Get Out Of The Oil Patch, Get Out of Dry Bulk Shipping – New Paradigm Update

It is human nature to look for bargains - and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the sub dollar level it now enjoys.

“We could definitely see $55 next week,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We are probably going to see some violent trading.”

‘Drifting Down’

Skip York, a Houston-based vice president of energy research at Wood Mackenzie Ltd., said the next price target is $45.

“The market hasn’t seen the response they’re looking for on the supply side yet,” York said. “We’re now in this environment where I think prices are going to keep drifting down until the market is convinced, until the signal that production growth needs to slow has been received and acted on by operators.”

Are you still a client of a portfolio manager urging you to ” stay the course” – or worse, telling you to add to losing positions and losing sectors?

small- and mid-capitalization stocks, both E&P and Oil Service, are trading ~60% below their recent peaks, on average.

  • A growing number of stocks are priced at less than one-quarter of their peak prices achieved less than six months ago.

This is what is happening to oil TODAY ( Friday Dec. 12)

U.S. oil drillers, facing prices that have fallen below $60 a barrel and escalating competition from suppliers abroad, idled the most rigs in almost two years.

Rigs targeting oil dropped by 29 this week to 1,546, the lowest level since June and the biggest decline since December 2012, Baker Hughes Inc. (BHI) said on its website today. Those drilling for natural gas increased by two to 346, the Houston-based field services company said. The total count fell 27 to 1,893, the fewest since August.

As OPEC resists calls to cut output, U.S. producers from ConocoPhillips (COP) to Oasis Petroleum Inc. (OAS) have curbed spending. Chevron Corp. (CVX) put its annual capital spending plan on hold until next year. The number of rigs targeting U.S. oil is sliding from a record 1,609 following a $50-a-barrel drop in global prices, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest level in three decades.

“It’s starting,” Robert Mackenzie, oil-field services analyst at Iberia Capital Partners LLC, said by telephone from New Orleans today. “We knew this day was going to come. It was only a matter of time before the rig count was going to respond. The holiday is upon us and oil prices are falling through the floor.”

ConocoPhillips said Dec. 8 that the Houston-based company would cut its spending next year by about 20 percent, deferring investment in North American plays including the Permian Basin of Texasand New Mexico and the Niobrara formation in Colorado. Oasis, an independent exploration and production company based in Houston, said Dec. 10 that it’s cutting 2015 spending 44 percent to focus on its core area in North Dakota.

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ EnergyI am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Lor Loewen's photo.
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OPEC Is Finished Oil Crash Will Continue : Bank of America

Warning from Bank of America

 The Telegraph | December 10, 2014 8:41 AM ET

An engineer walks in the Barjisiya oil fields in Iraq. Bank of America says the OPEC cartel is dead and free markets now control the global cost of oil.

Getty ImagesAn engineer walks in the Barjisiya oil fields in Iraq. Bank of America says the OPEC cartel is dead and free markets now control the global cost of oil.

The OPEC oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned.

FP1211_Oil_Continues_fall_620_AB

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source for Europe’s gas needs.

Francisco Blanch, the bank’s commodity chief, said OPEC is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,” he added.

The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only Middle East petro-states with the deepest pockets, such as Saudi Arabia.

BoA said in its year-end report that at least 15 per cent of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55. The high-cost producers in the Permian basin will be the first to “feel the pain” and may have to cut back on production soon.

The claims pit BoA against its arch-rival Citigroup, which claims the US shale industry is far more resilient than widely supposed, with marginal costs for existing rigs nearer $40, and much of its output hedged on the futures markets.

BoA said the current slump will choke off shale projects in Argentina and Mexico, and force retrenchment in Canadian oil sands and some of Russia’s remote fields. The major oil companies will have to cut back on projects with a break-even cost below $80 for Brent crude.

It will take six months or so to whittle away the 1 million barrels a day of excess oil on the market — with Brent falling below $60 and US crude reaching $50 — given that supply and demand are both “inelastic” in the short-run. That will create the start of the next shortage.

“We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year,” said Sabine Schels, the bank’s energy expert.

We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year

oil-chart

Ms. Schels said the global market for LNG will “change drastically” in 2015, going into a “bear market” lasting years as a surge of supply from Australia compounds the global effects of the US gas saga.

If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs but has not been able to use this asset as a geostrategic bargaining chip with the Kremlin because LNG has been in scarce supply, mostly diverted to Japan and Korea. Much of Europe may not need Russian gas within a couple of years.

BoA said the oil price crash is worth $1-trillion of stimulus for the global economy, equal to a $730-billion “tax cut” in 2015. Yet the effects are complex, with winners and losers and diminishing benefits the further it falls. Academic studies suggest that oil crashes can turn negative if they trigger systemic financial crises in commodity states.

Barnaby Martin, BoA’s European credit chief, said world asset markets may face a rough patch as the U.S. Federal Reserve starts to tighten afters year of largesse.

He flagged warnings by William Dudley, head of the New York Fed, that US authorities tightened too gently in 2004 and might do better to adopt the strategy of 1994, when they raised rates fast and hard, sending tremors through global bond markets.

BoA said quantitative easing in Europe and Japan will cover just 35 per cent of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot be expected to be rescued every time there is a squall.

What is clear is that the world has become addicted to central bank stimulus. BoA said 56 per cent of global GDP is supported by zero interest rates, and so are 83 per cent of the free-floating equities on global bourses. Half of all government bonds in the world yield less than 1 per cent. Roughly 1.4 billion people are experiencing negative rates in one form or another.

These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries break out of the stimulus trap, including Fed officials themselves.

Tax website  http://www.youroffshoremoney.com

The “New Normal “for Gold ( BTO / BTG) and Energy/ Oil/ Gas ( Baytex)

Baytex Energy*

(BTE : TSX : $16.90), Net Change: 0.44, % Change: 2.67%, Volume: 5,712,428
THE NEW NORMAL: REDUCING CAPEX AND LOWERING DISTRIBUTIONS. Baytex Energy announced its 2015
capex budget and lowered its monthly dividend. The company will be spending $575-650 million in 2015, that’s ~20% lower
than consensus estimates of $765 million. Roughly 75% of Baytex’s 2015 capital budget will be invested in the Eagle Ford.
Baytex provided 2015 production guidance of 88,000-92,000 boe/d that was just shy of the consensus estimate of 93,400 boe/d.
Approximately 52% of the company’s 2015 annual production is expected to be generated in Canada with the remaining 48%
coming from its Eagle Ford assets in the U.S. With respect to hedges, for H1/15, Baytex has entered into hedges on
approximately 41% of their net WTI exposure with 29% fixed at US$96.47/bbl and 12% receiving WTI plus US$10.91/bbl
when WTI is below US$80.00/bbl. For H2/15, the company has entered into hedges on ~12% of their net WTI exposure with
8% fixed at US$95.98/bbl and 4% receiving WTI plus US$10.00/bbl when WTI is below US$80.00/bbl. The company cut its
monthly dividend by ~58% from $0.24 per share to $0.10. Under the new dividend policy, the annualized dividend of $1.20 per share represents a dividend yield of ~7.1% based yesterday’s close.
B2Gold* (BTO : TSX : $2.08)

Net Change: 0.09, % Change: 4.52%, Volume: 7,748,492

Update
UNSCATHED? B2Gold reports that operations are running normally at the Masbate Mine, Philippines, following Typhoon
Hagupit. The typhoon first made landfall last Saturday at the island of Samar, just southeast of Masbate Island, reaching
Masbate early Sunday. The eye of the storm tracked close to the site of Masbate Gold Mine. By late Sunday, the typhoon had
diminished in strength and passed over the island. Mining operations were curtailed during the storm event and have resumed.
Ore processing continued, however at the peak of the typhoon there was a 15.5 hour shutdown to plant production as operations were halted as a precautionary measure. The process plant is now operating at full capacity and the 2014 Masbate production forecast of 180,000 ounces of gold remains unaffected. According to Reuters, Hagupit has left 27 dead, nearly 13,000 houses destroyed and more than 22,300 damaged on the eastern island of Samar. According to Canaccord 
Analyst Rahul Paul, based on current projections and assuming no additional debt/equity raises or drawdowns, he foresees no capital shortfalls for B2Gold to the end of 2017 provided gold prices were to remain above US$1,151/oz.

 

Here is our recent letter:

Managed Accounts Year End Review and Forecast

Managed Accounts Year End Review and Forecast
November 2014 – 40 % cash position
Gold and Precious Metals

The largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.

2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.

Shipping Sector / Bulk Shippers

You can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait .

Oil/ Energy

I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.

On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

 

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

American Eagle Energy BUY Target Price $6 Next Spring Not Today

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

 

AMZG : NYSE MKT : US$1.33
BUY 
Target: US$6.00

COMPANY DESCRIPTION:
AMZG is an independent E&P company focused on
developing the Bakken and Three Forks shale oil
formations in the Williston Basin of North Dakota and
Montana. The company is based in Denver, CO.

Energy — Oil and Gas, Exploration and Production
CONSERVATIVE YET FLEXIBLE PLAN FOR ’15
Investment recommendation
We like AMZG for its inventory of relatively low-risk, high return Bakken
and Three Forks (TF) locations in the Williston Basin (WB). The
company has ~46.8K net acres in Divide County, ND, and while IP rates
and EURs are not as high as in deeper parts of the WB, lower costs
provide attractive rates of return. With new financing in place and the
stock getting essentially no credit for its undeveloped acreage at its
current price, we believe AMZG offers promising risk/reward.
Investment highlights
 AMZG laid out what we believe to be a prudent base-case 2015
capital plan, in which it intends to run one rig starting at the end of
Q1/15 and keep it going for the rest of the year. That would yield 10
net wells and equate to ~$60M in capex. At that pace of
development, the company would be able to grow production as
2015 progresses; we estimate ~3.1 MBoe/d (47% growth) for 2015.
The company said it would think about scaling up activity at a ~$90
WTI oil price and could bring on a second rig quite quickly.
 Following the positive results from the Eli well (405 Boe/d 30-day
IP), AMZG intends to use slickwater fracs for the Byron and Shelley
Lynn wells. Those wells are scheduled to be fracked in November.
The company estimates it will bring on 4 gross (3.7 net) operated
wells by the end of 2014. It could possibly add 2 additional gross
(1.3 net) wells if the Shelly and La Plata State are online in time.
 Liquidity of $84M at the end of Q3 should be more than sufficient to
fund the $60M capex program.
Valuation
Our new $6 price target represents a 30% discount to a ~$8.40 NAV

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

One such stock that you may want to consider dropping is American Eagle Energy Corporation(AMZG), which has witnessed a significant price decline in the past four weeks, and it has seen negative earnings estimate revisions for the current quarter and the current year. A Zacks Rank #4 (Sell) further confirms weakness in AMZG.

A key reason for this move has been the negative trend in earnings estimate trend. Although for the full year, we have not seen any estimates moving down or up in the past 60 days, the consensus estimate has moved lower, going from 25 cents a share a month ago to its current level of 21 cents.

Also, for the current quarter, American Eagle Energy has seen 1 downward estimate revision versus no revision in the opposite direction, dragging the consensus estimate down to 4 cents a share from 6 cents over the past 60 days.

Good News on Chesapeake : $5.4 Billion Divestment.

Readers will note that we have been out of CHK for a very long time but today’s news marks a real turn in the company . Finally it will have a substantial reduction in the debt that kept our manged accounts away from the sector and this stock in particular.

Chesapeake Energy Corp. (CHK), the company that forced out its co-founder last year amid an investor revolt, plans to sell natural gas and oil shale fields to Southwestern Energy Co. (SWN) for $5.4 billion in its biggest-ever divestment.

The transaction includes 1,500 wells and drilling rights across 413,000 acres in the southern Marcellus Shale and eastern Utica Shale in Pennsylvania and West Virginia, Oklahoma City-based Chesapeake said in a statement today.

Chief Executive Officer Doug Lawler is exiting some shale prospects to devote drilling crews and rigs to oil-rich formations that have delivered rates of return in excess of 20 percent. Before today, Chesapeake had sold or spun-off more than $3 billion in gas fields, office buildings, pipelines and rigs this year, as it unwinds deals done by former CEO Aubrey McClendon.

Today’s announcement marks a major step in Chesapeake’s transformation and a dramatic improvement in our financial strength as we seek to maximize value for our shareholders,” Lawler said in the statement.

The transaction, which is expected to close before the end of the year, won’t impact Chesapeake’s production growth targets, Lawler said. Chesapeake, which had fallen 31 percent this year, surged 11 percent to $19.65 at 8:45 a.m. in New York, before the start of regular trading. Southwestern fell 5.3 percent to $33.80.

Reserves Boost

For Southwestern, the transaction represents the first major foray into oil-rich shale for a company that has been almost exclusively focused on gas production. Wells that are part of the deal produce the equivalent of 56,000 barrels of crude a day, 45 percent of which is oil and so-called gas liquids such as propane. The acquisition also is Southwestern’s largest-ever deal, according to data compiled by Bloomberg.

The purchase will increase Houston-based Southwestern’s reserves by one-third to the equivalent of 890 million barrels of crude at a cost of about $24 per barrel.

“We think the sale is transformational for both parties,” Scott Hanold, an analyst at RBC Capital Markets, said in a note to clients today.

A shortage of gas-processing plants and pipelines in the Appalachian region could delay Southwestern’s plans to expand output from its new assets. Those bottlenecks should ease in the coming years as more infrastructure is added, Hanold wrote.

Dismantling Empire

In an internal e-mail today, Lawler announced plans for a town hall-style meeting with employees on Oct. 20 to discuss the impact of the sale and long-term growth plans. Senior managers and human resources executives have already met with employees at the affected divisions to talk about transitioning to Southwestern, he said in the e-mail.

Chesapeake announced plans in July to expand in the Rocky Mountains amid Lawler’s campaign to reduce costs, unload unprofitable gas fields and untangle complex financing arrangements created during the reign of his predecessor.

Since becoming CEO two months after McClendon’s dismissal in April 2013, Lawler has outperformed the average gas and oil production estimates of analysts in quarterly Bloomberg surveys.

Southwestern expects to sell equity and debt before closing to finance the transaction. Bank of America Corp. advised Southwestern and will provide a $5 billion bridge loan.

Statoil ASA (STL), co-owner of some of the West Virginia and Pennsylvania assets, has 30 days to acquire the stake at the agreed price, Southwestern said.

(Southwestern scheduled a conference call for 11 a.m. New York time. To listen, dial 877-407-8035 in the U.S. and 201-689-8035 from overseas.)

Oil Enters Bear Market

Brent Falls to Lowest Since 2010 After IEA Cuts Forecast

Brent crude fell to the lowest level in almost four years after the International Energy Agency said oil demand will expand this year at the slowest pace since 2009. West Texas Intermediate slipped for the fifth time in six days.

Futures dropped as much as 3.1 percent in London and 2.1 percent in New York. Oil consumption will rise by about 650,000 barrels a day this year, 250,000 fewer than the prior estimate, the Paris-based agency said in its monthly market report. U.S. crude supplies probably grew by 2.5 million barrels last week, according to a Bloomberg survey of analysts before a report from the Energy Information Administration on Oct. 16.

Oil futures have collapsed into bear markets as shale supplies boost U.S. output to the most in almost 30 years and global demand weakens. The biggest producers in the Organization of Petroleum Exporting Countries are responding by cutting prices, sparking speculation that they will compete for market share rather than trim output. Saudi Arabia won’t alter its supplies much between now and the end of the year, a person familiar with its oil policy said on Oct. 3.

“The IEA report is killing Brent,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “This is the fourth month in a row where they’ve cut their demand forecast. There’s tremendous downside risk for the market.”

Fourth Month

Brent for November settlement declined $2.54, or 2.9 percent, to $86.35 a barrel on the London-based ICE Futures Europe exchange at 10:24 a.m. in New York. It slipped to $86.17, the lowest intraday price since Dec. 1, 2010. The volume of all futures traded was 68 percent above the 100-day average for the time of day. Prices have decreased 22 percent this year.

WTI for November delivery dropped $1.71, or 2 percent, to $84.03 a barrel on the New York Mercantile Exchange. The contract settled at $85.74 yesterday, the lowest close since December 2012. Volume was 72 percent higher than the 100-day average. The U.S. benchmark grade traded at a $1.96 discount to Brent, down from $3.15 at yesterday’s close.

The IEA reduced its estimate for demand growth this year for the fourth month in a row, meaning oil consumption will expand by about half the rate of 1.3 million barrels a day anticipated in June. The IEA cut its 2015 demand growth forecast by 100,000 barrels a day to 1.1 million. About 200,000 barrels a day less crude will be needed from OPEC this year and next than estimated previously, the agency said.

Market Share

OPEC, which supplies about 40 percent of the world’s crude, is raising output as its members compete for market share while seeking to meet increased domestic demand. The group pumped 30.935 million barrels a day in September, the most since August 2013, according to a Bloomberg survey. The gain was led by Libya, where output climbed by 280,000 barrels a day to 780,000, the fifth straight increase.

“The recovery in Libyan oil production has pushed up total OPEC output at a time when demand growth is slowing,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “OPEC has a serious problem.”

Iraq said on Oct. 12 that it will sell its Basrah Light crude to Asia at the biggest discount since January 2009, following cuts by Saudi Arabia and Iran. Middle East producers almost always follow the lead of Saudi Arabia, OPEC’s largest member when setting export prices. The Saudis need to deepen price cuts for Asia by between 70 cents and $1 a barrel to restore a competitive position against other Middle Eastern and West African suppliers, according to JPMorgan Chase & Co.

Divergent Views

Oil ministers from Kuwait and Algeria have dismissed possible output cuts as the price slump prompted Venezuela to call for an emergency OPEC meeting. The group is scheduled to gather on Nov. 27 in Vienna.

The EIA, the Energy Department’s statistical arm, will release its weekly petroleum inventory report on Oct. 16 at 11 a.m. in Washington, a day later than usual because of yesterday’s Columbus Day holiday. Crude supplies rose 5.02 million barrels to 361.7 million in the week ended Oct. 3, the biggest increase since April, EIA data showed.

“The market isn’t expected to get any relief from Thursday’s inventory numbers,” Yawger said. “We’re looking for it to show a substantial build in crude supplies, coming on top of a 5 million-barrel build the previous week. There’s plenty of crude on hand.”

The report will probably show that gasoline stockpiles dropped by 1.55 million barrels in the week ended Oct. 10, according to the median estimate in the Bloomberg survey of eight analysts. Inventories of distillate fuel, a category that includes diesel and heating oil, are projected to have slipped by 1.65 million barrels.

Fuel Prices

Encana Corporation Update

ECA : NYSE : US$21.59
ECA : TSX
HOLD 
Target: US$25.00 

Energy — Oil and Gas, Exploration and Production
FRIDAY NIGHT LIGHTS
We maintain our HOLD rating but raise our target to $25 (from $24) post
ECA’s announced planned acquisition of Athlon Energy (ATHL : NASDAQ :
$58.32 | HOLD, covered by Eli Kantor). We applaud ECA for a high-quality
entry into a premier U.S. oil play; one that has multi-zone upside potential.
However, we do believe there are some key questions that need to be
addressed over time:
1. Are the 50 MBOE/d 2015 average and 200-250 MBOE/d by 2019 targets
achievable? Yes, in our view; but it will require improvements in drill
times. Prior to ECA’s announcement, Canaccord Genuity estimated 2015
production for ATHL to be 41 MBOE/d. Now this assumes about $965
million of capex and 6 rigs by year-end. Nevertheless, even when
assuming the 7 rigs by year-end 2015 that ECA plans to go to, we are
still short ~5 MBOE/d of ECA’s 50 MBOE/d target for the year. With
respect to the longer-term target, assuming 7 rigs per year still gets us
to only about 140 MBOE/d average for 2019. The aforementioned
assume a spud to rig release timing of 27 days. Therefore, reducing it to
15 days, which is in line with what Pioneer Natural Resources (PXD :
NYSE : $201.96 | HOLD, covered by Eli Kantor) is targeting, yields ECA’s
targets. However, there is one other potential bottleneck for the outer
years, and that is infrastructure (i.e. plants) to handle the increased
production capacity that ECA is targeting as well as potential cost
inflation/capacity constraints due to increased services competition.
2. Did the company pay up for the asset? Yes, to an extent. As shown in
Figure 1, the transaction is about 20% dilutive on an EV/DACF basis.
Even when assuming 50 MBOE/d of production in 2015 for ATHL, it is
still 15% dilutive. However, there is some accretion on an NPV basis
when assuming over 5,000 hz locations (vs. the 1,850 locations ATHL
assumes which looks conservative as we discuss later in this note),
hence our target increase. Also it used high priced PrairieSky paper to
help fund the acquisition.
3. Will ECA be successful in retaining ATHL employees? Only time will tell
on this one. If the ATHL management team sets up a new company,
there is risk of departures, albeit limited in the near-term by any
potential non-competes imposed on top management of ATHL

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

Bulls Fleeing Natural Gas

Bulls Fleeing Natural Gas as Goldman Sees Further Decline
Speculators are fleeing natural gas after prices dropped below $4 for the first time since December and power plant production fell to a 13-year seasonal low.

Hedge funds reduced net-long positions, or bets on rising prices, by 11 percent in the week ended July 22, the U.S. Commodity Futures Trading Commission said. Bullish wagers have declined 51 percent since February.

Futures slid as the output from electricity generators, the biggest consumers of the fuel, fell 11 percent in the week ended July 19 from a year earlier to the least for the period since 2001, according to the Edison Electric Institute. Mild weather and a record pace of inventory gains may push prices lower in the next three months, Goldman Sachs Group Inc. said.

“The move down in prices this early in the summer is surprising,” Breanne Dougherty, a natural gas analyst at Societe General SA in New York, said in a phone interview on July 25. “The power generation load makes and breaks summers and it’s extremely sensitive to weather.”

Natural gas dropped 7.9 percent to $3.772 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. The contract for August delivery closed at $3.781 on July 25, capping a sixth weekly decline, the longest stretch of losses since the first quarter of 2010. It was at $3.771 in electronic trading today.

Gas Supply

Gas inventories, which declined to an 11-year low in late March, have rebounded at the fastest pace since 2001, U.S. Energy Information Administration data show.

Stockpiles rose by 90 billion cubic feet to 2.219 trillion in the week ended July 18, a gain bigger than the five-year average for the 14th straight week, according to the EIA.

“While we previously believed that risks to 2014 prices were skewed to the upside, we now see downside risks to U.S. gas prices in the next three months,” Daniel Quigley, a Goldman analyst in London, said in a note on July 22.

Power generation in the lower 48 states totaled 82,614 gigawatt-hours in the seven days ended July 19, the least since the week ended June 13, Edison Electric data show.

This month has been the coolest July since 2009, Matt Rogers, the president of Commodity Weather Group LLC in Bethesda, Maryland, said in an e-mail on July 25. “We’re expecting the cool pattern to continue into August.”

Power Plants

Gas deliveries to power plants dropped 13 percent this month to average 25.9 billion cubic feet a day as of July 25, the lowest for the period since 2009, according to LCI Energy Insight in El Paso, Texas.

Futures may find support between $3.50 and $3.75 for the rest of the stockpiling season, with those prices prompting power plants to switch from coal, Teri Viswanath, the director of commodities strategy at BNP Paribas SA in New York, said by phone on July 24.

“The problem with the emergence of this cool fall-like weather is that we don’t expect to see a slowdown in those inventory injections until the reemergence of heating demand,” she said.

In other markets, the downing of a civilian airplane in Ukraine and crude stockpiles at Cushing, Oklahoma, at a six-year low enticed speculators back to the oil market, boosting bullish bets from a six-month low.

Money managers raised net-long positions in benchmark West Texas Intermediate futures by 7.3 percent to 278,116 futures and options combined in the week ended July 22, CFTC data show. Long positions rose 1.1 percent 307,739 while shorts dropped 35 percent to 29,623.

WTI Jump

WTI futures advanced 4.5 percent to $104.42 a barrel on the Nymex in the period covered by the report. The contract closed at $102.09 on July 25.

Net long gasoline bets fell 22 percent to 34,115. Futures slipped 0.6 percent to $2.8807 a gallon on the Nymex in the week covered by the report and settled at $2.8653 on July 25.

Gasoline at U.S. pumps, averaged nationwide, slid 0.7 cent to $3.543 a gallon on July 24, the lowest since March 28, according to data from Heathrow, Florida-based AAA, the nation’s largest motoring group. Retail prices are down 4.1 percent from a 13-month high on April 26.

Money managers’ bets on ultra-low sulfur diesel flipped to a net short position for the first time since November with 1,520 contracts, the CFTC report showed. Futures fell 0.1 percent to $2.8542 a gallon in the report week and closed at $2.9157 on July 25.

Natural Gas

Net-long positions on four U.S. natural gas contracts declined by 25,772 futures equivalents to 201,090, the least since Dec. 3.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

Long positions fell by 4 percent to 472,613, the least since February 2013. Bearish bets gained 2.3 percent to 271,523, the most since Dec. 10.

“I wouldn’t expect prices to go much lower,” said Societe Generale’s Dougherty. “That said, if we continue to get extremely mild weather as we saw in July through October, we will see a slightly different story.”

Penn Virginia Corporation OVERSOLD, REITERATE BUY

PVA : NYSE : US$14.78
BUY 
Target: US$20.00

Energy — Oil and Gas, Exploration and Production
TWEAKING ESTIMATES FOLLOWING
ASSET SALE NEWS; STOCK OVERSOLD, REITERATE BUY
Investment recommendation
PVA has been successfully transitioning to a liquids-focused company
while retaining its leverage to an improvement in natural gas prices.
The company has built a sizeable ~87K net acre position in the volatile
oil window of the Eagle Ford (EF) and has generated solid results with
the drillbit while bringing costs down at the same time. We remain
buyers, especially after the recent correction in the stock.
Investment highlights
 PVA announced that it has entered into a definitive agreement to
sell its Mississippi assets to an undisclosed buyer for gross cash
proceeds of $72.7M. The sale is expected to close next month. Our
expectations were that the company would get something closer to
PV-10 for these assets, which was ~$55M at YE 2013, and are
therefore pleased with the $72.7M price tag. Further liquidity
enhancing asset sale announcements should be forthcoming shortly.
 The stock sold off for two days (before rebounding yesterday) over
concerns about the company’s EF EURs. EURs have not gone down;
PVA is now showing both its internal estimates, which it recently
raised, and its reserve engineer’s EURs, which are more
conservative.
 As a reminder, PVA recently upped its EF inventory by 34% (now
1,510 gross locations, up from 1,125) as it is now including the
Upper EF as a distinct horizon (475 gross locations)

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