Oil Extends Drop : Worsening Glut – With Oil Companies and Investors In Denial

Oil extended losses to trade below $45 a barrel amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years.

Futures fell as much as 2.6 percent in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group Inc. said crude needs to drop to $40 a barrel to “re-balance” the market, while Societe Generale SA also reduced its price forecasts.

“There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

West Texas Intermediate for February delivery decreased as much as $1.19 to $44.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $44.94 at 2:26 p.m. Singapore time. The contract lost $2.29 to $46.07 yesterday, the lowest close since April 2009. The volume of all futures traded was about 51 percent above the 100-day average.

U.S. Supplies

Brent for February settlement slid as much as $1.31, or 2.8 percent, to $46.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.24 to WTI. The spread was $1.36 yesterday, the narrowest based on closing prices since July 2013.

U.S. crude stockpiles probably rose to 384.1 million barrels in the week ended Jan. 9, according to the median estimate in the Bloomberg survey of six analysts before the Energy Information Administration’s report. Supplies have climbed to almost 8 percent above the five-year average level for this time of year, data from the Energy Department’s statistical arm show.

Production accelerated to 9.14 million barrels a day through Dec. 12, the most in weekly EIA records that started in January 1983. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

OPEC Output

The U.A.E. will continue plans to boost its production capacity to 3.5 million barrels a day in 2017, Al Mazrouei said in a presentation in Abu Dhabi yesterday. The country currently has a capacity of 3 million and pumped 2.7 million a day last month, according to data compiled by Bloomberg.

OPEC, whose 12 members supply about 40 percent of the world’s oil, agreed to maintain their collective output target at 30 million barrels a day at a Nov. 27 meeting in Vienna. Qatar estimates the global surplus at 2 million a day.

In China, the world’s biggest oil consumer after the U.S., crude imports surged to a new high in December, capping a record for last year. Overseas purchases rose 19.5 percent from the previous month to 30.4 million metric tons, according to preliminary data from the General Administration of Customs in Beijing today. For 2014, imports climbed 9.5 percent to 310 million tons, or about 6.2 million barrels a day.

Oil Companies and Investors In Denial : Portfolio Profits At Risk

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

Build Your Portfolio On A Solid Foundation : 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

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Stock Market Magic:

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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)

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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

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

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The 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

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Stock Market Magic: Building Your

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Step Up Your Game – 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

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Stock Market Magic: Building Your

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Comstock Resources

Schematic E-W section showing the Eagle Ford S...

Schematic E-W section showing the Eagle Ford Shale among the geological strata beneath the DFW Metroplex (Photo credit: Wikipedia)

Comstock Resources

CRK : NYSE : US$14.39
BUY 
Target: US$26.00

COMPANY DESCRIPTION:
Comstock Resources is an exploration and production company focused on development of the Eagle Ford Shale, the Permian Basin and the Haynesville Shale.

Investment thesis


We are lowering our target price $1 to $26 per share due to the base effect of appreciably less than expected fourth quarter oil production.
Normalized for ~750 Bopd of curtailed production due to offset well stimulation in the Eagle Ford and artificial lift installation in the Eagle Ford and Wolfbone programs, oil production in the fourth quarter would have been ~6,850 Bopd versus our expectation of ~7,700 Bopd
Our ’13 oil growth expectation of ~43% is toward the low end of company guidance (40%-60%), while we anticipate gas production declines ~25%,
which is at the midpoint of guidance (22%-28%).

Comstock offers modestly greater CFPS growth (’12-’14E) relative to the sector though trades at 20%+ discount (’13E EBITDA). CRK has ~80%
potential upside to our target price versus ~30% upside for the group.
Investment highlights
Elevated leverage should subside as an investor concern over the next year At year-end, Comstock’s net debt-to-EBITDA was ~4x, though should fall toward 3x by the end of this year, and decline below 3x in ’14E.
Solid Eagle Ford/Wolfbone results, encouraging industry Wolfcamp test In 3Q/12, Comstock completed six Eagle Ford wells that commenced at an
average of ~800 Boepd, suggesting a recovery of 500+ Mboe. Vertical Wolfbone wells have commenced at an average of ~350 Boepd and recover ~200 Mboe for a cost of ~$4.5 million. A recent nearby industry horizontal Wolfcamp test (~3,600’ lateral, 20 frac stages) produced ~950 Boepd the first 30 days, implying a recovery of ~700 Mboe.
Overall capital productivity increases ~7% with Eagle Ford JV The company’s Eagle Ford JV assigns a one-third interest in the next 100 wells for the equivalent of $25k per acre. Assuming 80-acre well spacing, the partner pays $0.67 million and receives a one-third interest in each well. In essence, the JV funds ~7% (~$30 million per annum) of the company’s capital spending.

All You Need To Succeed – in 2013 – 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

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Stock Market Magic: Building Your Apprentice Millionaire Portfolio :

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Comstock Resources Target $ 27

Comstock miners, 1880s. Caption on original: &...

Comstock miners, 1880s. Caption on original: “To Labor is to Pray.” (Photo credit: Wikipedia)

Comstock Resources

CRK : NYSE : US$14.72
BUY  Target: US$27.00

COMPANY DESCRIPTION:
Comstock Resources is an exploration and production company focused on development of the Eagle Ford Shale, the Permian Basin and the Haynesville Shale.

Investment recommendation


After two days of investor meetings, management seems highly aware of the need to drive cost improvement into their vertical Wolfbone program
in Reeves County and grow/execute into their leveraged cap structure.
In ’13, we expect the company to deliver ~40% oil production growth, while Comstock indicated oil production should increase 40%-60% this
year. For every 5% of incremental oil production growth (~$420 million capital plan), we believe fair value increases ~15%.
Comstock offers modestly stronger CFPS growth (’12-’14E) relative to the sector though trades at ~20% discount (’13E EBITDA). Accordingly, CRK
has ~80% upside to our target price versus ~30% upside for the group. Elevated leverage should subside as an investor concern over the next year
At year-end, Comstock’s net debt-to-EBITDA was ~3.7x, though should fall to almost 3x by the end of this year and decline below 3x in ’14. In ’13, assuming ~$420 million in capital spending, the company’s negative FCF disposition is ~20%, whereas the industry is ~30% FCF negative.
Solid Eagle Ford/Wolfbone results, encouraging industry Wolfcamp test Last quarter, Comstock completed six Eagle Ford wells that commenced
at an average of ~800 Boepd, suggesting a recovery of 500+ Mboe. Since acquiring acreage in Reeves County, Comstock has completed 20 vertical
Wolfbone wells, which have commenced at an average of ~350 Boepd and should recover ~200 Mboe for a cost of ~$4.5 million. A recent nearby industry horizontal Wolfcamp test (~3,600′ lateral, 20 frac stages) commenced at ~950 Boepd, implying a recovery of ~700 Mboe.
Overall capital productivity increases ~5% with Eagle Ford JV The company’s Eagle Ford joint venture assigns a one-third interest in the next 100 wells for the equivalent of $25k per acre. Assuming 80-acre well spacing, the partner pays $0.67 million per well and receives a one third interest in each well. The joint venture in essence funds ~5% (~$20 million per annum) of the company’s capital spending.

The Discilpline To Profit :All You Need To Succeed – in 500 pages of Investing Strategy and Selections

The selections given are all guided by the AMP book.

I am puzzled how many readers expect to profit if they don’t know the  underlying strategy/ sector and individual selection criteria .

You cannot ” win” unless you know the rules of the game . Gambling that one selection will better your average is not a strategy at all.

I is notas difficult as brain surgery – you need a long term strategy and the selections that meet that strategy.

 

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)

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