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Bakken Shale Bursting with Oil, Opportunities (OXY, HES, MRO, EOG, BEXP, CLR, CXO, KOG, FST, SGY, WLL, AXAS, AREX, TPLM, RPC, TLLP)

Administrator — Wed, 24 Aug 2011 14:40:12 +0000

One of the reasons that the Bakken shale deposits in North Dakota and Montana get relatively little attention is that none of the big integrated oil companies have much presence there. There are some big players there, including Occidental Petroleum Corp. (NYSE: OXY), Hess Corp. (NYSE: HES), Marathon Oil Corp. (NYSE: MRO), and EOG Resources, Inc. (NYSE: EOG). But these are not the companies with the largest lease-holdings.

That honor falls to smaller oil producers including Brigham Exploration Co. (NASDAQ: BEXP), Continental Resources, Inc. (NYSE: CLR), Concho Resources, Inc. (NYSE: CXO), Kodiak Oil & Gas Corp. (NYSE: KOG), Forest Oil Corp. (NYSE: FST), Stone Energy Corp. (NYSE: SGY), Whiting Petroleum Corp. (NYSE: WLL), Abraxas Petroleum Corp. (NASDAQ: AXAS), Approach Resources Inc. (NASDAQ: AREX), and Triangle Petroleum Corp. (AMEX: TPLM). Among services companies RPC Inc. (NYSE: RES), which doesn’t currently have any presence in the Bakken, is looking to join the bigger players up in the north country. A midstream company that is expanding its presence in the Bakken is Tesoro Logistics LP (NYSE: TLLP), a recent spin-off from refiner Tesoro Corp. (NYSE: TSO).

And last week, SemGroup Corp. (NYSE: SEMG) announced that it plans to create a new midstream company, Rose Rock Midstream LP, through a $181 million IPO. Rose Rock owns and operates a gathering, storage, transportation, and marketing business in the Bakken.

Current production from the Bakken shale is about 360,000 barrels/day and there are those who believe that figure will reach well over a million barrels/day in another five years. The US Geological Survey estimates about 4.4 billion potential barrels from the Bakken. Continental Resources’ chairman suggests that the real potential is about six times that.

Whatever the production, the problem remains how to get the oil to market. More pipelines are needed to get the oil to somewhere other than the market hub at Cushing, Oklahoma. The Bakken’s crude competes with the heavy crude coming from the Alberta oil sands for pipeline space and markets. Rail and truck transportation currently haul most of the Bakken’s crude.

A substantial portion of the Bakken’s production is transported by rail, which is far more expensive than pipeline transportation. But the high prices for crude are boosting rail transportation from the Bakken to the Gulf Coast to around 100,000 barrels/day this year. Some analysts think that number could triple by the end of 2012.

And there’s no end in sight for the transportation bottleneck. Proposed pipelines, like the Keystone XL, face opposition from environmental groups, and another proposal for a pipeline from Cushing to Houston died for lack of shipper interest.

The pipeline shortage can’t last. Moving crude by truck and rail is more expensive and far more likely to result in a massive spill than is pipeline transportation.

Transportation problems aside, the Bakken is booming now and is likely to continue growing for years.

Paul Ausick

Filed under: Oil & Gas Tagged: AREX, AXAS, BEXP, CLR, CXO, EOG, FST, HES, KOG, MRO, OXY, RPC, SGY, TLLP, TPLM, WLL

Natural Gas Prices Expected to Rise, But Value Is Not in the Commodity (UNG, FCG, SGY, COG, HK, SWN, SD, XOP, WTI, EQT, PXJ, BHI, NBR, HAL, FTI, DO)

Administrator — Fri, 10 Jun 2011 17:38:36 +0000

Late Wednesday night, natural gas prices inexplicably dropped by about 8% on the NYMEX, well after the exchange had closed for the day. It took only a few seconds for the price to bounce back up, but the experience — a “mini-flash crash” perhaps — is so far unexplained.

Natural gas prices at the Henry Hub have been rising, coming within a hair’s breadth of $5.00/million BTUs, a level last seen in August 2010. The low prices have slowed the growth in onshore drilling for natural gas in the US, at the same time that it is encouraging some utilities to look at natural gas as a fuel for baseload power generation.

The abundant supplies of US natural gas available throughout the drilling technique known as hydraulic fracturing, or ‘fracking’ or ‘fracing’, has swept the industry, leading to massive amounts of new gas discoveries and production, as well as to lower prices. The industry needs prices to rise to around $7-$8/million BTUs in order for it to make a decent profit, but with prices stuck below $5, that day appears to be well into the future.

Investing in natural gas purely as a commodity play is best left to experienced traders. There are, of course, other ways. Four funds we’ll look at here are United States Natural Gas Fund (NYSE: UNG), First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG), SPDR S&P Oil & Gas Exploration and Production (NYSE: XOP), and PowerShares Dynamic Oil & Gas Services Fund (NYSE: PXJ).

United States Natural Gas Fund (NYSE: UNG) invests in near-month natural gas NYMEX futures contracts. In the past 52-weeks, the fund has lost more than -25% of its NAV, but with $1.9 billion in assets it is the largest natural gas fund available. Because it invests only in near-month contracts, UNG must roll-over its contracts every month, in effect selling its about-to-expire position and purchasing new contracts for the following month. In a contango market, where future-month contract prices exceed near-month contract prices, such a strategy loses money every month. Thus, even when natural gas prices rise, UNG can lose money because the future contract price will rise at least as quickly as the current price.

Why own such a thing? Primarily as a hedge against inflation and almost no correlation with equity prices. Pretty small beer, all things considered. UNG is trading at $11.93 at about mid-day, within a 52-week range of $10.02-$17.68.

The First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) tries to replicate the ISE-Revere Natural Gas Index by investing at least 90% of its funds in the common stock of that index’s companies. The fund’s top five holdings are Stone Energy Corp. (NYSE: SGY), Petrohawk Energy Corp. (NYSE: HK), Cabot Oil & Gas Corp. (NYSE: COG), Southwestern Energy Co. (NYSE: SWN), and SandRidge Energy, Inc. (NYSE: SD). These five comprise 18.95% of the fund’s holdings. The fund’s assets total $586 million and it is trading today at $21.19, within a 52-week range of $14.39-$23.75. In the past year, the fund has gained more than 30%.

The SPDR S&P Oil & Gas Exploration and Production (NYSE: XOP) invests in equities of companies that explore for and produce oil and natural gas. The fund’s top five holdings are Cabot, W&T Offshore, Inc. (NYSE: WTI), Petrohawk, EQT Corp. (NYSE: EQT), and Southwestern Energy. The fund’s assets total $908 million. The fund is trading at $56.55 today, within a 52-week range of $37.44-$65.76. Over the past year, the fund has gained about 42%.

The PowerShares Dynamic Oil & Gas Services Fund (NYSE: PXJ) tracks an equity index called the Dynamic Oil Services Intellidex. It invests at least 80% in common stock of oil and gas services companies, and may invest up to 90% of its assets in the Intellidex index companies. Its five largest holdings are Baker Hughes Inc. (NYSE: BHI), Nabors Industries, Ltd. (NYSE: NBR), Halliburton Co. (NYSE: HAL), FMC Technologies, Inc. (NYSE: FTI), and Diamond Offshore Drilling, Inc. (NYSE: DO). The fund’s assets total about $247 million and it is trading today at $23.35, in a 52-week range of $13.98-$26.84. The fund has gained about 66% in the past year.

A reasonable conclusion from this quick survey is that investing in natural gas producers pays off nicely, but the real gains have come in the services sector. Holding natural gas futures has very limited appeal, but plenty of investors do it.

Growth in the services sector is likely to continue as drilling picks up both onshore in the US and offshore in the US Gulf of Mexico. As for the producers, Cabot, Stone, and Petrohawk are all involved in natural gas plays that produce significant amounts of liquids. And that’s where the money is, not in gas. Gas may become worth more over the next year or so, but the price differential between liquids and gas is never likely to close again.

Paul Ausick

Filed under: Commodities, Oil & Gas Tagged: BHI, COG, DO, EQT, FCG, FTI, HAL, HK, NBR, PXJ, SD, SGY, SWN, UNG, WTI, XOP

Oil & Energy Players Raising Cash (DPTR, HEP, RRC, SGY)

247wallst — Wed, 06 May 2009 13:11:23 +0000

We are starting to see more and more of the second-tier and third-tier energy players and oil and gas players either file for secondary offerings or actually sell shares in public offerings. Delta Petroleum Corporation (Nasdaq: DPTR), Holly Energy Partners (NYSE: HEP), Range Resources Inc. (NYSE: RRC), and Stone Energy Corporation (NYSE: SGY) are among these, and this is just the ones with news since May 1, 2009.

Delta Petroleum Corporation (Nasdaq: DPTR) has commenced an underwriting for 70,000,000 shares of common stock via JPM, BMO, DB. Tracinda Corporation and another large holder have agreed to purchase $90 million worth of the offering; and Delta Petroleum will make net payments of at least $70 million to retire debt obligations under its credit agreement and the rest is for working capital. This offering is intended to replace the previously announced convertible preferred stock rights offering.

Holly Energy Partners (NYSE: HEP) priced a public offering of 2,000,000 common units of limited partner interests at a price of $27.80 per common unit via Goldman Sachs and UBS.

Range Resources Inc. (NYSE: RRC) filed a very small offering on behalf of a selling shareholder, so none of the proceeds will go to the company. The filing was for 373,623, which at the time was listed as being worth just under $15 million at the time of the filing.

Stone Energy Corporation (NYSE: SGY) has filed a mixed shelf securities offering for up to $500,000,000 of any combination of Debt Securities, Common Stock, Preferred Stock, Warrants, Guarantees of Debt Securities, Rights, Units, and Depositary Shares. The offering notes that Stone Energy Offshore, L.L.C acts as guantor.

JON C. OGG

Posted in Oil & Gas, Secondary Offering Tagged: DPTR, HEP, RRC, SGY

The 52-Week Low Club (CSE)(SGY)(CRA)(HERO)

247wallst — Wed, 18 Feb 2009 20:52:48 +0000

CapitalSource (CSE) Ratings cut from Fitch. Drops to $2.02 from 52-week high of $17.04.

Stone Energy (SGY) Posts a loss for the last quarter. Sells down to $5.30 from 52-week high of $73.96.

Celera Corp (CRA) Outlook is below estimates. Plunges to $6.76 from 52-week high of $17.56.

Hercules Offshore (HERO) Still dropping after booking large impairment. Down to $1.95 from 52-week high of $39.47.

Douglas A. McIntyre

Posted in HI/LOW Tagged: CRA, CSE, HERO, SGY

The 52-Week Low Club: (MNI)(SGY)(NT)(TTWO)

247wallst — Thu, 18 Dec 2008 15:58:29 +0000

McClatchy Newspapers (MNI) Drops to $.98 as shareholder panic. The 52-week high is $13.31.

Stone Energy (SGY) Cuts production view for quarter. Drops to $8.47 from 52-week high of $73.96.

Nortel Networks (NT) falls to $.24 on concerns about bankruptcy against 52-week high of $16.07.

Take-Two Interactive (TTWO) Remarkably poor earnings and awful forecast. Sells down to $8.65 from 52-week high of $27.95.

Douglas A. McIntyre

Posted in HI/LOW Tagged: MNI, NT, SGY, TTWO