Energy & Commodities

Top 5 Catalysts for Small-Cap Energy Equities

Posted by Jocelyn August via Brian Sylvester of The Energy Report

on Friday, 2 August 2013 13:52

Catalysts are a little like earthquakes: They shake things up. These announcements of drill results, production starts and resource estimates can influence stock prices, sometimes for the better, sometimes for the worse. In this interview with The Energy Report, Jocelyn August, senior analyst and product manager for Sagient Research’s CatalystTracker, explains which catalysts have the biggest effect on small- and large-cap companies and identifies upcoming events that could move the needle in the oil and gas and uranium spaces.

Screen Shot 2013-08-02 at 6.48.21 AMThe Energy Report: Compared to oil and gas, do you think uranium is the best place to be among the small-cap energy commodities?

Jocelyn August: Not necessarily. Oil and gas is also an interesting space, particularly the small caps. Just in the last six months, there have been a lot of catalysts in that area. The large institutional investors are investing a lot in oil and gas and not in uranium.

TER: What are the most important catalysts for larger companies?

JA: Generally, earnings announcements, drill results, production decisions and go/no-go decisions. Anadarko Petroleum Corp. (APC:NYSE) and the Tweneboa-Enyenra-Ntomme (TEN) cluster is a good example. A production decision there will help it a lot. Another good example is Noble Energy Inc. (NBL:NYSE) and its Leviathan project in Israel. Announcements about that are big movers simply because of the project’s size.

TER: What are some patterns among large, private institutions investing in energy equities?

JA: During H1/13, private institutions invested in oil and gas and in alternative energy. There’s not much investment in the uranium space.

TER: What are the top catalysts for small-cap energy equities?

JA: Drill results, with about a 9.6% average stock movement, are number one. The second is the announcement of further drilling on a currently producing site; those announcements move companies about 8.8% on average. For smaller companies, the announcement that drilling is beginning brings 8% on average. Production starts are number four. They’re 7.5% for the small companies, but they generally don’t move the stock much for the larger energy stocks because they’re already baked into the stock price. Third, we notice that large movements occur around announcements of investments by a strategic partner or investment bank. That creates an average stock price change of about 8.5%. The last one is an earnings announcement, which moves prices almost 6% on average.

TER: Is the percentage of movement similar for small- and large-cap energy equities?

JA: Generally, the larger a company is, the less it will move. Percentagewise, stock prices move a lot more for those under $500 million ($500M) than for those over $500M. And the ones over $5 billion ($5B) won’t move very much.

TER: It will cost almost $60B to clean up the site of the Fukushima Daiichi nuclear disaster. Do you think news of that will push uranium equities prices even lower?

JA: Japan’s election of a new prime minister, who is a known proponent of nuclear energy and has plans to accelerate the startup of currently offline nuclear reactors, is positive news for the uranium industry. The amount of money it will take to clean up the Fukushima site is a negative, but we’ve had a shortage in the uranium supply, and there’s a rising demand for it. Weighing those factors, I think uranium is poised for an upswing. But companies that can keep their costs lower will be able to operate in all types of market environments.

TER: Do you see any catalysts in the uranium space beyond the election of the Japanese prime minister?

JA: In terms of specific companies, Uranium Energy Corp. (UEC:NYSE.MKT) has the Goliad project in Texas, which it expects to bring on-line soon, probably in August.

TER: That will add roughly 30 thousand pounds to its annual production?

JA: Yes, and its cash costs are estimated to be at $18/pound, which is good.

Lost Creek in Wyoming, which is Ur-Energy Inc.’s (URE:TSX; URG:NYSE.MKT) project, is expected to come on-line soon and to add 1 million pounds per year at its peak. The operation underwent its pre-operation inspection in June as required by the Nuclear Regulatory Commission.

TER: What small-cap oil companies have near-term catalysts?

JA: Ivanhoe Energy Inc. (IE:TSX; IVAN:NASDAQ) and its Tamarack oil sands project. A permit approval decision and field-testing results should happen within the current quarter.

TER: Ivanhoe recently put out a release saying that one of the First Nations in that area, the Mikisew Cree First Nation, wouldn’t object to the project’s development. Is an announcement like that a significant catalyst or just a nonfactor?

JA: It’s definitely a factor. We generally add that information to our coverage of the specific permitting catalyst. This project has been delayed significantly; the original date range was H2/12. Now it has successfully negotiated letters of nonobjection from four of the seven stakeholders who previously filed statements of concern, and it’s trying to resolve the final three statements of concern.

TER: Ivanhoe’s Tamarack is a heavy oil play north of Fort McMurray in Alberta, Canada, but a lot of investors have gotten out of the heavy oil sands plays. Would a catalyst for Ivanhoe have had more impact a few years ago than now?

JA: A couple of years ago, when the price of oil was higher, it would have had a larger impact. Investors have gotten out of the heavy oil plays because it costs more to get that heavy oil out of the ground than to get some of the lighter oil out.

TER: Would the approval of the Keystone XL pipeline be a big catalyst for Canadian energy plays?

JA: Obviously, you need some way to distribute the oil. Having more distribution options and another way to get the oil from Canada to the United States will help companies lower their costs.

TER: What small-cap gas names have some near-term catalysts?

JA: FX Energy Inc. (FXEN:NASDAQ) can have large-moving catalysts, whether positive or negative. FX had a positive catalyst in May. Good news on production tests at the Tuchola-3K well put it up almost 19%. A negative catalyst in July, some test results for Plawce, sent the stock down 15.5%. There were basically noncommercial levels of gas.

We’re looking for more drill-test results in the Fences area, where these are located, including those for the Lisewo-2 and Szymanowice-1 wells. We’re also looking for results this quarter from a couple of its wells in Poland.

TER: What other companies in the energy space with either near- or medium-term catalysts would you like to share with us?

JA: We have a couple of catalysts for projects in the North Sea. We have one for Endeavour International Corp. (END:NYSE.MKT) for the West Rochelle project. Its partners are Nexen Inc. (NXY:TSX; NXY:NYSE) and Premier Oil Plc (PMO:LSE). It had some problems with the Rochelle project; a big storm in February did some major damage to the first well, which was the East Rochelle well. Now, it’s working on West Rochelle. We expect a production-start catalyst this quarter for West Rochelle.

We expect Sterling Resources Ltd. (SLG:TSX.V) to have a production start for phase two of its Breagh gas project, also in the North Sea, in August.

TER: What other tips regarding catalysts for energy companies do you have for investors?

JA: You should continue to watch uranium and keep an eye on what’s going on with it in Japan and the United States. Keep an eye on the reactors in Japan and the projects coming on-line in the United States.

TER: You mentioned Anadarko and Noble Energy as being big companies with near-term catalysts. Any others?

JA: We’re obviously still looking for information on Davy Jones, which is a project of McMoRan Exploration Co. (MMR:NYSE) andEnergy XXI (EXXI:NASDAQ). It’s in ultradeep water in the Gulf of Mexico. We’re waiting for some flow-test results, which could happen as close as August, definitely by the end of the year.

TER: Would that be a production decision?

JA: It’s more a testing-result decision. It was so close to production and then had that blowout last year. At this point, we’re looking for information as to whether it can proceed. The flow-test results will be a deciding factor. It’s an interesting project because no other companies have tried to go that deep in the Gulf of Mexico; it has pretty big implications for that type of drilling.

TER: Leave us with one great piece of insight into this space.

JA: If you’re interested in long-term investment opportunities and long-term growth, look at some of the larger-cap companies because their share prices aren’t as volatile. But if you want to make more money in the short term or pursue short-term opportunities, some of the smaller-cap companies are doing good things and have upcoming opportunities for making money on short-term catalysts.

Jocelyn August is currently the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the “Catalyst Impact Study: Natural Resources Sector.” Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a master of business administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a bachelor of arts degree in sociology.

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DISCLOSURE: 
1) Brian Sylvester conducted this interview for The Energy Reportand provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: FX Energy Inc. and Energy XXI. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Jocelyn August: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
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6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Gold futures quickly recovered from their overnight weakness Friday after the government issued a weaker-than-forecast U.S. jobs report.

The metal initially slid overnight largely when sell stops were triggered on a break below $1,300 an ounce, with the initial impetus being the idea that stronger U.S. economic data in recent days pointed to a probability of the U.S. Federal Open Market Committee scaling back on its bond-buying program this fall, observers said.

However, at the start of the New York trading day, a Labor Department report said non-farm payrolls climbed by 162,000 in July. This was below consensus forecasts of 175,000 to 185,000, enabling gold to pop higher.

As of 8:50 a.m. EDT, gold for December delivery was up $4.60 to $1,315.80 per ounce on the Comex division of the New York Mercantile Exchange. It was at $1,285.30 five minutes prior to the jobs report.

September silver was up 50.1 cents to $20.125 an ounce. The contract was at $19.385 just ahead of time.

“We got a bounce on the jobs data because it’s all about the dollar and whether stimulus will be less or not,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.

Presumably, less-robust jobs growth means less chance of some stimulus being withdrawn in the foreseeable future. The euro was up to $1.3269 from $1.3209 late Thursday.

Sterling Smith, futures specialist with Citi Institutional Client Group, said the jobs data was soft enough to help gold avoid any further weakness for now. There were some so-called “whisper” numbers that the payroll number could have been as much as 220,000, he said.

“That might be sparking a little buying interest,” he said of the softer data.

However, he attributed much of the bounce to short covering ahead of a weekend.

Gero said, however, that he looks for gold to remain range-bound for now due to not enough worries in the market about inflation, especially with other commodities such as copper and grains down for the year so far.

Overseas traders said gold’s decline accelerated overnight in Asian trading on the break of $1,300 an ounce, triggering sell stops. These are pre-placed orders triggered when certain chart points are hit. The $1,300 area had offered nearby chart support for gold over the last two weeks, as the December futures climbed through this level on July 22 and held above it until overnight trading.

Whereas gold poked its head back above $1,300 after the data, Smith said a failure to close above here could portend further technical weakness.

The overnight move was encouraged by stronger-than-forecast U.S. data in recent days that included second-quarter gross domestic product and the Institute for Supply Management’s manufacturing survey, analysts said.

Gold & Silver – Seasonal Low Imminent

Posted by Equity Clock

on Friday, 2 August 2013 13:25

On its wednesday report, the Fed remained committed to its present bond buying program.   The FOMC cited two risks to its “modest” growth outlook: rising mortgage rates and stubbornly low inflation.   The Fed’s statement noted that “the Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”   The Treasury Inflation Protected ETF (TIP) jumped on the statement, firming up recent gains since the low charted in June.   Inflation expectations, as gauged by the ratio between the Treasury Inflation Protected ETF (TIP) and iShares Barclays 7-10 year Treasury Bond Fund (IEF), have been trending lower all year, resulting in a rare divergence with equity markets.  

The recent rebound in inflation expectations is conducive to strength in the price of Gold, which benefits from a period of seasonal strength between the end of July through to October.   Gold finished the session with minor losses, reluctant to trade away from its 50-day moving average line.

 

image thumb-1

The above chart represents the seasonality for Gold Futures (GC) Continuous Contract for the past 20 years.

 

  • Date range: January 1, 1990 to December 31, 2009
  • Type: Commodity Futures – US
  • Symbol: GC

 

Gold Futures Continuous Contract Seasonality

Analysis has revealed that with a buy date of September 13 and a sell date of May 23, investors have benefited from a total return of 183.61% over the last 10 years. This scenario has shown positive results in 9 of those periods.

Conversely, the best return over the maximum number of positive periods reveals a buy date of September 16 and a sell date of May 20, producing a total return over the same 10-year range of 159.82% with positive results in 10 of those periods.

The buy and hold return for the past 10 years was 125.11%.

**Results shown are compounded

How to Invest

UBS E-TRACS CMCI Gold Total Return ETN (Public, NYSE:UBG) – Info – UBS E-TRACS CMCI Gold Total Return is designed to track the performance of the UBS Bloomberg CMCI Gold Total Return, less investor fees. The CMCI Gold TR measures the collateralized returns from a basket of gold futures contracts. The commodity futures contracts are diversified across five constant maturities from three months up to three years.  Expense Ratio: 0.30%

 

silver

The above chart represents the seasonality for Silver Futures (SI) Continuous Contract for the past 20 years.

  • Date range: January 1, 1990 to December 31, 2009
  • Type: Commodity Futures – US
  • Symbol: SI

 

Silver Futures Continuous Contract Seasonality

Analysis has revealed that with a buy date of September 16 and a sell date of April 11, investors have benefited from a total return of 314.85% over the last 10 years. This scenario has shown positive results in 7 of those periods.

Conversely, the best return over the maximum number of positive periods reveals a buy date of September 14 and a sell date of September 23, producing a total return over the same 10-year range of 55.36% with positive results in 10 of those periods.

The buy and hold return for the past 10 years was 105.43%.

**Results shown are compounded

How to Invest

UBS E-TRACS CMCI Silver Total Return ETN (Public, NYSE:USV) – Info – UBS E-TRACS CMCI Silver Total Return is designed to track the performance of the UBS Bloomberg CMCI Silver Total Return, less investor fees. The CMCI Silver TR measures the collateralized returns from a basket of silver futures contracts. The commodity futures contracts are diversified across five constant maturities from three months up to three years.  Expense Ratio: 0.40%

 

About Equity Clock

Equity Clock is a division of the Tech Talk Financial Network, a market analysis company that provides technical, fundamental and seasonality analysis on a daily basis via TimingTheMarkets.com andEquityClock.com.   Equity Clock’s mission is to identify periods of reoccurring strength among individual equities in the market using methodologies presented by some of the top analysts in the industry, including that of Don Vialoux, author of TimingTheMarkets.com.

Feel free to use any of the content or seasonality studies (charts, timelines, or otherwise) presented as long as a link-back to this site at EquityClock.com is provided.

For further information on indicators used in reports presented on this site, please visit our reference page.

 

 

 

Employers added fewer workers than anticipated in July and the U.S. jobless rate dropped to 7.4 percent, indicating uneven progress in the labor market.

 
The 162,000 increase in payrolls last month was the smallest in four months and followed a revised 188,000 rise in June that was less than initially estimated, Labor Department figures showed today in Washington. The median forecast of 93 economists surveyed by Bloomberg called for a 185,000 gain. Workers spent fewer hours on the job and hourly earnings fell for the first time since October.

“This isn’t a disaster of a report but it shows the U.S. remains vulnerable to a slower economic growth performance,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who had projected payrolls would rise by 165,000. “This isn’t the kind of progress the Fed would like to see. At the margin, it keeps them cautious.” 

 

 

Gartman: Gold is going ‘several hundred dollars higher’

Posted by Dennis Gartman with Mark Leibovit Comment

on Friday, 2 August 2013 12:47

Screen Shot 2013-08-02 at 6.06.42 AM

Gold Chart Screenshot Above taken at 6:05 am PST

 

The sell off in gold has run its course, and the precious metal is set on an upward trajectory thinks Dennis Gartman. Gartman is a closely followed commodities trader and founder of The Gartman Letter.

The low that gold prices hit a month ago will stand as the bottom for “a fairly long period of time,” Gartman told CNBC on Friday (July 26th).

“I had been agnostic and modestly bearish of gold until about three and a half weeks ago,”  “Then I wrote what I call ‘a watershed commentary’ that gold was going to go several hundred dollars higher.”

Ed Note: Here is a quotation from Mark Leibovit’s August 1st VR Gold Letter concerning Dennis Gartman:

“Dennis Gartman insists that there are no conspiracies in gold

Wednesday’s “Talking Numbers” program by CNBC and Yahoo Finance concocted a silly pillow fight between two talking heads, commodity letter writer Dennis Gartman and UBS and CNBC analyst Art Cashin, over “gold conspiracy theories,” Cashin having remarked this week, if a bit incoherently, that something seems to be wrong in the gold market.

Gartman disagreed today, insisting that there are no conspiracies in gold. So apparently Gartman would have investors believe, just for starters:

1) The Federal Reserve has no secret gold swap arrangements with foreign banks, since such undertakings among two or more entities would define conspiracy, and Fed Governor Kevin M. Warsh was lying when he admitted such secret arrangements.

2) The Bank for International Settlements is not constantly and secretly trading gold, gold futures, gold options, and other gold-related derivatives on behalf of its members, which are exclusively central banks — again, action undertaken secretly in concert by two or more entities, or conspiracy — and that admissions of such trading, including the BIS’ own annual reports and Power Point presentations, are lies or forgeries.”

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