Canadian Natural Resources Ltd.

CNQ : TSX : C$40.63

BUY  Target: C$46.0

COMPANY DESCRIPTION: Canadian Natural is one of the largest independent crude oil and natural gas producers in the world with a diversified and balanced asset base of natural gas, heavy oil, oil sands and light oil.
All amounts in C$ unless otherwise noted.

COMPANY DESCRIPTION: Canadian Natural is one of the largest independent crude oil and natural gas producers in the world with a diversified and balanced asset base of natural gas, heavy oil, oil sands and light oil.
All amounts in C$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production ADDING SIGNIFICANT PRODUCTION AT A LOW COST

We reiterate our BUY rating on CNQ post yesterday’s announcement to acquire Devon Energy’s (DVN : TSX| Not rated) Canadian conventional asset package (ex- Horn River basin and heavy oil properties) for $3.12 billion for the following reasons:
While, we were surprised by the move, CNQ did take advantage of the “buyers” market in Canada. It is evident there are plenty of asset packages on the market; recall CNQ retracted its own Montney package on 1/9 due to lack of sufficient interest. To that end, the company paid ~$36,000/boe/d unadjusted ($30,300 per boe/d adjusted for infrastructure), which looks like a steal compared to precedent transactions of ~$51,700/boe/d especially given the higher gas price environment.
The transaction is also accretive on a cash flow basis. To that end, we estimate that CNQ is paying 4.5x 2015E DACFs (when adjusted for infrastructure), which is a discount to the 5.4x that CNQ was trading at prior to yesterday.
Potential spin out of royalty assets. The company plans to either monetize or spin out the combined $140-$150 million annual cash flow royalty free lands post acquisition. Based on Freehold Royalty Trust’s (FRU: TSX | Not rated) current trading multiple, this asset is worth an estimated $1.2-1.3 billion or $1.08-1.16/share.
Balance sheet still looks strong post acquisition. At our price deck, debt/EBITDA is estimated to be 1.13x vs. the peer average of the same level, and CNQ’s pre-acquisition metric of 0.93x.
Still the torque play in the Sr’s space on our positive heavy oil thesis. We estimate the company will still be ~40% levered to heavy oil in H2/14 (down slightly from the prior ~45%), and thus will continue to benefit from our thesis on narrowing differentials.
We are increasing our target by $1 to $46 to reflect the accretion from the acquisition

Quicksilver Resources – Breakout

Natural Gas up this morning – well over $ 5

Natural gas retreated after surging the most in almost a week as cold weather swept across the U.S.

Futures for March delivery fell as much as 2.3 percent to $5.252 per million British thermal units in electronic trading on the New York Mercantile Exchange and were at $5.275 at 11:28 a.m. Singapore time. The contract rose 47 cents, or 9.6 percent, to settle at $5.375 yesterday, the biggest gain since Jan. 29. The volume of all futures traded was about 33 percent below the 100-day average. Prices are up 25 percent so far this year.

MDA Weather Services predicted below-normal temperatures in most of the lower-48 U.S. states through Feb. 13. A winter storm will continue to move east today with heavy snow forecast from central Kansas to the Northeast and ice accumulation possible from Arkansas into the Ohio River Valley, according to the U.S. National Weather Service.

“A winter storm moving across the Midwest eastward through the Northeast will be followed by another plunge of Arctic air into the center of the country,” the weather service said in a forecast yesterday. “The southwestern U.S. will be the only area of the country spared from this Arctic blast.”

An Energy Information Administration report Feb. 6 may show that natural gas inventories slid by 267 billion cubic feet last week, according to the median of 10 analyst estimates compiled by Bloomberg. The five-year average decrease is 151 billion.

Commodity Weather Group LLC in Bethesda, Maryland, said January was the coldest first month of the year in the contiguous U.S. since 1994, in terms of gas-weighted heating degree days, a measure of energy demand. About 49 percent of U.S. households use gas for heating, with the biggest share in the Midwest, according to the EIA, the Energy Department’s statistical arm.


Short interest remains at 25 %

Now 25 cents from its 52 Week High


Above Average
As of 04 Feb 2014 at 1:26 PM EST.
Open 3.11 P/E Ratio (TTM)
Last Bid/Size 3.31 / 43 EPS (TTM) -2.13
Last Ask/Size 3.32 / 25 Next Earnings 11 Mar 2014
Previous Close 3.10 Beta 1.82
Volume 3,745,204 Last Dividend
Average Volume 3,249,218 Dividend Yield 0.00%
Day High 3.33 Ex-Dividend Date
Day Low 3.09 Shares Outstanding 177.1M
52 Week High 3.54 # of Floating Shares 123.7796M
52 Week Low 1.44 Short Interest as % of Float 24.77%

Natural Gas Forecast : BABY It’s Cold Outside

Natural Gas* (NG : NASDAQ : US$4.92), Net Change: -0.26, % Change: -5.06%

Quicksilver Resources  KWK $ 3. 11  Net change  -1
Bellatrix Exploration* (BXE : TSX : $8.33), Net Change: -0.18,
Painted Pony Petroleum* (PPY : TSX : $7.63), Net Change: -0.33, %
Paramount Resources* (POU : TSX : $41.99),
EnCana* (ECA : TSX : $19.99), Net Change: -0.19, % Change: -0.94%,
ARC Resources* (ARX : TSX : $28.21), Net Change: -0.35,
Remember: All Things Come in Waves. With another wave of cold weather upon the eastern U.S., Bentek Energy forecasts that U.S. demand will peak today at 131 Bcf/d.

I mpacting field activity and infrastructure issues). Storage levels in both Canada and the U.S. are now tracking below their respective five-year historical averages. Using Bentek’s next two-week forecast draws, and then assuming average (five-year) historical draws, would result in just over 1.2 Tcf of gas in storage in April, ~30% lower than the five-year average and at a level not seen since 2008 when gas prices averaged ~US$10/Mcf that month and over US$8.50/Mcf for the year.

The front end of the forward curve has increased by ~US$0.85/Mcf since January 15, with months 12+ showing little change reflecting the
market’s perception of little to no change to its longer-term outlook. In the view of the Canaccord Genuity Energy Research Team, continued lingering of the “polar vortex” that has created significantly cold weather patterns in central and eastern U.S. (and Canada) will continue its torment on storage and push summer and winter 2014 contracts higher.

According to the Energy Research Team, Canadian intermediate gas weighted stocks are on average currently discounting prices in the low US$4/Mcf range, materially below spot prices and a ~10% and 3% discount to current 2014 and 2015 forward strip pricing respectively.
Their top Intermediate E&P stock remains Bellatrix Exploration given its attractive valuation, high leverage to gas prices and leading capital efficiencies. On the small cap side, Painted Pony Petroleum, provides the greatest leverage to rising gas prices, with upcoming LNG activity providing another potential tailwind for the stock in 2014. Painted Pony and ARC Resources have a large leverage to prolonged improvement in gas pricing due to their substantial NEBC Montney resource exposure.

Quicksilver Resources is a turnaround play – now deleveraging and drilling .

For pure torque to an AECO basis improvement, they highlight Paramount Resources, which is highly levered to changes in gas price movements and is poised to more than double production over the next 12 months.

Emerald Oil Raising Target Price to $12

EOX : NYSE : US$7.90
Target: US$12.00 

Emerald Oil Inc. is an independent exploration and production
company primarily focused on acquiring acreage and developing
wells in the Bakken and Three Forks shale oil formations of the
Williston Basin in North Dakota and Montana. The company also
has acreage in the Sandwash Basin in Colorado and Wyoming,
and the Heath Shale oil formation in central Montana.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
EOX has successfully transitioned to an operated drilling program in the
Williston Basin (WB). EOX has ~85K net acres (75% operated), a very
meaningful position for a company its size. With plenty of liquidity at its
disposal, EOX is poised to rapidly grow production in 2014 and beyond.
Investment highlights
 After attending EOX’s sell-side Analyst meeting, we are more
confident than ever that this management team knows what it is
doing and the company is in great position to continue drilling very
good Bakken/Three Forks wells in the WB. EOX has spent a great
deal of time using advanced technologies to study the geology,
surrounding activity, frac design, the WB and it shows.
 EOX has reported 15 operated well results to date with solid
average 24 hr/30 day IP rates of 1,643/764 Boe/d. Wells with long
enough histories had 60 and 90 day rates of 658 Boe/d (9 wells) and
602 Boe/d (7 wells). We are very pleased with these results and look
forward to what EOX does with the drillbit in 2014. The company’s
first Three Forks (TF) well had 24 hour/30 day IP rates of 1,113
Boe/d/573 Boe/d. This well confirms the viability of the TF on EOX’s
acreage. We are raising our 2014 estimates to account for the
company’s recently-announced acquisition of ~20,800 net WB acres,
most of which is being acquired from Kodiak Oil & Gas, scheduled to
close on February 13.
Our $12 price target, up from $11, is NAV-driven and based on a ~15%
discount to a $14.15 NAV, up from $13.06.

Trading Alert: Quicksilver Resources

Cold weather supports natural gas stocks

KWK has several wells about to report drill results

20 %short position will be getting nervous


Below Average
As of 22 Jan 2014 at 3:02 PM EST.


Open 3.10 P/E Ratio (TTM)
Last Bid/Size 3.20 / 137 EPS (TTM) -2.13
Last Ask/Size 3.21 / 35 Next Earnings 24 Feb 2014
Previous Close 3.06 Beta 1.79
Volume 1,842,806 Last Dividend
Average Volume 3,483,114 Dividend Yield 0.00%
Day High 3.21 Ex-Dividend Date
Day Low 3.09 Shares Outstanding 177.1M
52 Week High 3.54 # of Floating Shares 123.7548M
52 Week Low 1.44 Short Interest as % of Float 22.12%
IF you’d like to see these results in a managed portfolio email or call Jack direct at 604-858-3202 ( same time zone as Los Angeles)

Penn Virginia Corporation Target Price $14

PVA : NYSE : US$11.31
Target: US$14.00

Penn Virginia Corporation is an exploration and production
company with operations in Texas, the Mid-Continent, Appalachia
and Mississippi.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
PVA has successfully transitioned to a liquids-focused company while
retaining its leverage to an improvement in natural gas prices. The
company has built a sizeable position in the volatile oil window of the
Eagle Ford (EF) Shale and has generated solid results with the drillbit
while bringing costs down at the same time.
Investment highlights
 PVA has 72.2K net acres (and growing) in the EF, a very meaningful
position for a company its size. This represents a 10 year inventory,
with upside from downspacing and other formations, including the
upper EF which is in the early testing stages.
 Based on Devon’s announced acquisition of GeoSouthern’s EF
assets for $6B (82K net acres, 53 MBoe/d of production), PVA’s EF
assets alone (12.5 MBoe/d of production in Q3/13) could be worth
well over $2B, more than the EV of the entire company.
 In October, the company’s borrowing base was increased from
$350M to $425M. Pro forma liquidity at September 30, 2013 was
~$330M. Liquidity should be enhanced in H1/14 from the sale of the
EF gas gathering/gas pipeline assets (~$95M net to PVA, already
announced) and the divestiture of the Selma Chalk and Granite
Wash assets, which we believe could bring in as much as $150M.
Our new $14.00 price target is a ~15% discount from a $16.50 NAV. The
old price target of $12.00 was the same discount from a ~$14 NAV

Synergy Resources Update

Synergy Resources
Ipsit Mohanty 713.331.9460
Target: US$15.00

Synergy Resources Corporation is a domestic oil and natural gas
exploration and production company with over 40,000 net acres
in the Denver-Julesburg Basin, as well as 180,000 net acres in
East CO/West NE. The Wattenberg Field in the DJ Basin ranks as
one of the most productive fields in the U.S. Synergy’s corporate
offices are located in Platteville, Colorado.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Top line and bottom line growth in FY14
SYRG discussed FQ1/14 earnings in its conf call and issued updated
2014 guidance. Negative headline EPS/production miss from flooding
impact was offset by a steep prod growth outlook, and the stock finished
the day up ~7%. The updated capex budget of $189mm reflects the
addition of ~8 net Hz wells to the FY14 drilling plan due to the addition
of a 2nd rig. SYRG has guided well costs down to $3.4-3.8mm from
$4mm, to become one of the lowest-cost drillers in the basin. The 6
Leffler wells were drilled at an avg. cost of ~$3.5mm, and Renfroe well
costs were ~$3.5-$3.7mm/well.
Solid results lead into development plan
SYRG provided longer-dated results for Renfroe, with 90-day average
Niobrara production of 321boepd; we note that these rates do not reflect
the use of gas lift or compression, but both have since been installed,
indicating better rates in the future as evident from neighbors. Renfroe’s
Codell wells had 90-day average rate of 376boepd. Leffler testing has
been interrupted by third-party plant downtime, but management noted
the superior performance of Renfroe wells that had larger frac designs,
and Leffler has been completed with 20 stages/well while Phelps and
Union will see 22-26 stages per well, vs. 16-20 stages at Renfroe. FY14
should see at least ~27 wells turned to sales, with drilling spread across
B, C, and Codell on 6-well pads.
On the path of growth as planned
Post our road trip in Nov, we mentioned FY14 (Sep’13-Aug’14) will see
SYRG moving into the core of Wattenberg with full-scale pad
development. Codell will be a prominent part of development and we
believe SYRG will improve on its existing sub $4mm well cost. Further,
SYRG will accelerate drilling with a second rig and continue to remain
active on bolt-on acquisitions in the Wattenberg core. Today’s guidance
reflected all of that, but we reduce our price target to $15

Trading Alert : Cold weather Profits at Quicksilver ( KWK)

This Thursday – watch the natural gas  storage withdrawal numbers.

The record cold in large urban areas has lifted nat gas prices – but real profits need both January and February cold to drive storage down and the commodity price up.

Gas slipped 0.3 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted above-normal temperatures in the eastern two-thirds of the U.S. from Jan. 12 through Jan. 16 after below-average readings this week. The low in Columbus, Ohio, on Jan. 12 may be 35 degrees Fahrenheit (2 Celsius), 12 more than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“The longer-term forecasts are showing above-normal temperatures from Texas to Pennsylvania,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is treading water.”

Natural gas for January delivery fell 1.3 cents to $4.293 per million British thermal units at 1:29 p.m. on the New York Mercantile Exchange after rising as high as $4.43. Trading volume was 39 percent above the 100-day average. Prices are up 31 percent from a year ago.

Quicksilver Resources is battling a 24 % short interest determined to keep the price from rising but in the short term , at least the weather man is against them.

Jack A. Bass Managed Accounts has a long position.


Below Average
As of 07 Jan 2014 at 1:34 PM EST.
Open 3.19 P/E Ratio (TTM)
Last Bid/Size 3.19 / 57 EPS (TTM) -2.13
Last Ask/Size 3.20 / 27 Next Earnings 24 Feb 2014
Previous Close 3.18 Beta 1.77
Volume 1,930,159 Last Dividend
Average Volume 4,420,196 Dividend Yield 0.00%
Day High 3.28 Ex-Dividend Date
Day Low 3.13 Shares Outstanding 177.1M
52 Week High 3.54 # of Floating Shares 123.962M
52 Week Low 1.44 Short Interest as % of Float 23.98%
” You don’t need a weatherman
   to tell which way the wind blows ”  Bob Dylan
you need Jack A. Bass Managed accounts to maximize your portfolio in 2014
Email or call Jack direct at 604-858-3202 ( same time zone as Los Angeles)

Trading Alert : New Positions

Added December 30, 2013

Imris focuses on providing state of the art image guided therapy systems to hospitals. Their main product is the Visius Surgical Theatre, a 2-3 room operating theatre that houses various equipment which comes in different formats and configurations. The main advantage of the Visius Surgical Theatre is the ability to conduct real time visualizations such as an MRI in the middle of a surgical procedure without moving the patient.

n Q3 of 2013, Imris increased revenues by 54%, and service revenues by 108%, compared to the year prior. The company’s Q3 EPS stood at -$0.07, a 63% improvement over the year prior. The company’s backlog continues to stand above $100 million, gross margins are increasing, and the company’s financial health has been improving quarter after quarter.

Because of the high selling points of Imris’s products, one sale can increase revenues by up to $12 million.


Below Average
As of 02 Jan 2014 at 10:22 AM EST.


Open 1.60 P/E Ratio (TTM)
Last Bid/Size 1.57 / 63 EPS (TTM)
Last Ask/Size 1.59 / 30 Next Earnings
Previous Close 1.59 Beta
Volume 10,296 Last Dividend
Average Volume 211,643 Dividend Yield 0.00%
Day High 1.60 Ex-Dividend Date
Day Low 1.58 Shares Outstanding 52.0M
52 Week High 4.31 # of Floating Shares
52 Week Low 1.16 Short Interest as % of Float


Quarterly Results see


Quicksilver Resources Inc. ( KWK)


Above Average
As of 02 Jan 2014 at 10:17 AM EST.
Open 3.12 P/E Ratio (TTM)
Last Bid/Size 3.28 / 10 EPS (TTM) -2.13
Last Ask/Size 3.29 / 22 Next Earnings 24 Feb 2014
Previous Close 3.07 Beta 1.45
Volume 1,646,774 Last Dividend
Average Volume 3,834,533 Dividend Yield 0.00%
Day High 3.34 Ex-Dividend Date
Day Low 3.09 Shares Outstanding 177.1M
52 Week High 3.34 # of Floating Shares 123.962M
52 Week Low 1.44 Short Interest as % of Float 23.98%

Despite the name this is a natural gas company that has seen a major long trend reversal

New discoveries and a recovering commodity price may herald a significant turn.

Quicksilver is a turnaround company in the process of deleveraging the balance sheet. While painful; it’s the right thing to do for shareholders and long-term growth. Quicksilver was a private company for 30 years before going public in 1999 on the NYSE. They have experienced management and are committed to responsibly growing the company and believe that a lower debt load and strategic partnerships with various joint ventures will bring windfall profits soon.

Natural gas prices rose on the week, finishing at $4.35 per MMBtu (millions of British thermal units) compared to $4.11 per MMBtu the prior week. Note, however, that natural gas prices tend to trade on weather forecasts—ahead of actual weather. Gas prices had rallied strongly in the week prior and beginning of last week, before falling slightly towards the end of the week, as forecasts portended slightly warmer temperatures in the following days.

Theoretically, higher demand translates into higher natural gas prices, which affects the earnings and valuations of natural gas–weighted producers (and vice versa, in that lower demand means lower prices). Review  natural gas prices over time versus the stock prices of CHK and KWK, two producers whose production is currently weighted towards natural gas. Over the past few years, the equity prices of these companies have trended with natural gas prices.

NOTE: short interest is 23 % – a rally will bring on a short squeeze.

Our regular blog resumes after a holiday break  :January 8, 2013

Anadarko Petroleum Update Target $108

APC : NYSE : US$83.67
Target: US$108.00

Anadarko Petroleum is an oil and gas E&P company with global operations in countries including the United States, Algeria, Ghana and Mozambique. The company is headquartered in The Woodlands, TX.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
We would BUY shares of APC on weakness in light of the company being
ruled liable in the Tronox suit. The decision comes as unwelcome news
as the estimated damages range from $5.15B to $14.17B. We had
believed that the case would be resolved for considerably less. While we
are lowering our price target, we believe APC has a first-rate asset base
and therefore we maintain our BUY rating.
Key points
 Critically, APC/Kerr-McGee found guilty of intent: Plaintiffs claimed
that environmental liabilities were intentionally offloaded onto
Tronox at the time of its spin-off causing it to declare bankruptcy.
The judge ruled that was indeed the case.
 Damages exceed what the market had discounted: We had said that
APC’s shares were being discounted ~$5/share to reflect the
possibility of a negative Tronox outcome. The given range of
damages equates to $10-$28/share. While this is not as large as the
$25B (or $50/sh) that the plaintiffs sought, it is materially above
what we believed the Street had been factoring in.
 Final damage amount still TBD; APC can appeal: The defendants
will be allowed the opportunity to argue whether some amount of
the damages can be offset, hence the $9B range of estimates. We
would expect APC to appeal the ruling in any case.
We value APC using a 20% discounted NAV and a multiple of
EV/EBITDA. We are lowering our NAV by $19/share to reflect the
midpoint of the expected damages range. Also, we are now assigning a
4.5x EV/EBITDA multi


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