valuation gap.
Thus, we initiate coverage with a BUY rating and $108 target.
Investment highlights
 WLL is testing enhanced completion techniques in its latest
Bakken/Three Forks (TF) wells; if successful, we believe they can
add meaningful upside to EURs and rates of return. Additional tests
of slickwater fracs and coiled tubing completions are planned for
this year. Cemented liner/plug & perf completions have already
yielded a 23% improvement in EURs at little incremental cost.
 The pending acquisition of KOG would enhance WLL’s inventory in
some of the best areas of the WB. The combined entity would have
>3,400 net future drilling locations. WLL plans to up the rig count to
26 by the end of 2015. It also intends to lower KOG’s average well
costs to $8.5M from $9.2M, which we consider very achievable. The
deal should be accretive on all relevant metrics starting next year.
 We foresee rapid production growth in the Niobrara (~2.5x y/y
growth in 2015E). At its Redtail acreage, it is testing tighter spacing
in the B bench and also wells in the C bench; results from its 32-
well Horsetail Pad should come in January. Success there could
double its Redtail inventory to ~3,300 net locations from ~1,650.
 The company should have ample liquidity to fund continued drilling
efforts in the WB and Niobrara. Even with the assumption of KOG’s
~$2.3B of debt, the balance sheet remains in solid shape.
Valuation
Our $108 price target represents a 10% discount to a ~$120 NAV

U.S. Seen as Biggest Oil Producer After Overtaking Saudi Arabia

Oil pumps stand at the Chevron Corp. Kern River oil field in Bakersfield, California.
The U.S. will remain the world’s biggest oil producer this year after overtaking Saudi Arabia and Russia as extraction of energy from shale rock spurs the nation’s economic recovery, Bank of America Corp. said.

U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries this year with daily output exceeding 11 million barrels in the first quarter, the bank said in a report today. The country became the world’s largest natural gas producer in 2010. The International Energy Agency said in June that the U.S. was the biggest producer of oil and natural gas liquids.

“The U.S. increase in supply is a very meaningful chunk of oil,” Francisco Blanch, the bank’s head of commodities research, said by phone from New York. “The shale boom is playing a key role in the U.S. recovery. If the U.S. didn’t have this energy supply, prices at the pump would be completely unaffordable.”

Oil extraction is soaring at shale formations in Texas and North Dakota as companies split rocks using high-pressure liquid, a process known as hydraulic fracturing, or fracking. The surge in supply combined with restrictions on exporting crude is curbing the price of West Texas Intermediate, America’s oil benchmark. The U.S., the world’s largest oil consumer, still imported an average of 7.5 million barrels a day of crude in April, according to the Department of Energy’s statistical arm.

Photographer: Matthew Staver/Bloomberg
An oil drilling rig stands on the Bakken formation in Watford City, North Dakota.
Surpassing Saudi

U.S. oil output will surge to 13.1 million barrels a day in 2019 and plateau thereafter, according to the IEA, a Paris-based adviser to 29 nations. The country will lose its top-producer ranking at the start of the 2030s, the agency said in its World Energy Outlook in November.

“It’s very likely the U.S. stays as No. 1 producer for the rest of the year” as output is set to increase in the second half, Blanch said. Production growth outside the U.S. has been lower than the bank anticipated, keeping global oil prices high, he said.

Partly as a result of the shale boom, WTI futures on the New York Mercantile Exchange remain at a discount of about $7 a barrel to their European counterpart, the Brent contract on ICE Futures Europe’s London-based exchange. WTI was at $103.74 a barrel as of 4:13 p.m. London time.

Islamist Insurgency

“The shale production story is bigger than Iraqi production, but it hasn’t made the impact on prices you would expect,” said Blanch. “Typically such a large energy supply growth should bring prices lower, but in fact we’re not seeing that because the whole geopolitical situation outside the U.S. is dreadful.”

Territorial gains in northern Iraq by a group calling itself the Islamic State has spurred concerns that oil flows could be disrupted in the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. Exports from Libya have been reduced by protests, while Nigeria’s production is crimped by oil theft and sabotage.

Libya will resume exports as soon as possible from two oil ports in the country’s east after taking back control from rebels who blocked crude shipments for the past year, Mohamed Elharari, spokesman for the state-run National Oil Corp., said by phone yesterday from Tripoli.

The U.S. will consolidate its position as the world’s biggest producer in the coming months if returning Libyan supply limits the need for Saudi barrels, said Julian Lee, an oil strategist who writes for Bloomberg News First Word. The observations he makes are his own.

Record Investment

“There’s a very strong linkage between oil production growth, economic growth and wage growth across a range of U.S. states,” Blanch said. Annual investment in oil and gas in the country is at a record $200 billion, reaching 20 percent of the country’s total private fixed-structure spending for the first time, he said.

A U.S. Commerce Department decision to allow the overseas shipment of processed ultra-light oil called condensate has fanned speculation the nation may ease its four-decade ban on most crude exports. Pioneer Natural Resources Co. and Enterprise Products Partners LP will be allowed to export condensate, provided it is first subject to preliminary distillation, the companies said June 25.

The decision was “a positive first step” to dispersing the build-up of crude supply in North America, Bank of America said in a report on June 27. The U.S. could potentially have daily exports of 1 million barrels of crude, including 300,000 of condensate, by the end of the year, according to a June 25 report from Citigroup Inc.

Total Energy Services Inc. BUY

TOT : TSX : $21.71

BUY 
Target: C$27.00

COMPANY DESCRIPTION:
Total Energy Services provides surface rental equipment,
contract drilling and natural gas compression and
processing equipment in western Canada. The company
has the largest rental fleet of its type in the WCSB and is
the second largest provider of natural gas compression
packages in Canada

 

Energy – Oilfield Services
Q1/14 IN LINE, CAPEX BUMP REFLECTS IMPROVING RENTAL
PROSPECTS
Investment thesis
Total recently reported in line Q1/14 operating results and increased its
2014 capital program (refer to our First Link note published on May 12).
We believe Total’s first quarter results and commentary confirm our
thesis that the company’s Rental & Transportation Services (RTS)
segment is gaining positive momentum. We are making modest estimate
adjustments, increasing our target price to C$27.00 and reiterating our
BUY recommendation.
Investment highlights
 Management believes RTS pricing has bottomed following a
competitive Q1/14. Total’s increased 2014 RTS capex is highly
focused on larger project activity, which should lever the company’s
strong market position and capital resources.
 Management reported that the sequential decline in Q1/14 backlog
in Compression & Process Services (CPS) was largely seasonal as
this unit’s backlog has subsequently climbed.
 Despite Total’s increased 2014 capital program, we expect Q1/14
net debt to fall through 2015. This leaves Total well capitalized to
take advantage of improving fundamentals.
Valuation and recommendation
We are making modest estimate revisions, which takes our EPS outlook
to $1.75 from $1.70 this year while leaving our 2015 view unchanged at
$2.60. Concurrently, we are raising our target price to C$27.00 (from
C$26.00) based on a 5.5x multiple applied to our 2015 estimates. We
continue to believe that consensus expectations meaningfully
underestimate the earnings potential of Total’s RTS segment as WCSB
completion activity improves, and are reiterating our BUY

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Southwestern Energy

SWN : NYSE : US$39.03
BUY 
Target: US$51.00

COMPANY DESCRIPTION:
Southwestern Energy is a natural gas focused E&P company with operations in the Fayetteville Shale of Arkansas and the Marcellus Shale of Pennsylvania.
All amounts in US$ unless otherwise noted

Energy — Oil and Gas, Exploration and Production
CAPEX & PRODUCTION GUIDANCE SUGGEST SOLID ’14
Investment recommendation
We reiterate our BUY rating on SWN in light of its expanded 2014 capex
and production guidance released last night. The company announced a
$2.3B capital budget, up from 2013 and in line with our estimate. We
reckon that the company’s 14% growth guidance is conservative given
the level of capex. We believe another solid year is in store for SWN.
Key points
 We maintain 17% production growth in 2014: SWN’s 14%
production guidance is a fine starting point in our view, but given its
historically strong productivity performances in its key plays – the
Fayetteville and Marcellus – we see no reason to change our 17%
growth outlook for next year.
 SWN should remain one of the lowest cost U.S. gas producers: Cost
guidance was essentially flat versus 2013 and in line with our model
suggesting SWN will remain one of the lowest cost producers of
natural gas in the U.S. All-in costs should be $2.36/Mcf in 2014.
 14 vertical wells planned for LSBD; 3x 2013’s effort: This provides
added encouragement to us that SWN sees commerciality is at
hand. The company just drilled four “corner-post” wells on the 120k
acres it deems prime and in Q3/13 announced its first commercial
well with an 700 MBoe EUR. SWN’s step-up in drilling says to us it
sees substantial upside to NAV ahead. We see 150 MMBoe or $3.0B
($8.50/share) over the next few years.
Valuation
We value SWN using a discounted NAV and a multiple of EV/EBITDA. By applying a 20% discount to our $65 NAV and averaging that with an 8.0x EV/EBITDA multiple on 2014E EBITDA of $2.4B, we arrive at our $51 price target.

Laredo Petroleum Holdings

LPI : NYSE : US$29.56
BUY 
Target: US$43.00 

COMPANY DESCRIPTION:
Laredo Petroleum Holdings is a Tulsa, OK-headquartered E&P with core producing assets in the Midland Basin. From 4k net acres in 2008, the company now has interest in 200k net Midland acres. As of YE2012, Laredo has 189mmboe of proved reserves, of which 40% is classified as PDP. 52% of proved reserves are liquids (two-stream).
All amounts in US$ unless otherwise noted.

Development and production growth is a priority
In LPI’s first NDR post-Q3 earnings, Mr. Jay Still (COO) and Mr. Ron Hagood (IR) spent a few days on the road with us. A constant recurring theme from LPI was production growth through drilling. With one rig out of six dedicated to delineation in 2014, NAV growth through addition of inventory and derisking of acreage is important to the company, but effective use of capital to grow production and generate cash flows is the near-term priority. In addition, with substantial science and data behind their plan, and the lateral stacked pilot and down-spacing complete, LPI can meet its prod growth rate of 30-35% (Fig 1), as much as any Permian peer.
NAV acceleration and uplift will go hand in hand
While acceleration of drilling plan by adding 2 rigs/year from ‘15 onwards will advance NAV, derisking acreage both laterally (Wolfcamp in N Glasscock) and vertically (Lower Spraberry well in Glasscock) will increase the NAV notably. During its Analyst Day, LPI mentioned it has currently derisked only 52% of Wolfcamp and none of Spraberry (Fig 2).
Sweet spot for Wolfcamp / Cline
In a series of meetings, Jay explained the Basin geology, Wolfcamp / Cline depositional axis, and the movement of the axis with time. In our understanding, LPI has some of the best acreage for deeper zones of Wolfcamp, Cline, and ABW. We note the impressive Cline (Wolfcamp D) rates published by PXD recently, but these are 24-hour rates and, as seen below (Fig 4), on a 30-day basis, LPI still holds the best wells.
Other key highlights of the trip were: 1) ‘14 guidance will be provided in December; 2) two stacked 10,000ft laterals in Upper Wolfcamp and Cline will be drilled shortly; 3) Warburg is flexible in its ownership structure; and finally 4) LPI will be active on bolt-on acquisitions around its acreage. Overall, LPI is a company with strong production growth and a substantial NAV upside. This is our top S/MID-cap Midland Basin pick. We raise price target to $43 primarily on drilling acceleration. Reiterate BUY.

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All You Need To Succeed – in 500 pages of Investing Strategy and Selections


Stock Market Magic: Building Your Apprentice Millionaire Portfolio 2012: All you need to succeed in today's stock market

Available at http://www.amazon.com

Stock Market Magic:

Building Your Apprentice

Millionaire Portfolio

 

 All you need to succeed in today’s stock market [Paperback]

Jack A. Bass (Author)

5.0 out of 5 stars  See all reviews (2 customer reviews) | Like 1678

Price: $28.95 & this item ships for FREE with Super Saver Shipping

Oil and Gas Top Picks

Canyon Services Group (FRC-TSX) Cost base of $10.24/share, last purchase on May 8, 2013 at $9.93/share
o Canyon is the fourth-largest pressure pumper in Canada and plays a central role in the development of unconventional reservoirs in Western Canada. Mason believes that current softness in the industry has stabilized and that its high quality fleet and pristine balance sheet should see the company well positioned to capitalize on accelerating Montney and Duvernay development by super-majors.

Bankers Petroleum (BNK-TSX) Cost base of $4.01/share, last purchase on June 3, 2013 at $2.88/share.
o Bankers is a Calgary based oil & gas company with development and exploration assets in Albania. The company currently produces a little over 18,000 b/d of heavy oil for both the Albanian and export markets. Mason believes that with its large development asset base and growing heavy oil demand globally, Bankers is in an excellent position to continue to grow production and cash flow on a per share basis.
Bellatrix Exploration (BXE-TSX) Cost base of $4.47/share, last purchase on May 15, 2013 at $5.72/share
o Mason likes Bellatrix as an organic growth story with a very reasonable valuation and the returns from its core plays are among the most attractive in the basin. The company has to date provided best-in-class drilling results in its plays. Bellatrix has also been very active in seeking joint-venture partners in order to accelerate the realization of shareholder value from its asset base.

NGas

Name: Encana
Symbol: ECA-tsx
Price: $18.13 (23July13)
Comment: Pays a very nice 4.5% yield at this price.
Name: Peyto Exploration
Symbol: PEY-tsx
Price: $28.60 (23July13)
Comment: “Best in Class” Mason Granger, “Can function if ngas prices go as low as $2.”

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