Tag: the energy report

Where to Drill for Portfolio Outperformance

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The Energy Report: Chad, you recently released an early look at 2014 titled, Drilling Down for Outperformance. You noted that you saw an average 3540% upside on your Buy-rated names. What are your criteria for picking companies?

Chad Mabry: To start, we use a discounted cash flow-based net asset value (NAV) approach to valuing exploration and production (EP) stocks. While cash flow is an important metric, NAV does a better job of comparing companies with different asset profiles, specifically within the small and midcap EP space. NAV does a better job of accounting for a company's upside potential than cash-flow metrics. We use a bottom-up approach to drill down into a company's asset base, its average type curve, estimated ultimate recoveries (EURs), well costs and so on. In this way we find out about the economics of those plays and what the sensitivities are to our commodity price deck. We then try to sort out companies that aren't being valued appropriately and identify strong risk-reward opportunities.

TER: There has been a lot of commodity price volatility this last year. How do you determine what prices to use when you're estimating NAV? Continue reading "Where to Drill for Portfolio Outperformance" →

Colorado Floods Highlight Opportunity in Oil and Gas Services

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The Energy Report: Jason, how did the recent flash flooding in Colorado impact the Wattenberg oil field?

Jason Wangler: It was a very nasty flood and all the companies on the ground are working hard to assess the damage. There have been reports of tank leakages and other problems. But the wells were turned off during the flood, so drilling operations were not affected much. The questions that remain are how much work is necessary to fix the roads? And when can the drillers safely turn the wells back on?

TER: Given the ever-present possibility of natural disaster, what type of emergency preparations do oil and gas drillers typically take? Continue reading "Colorado Floods Highlight Opportunity in Oil and Gas Services" →

Technical Analysis Toolkit for Energy Investors

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The Energy Report: Energy prices are very sensitive to international events, especially conflicts in the Middle East. Do your charts factor in the periodic crises that impact oil and gas prices as buy and sell moments? How do you factor in inflation and interest rate movements into your calculations about which energy juniors look like good buys at any given time?

Clive Maund: The charts do factor in periodic crises that impact oil and gas prices as buy and sell moments, but often in a contrary way. The trick is to gauge when a crisis is at its moment of greatest tension, and while this is not at all easy, the charts can often be a great help in defining such a moment. I will give you an example using a recent call on CliveMaund.com, where the top in oil was pinpointed a day after its occurrence. Some readers may remember an old saying used on the London market many years ago, "Buy on a strike." This refers to a strike by labor, not an oil strike. The underlying psychology of this was that the time of maximum tension and uncertainty, which was when labor unions called the workers out on strike, was the best time to buy stocks, because they would have been falling in anticipation of this, and as tensions later eased as the situation headed to resolution, they would rise again. So it is with conflict and tension situations in the Middle East and their impact on the oil markets. Continue reading "Technical Analysis Toolkit for Energy Investors" →

How to Make Money with Clean Tech Energy

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The Energy Report: A large number of photovoltaic (PV) manufacturing firms went bankrupt during the past year. What is the outlook for solar energy firms?

Pavel Molchanov: Most of the solar bankruptcies that took place in the U.S., Europe and China have occurred among companies that manufacture solar modules. But it's important to note that a bankrupt company does not necessarily shut down production. About 75% of these companies, as measured by production capacity, have continued to operate, either on a stand-alone basis during bankruptcy or following an acquisition by a strategic partner.

Take, for example, China's Suntech Power Holdings (STP:NYSE). It was the largest solar manufacturer in the world as recently as 2011. It declared bankruptcy in March, and continues to operate and generate revenue. Solyndra, of course, has been wiped off the face of the earth. But such liquidation is a very rare outcome for large solar companies that take temporary refuge in bankruptcy.

TER: Are bankrupt, producing solar companies attractive investments? Continue reading "How to Make Money with Clean Tech Energy" →

Optimistic Banker Sees 'Encouraging Time in the Basins'

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The Energy Report: Bruce, the price of natural gas has remained well below $4 per thousand cubic feet ($4/Mcf). How long can junior and midcap explorers and producers (EPs) of natural gas keep on going at this rate?

Bruce Edgelow: They're in a better place than they were a year before. The marketplace isand I'll hesitantly use the word"enjoying" about a 4550% increase in prices year over year. This new price is, for the most part, bringing producers back to a break-even or a modest return on cash flow. However, they clearly need a more robust price to generate the returns that the market expects of them.

TER: The spread between West Texas Intermediate (WTI) and Brent Crude prices has narrowed to just a few dollars per barrel. How is that affecting the crude EPs? Continue reading "Optimistic Banker Sees 'Encouraging Time in the Basins'" →