Sunday, February 22, 2015

Madalena Energy increases 2P oil reserves 155%


Year End 2014 Reserves Highlights:

 • Proved (“1P”) reserves have increased 149% from 2,603 MBoe to 6,490 MBoe;

 • Proved plus Probable (“2P”) reserves have increased 155% from 4,505 MBoe to11,494 MBoe;

 • 1P and 2P reserves per common share have increased 68% and 72% respectively;

 • 2P reserve replacement was 763%;

 This is good news for Madalena Energy and does not even include any reserves from the Vaca Muerta shale areas. As oil recovers I am expecting big things from Madalena.

Saturday, February 14, 2015

Rig count continues to plunge and new speculative position


The number of active U.S. land rigs plunged by 98 this week in one of the biggest declines in the past three decades as fallen oil prices continued to pummel the industry’s drilling ambitions.

Eighty-four U.S. oil rigs were idled this week and 14 gas rigs stopped running, according to oil field services firm Baker Hughes. Two U.S. offshore rigs became active this week.

Baker Hughes’ 71-year-old U.S. rig count, one of the industry’s go-to indicators of future oil production and demand for rigs, was down by 406 drilling units compared to Feb. 13, 2014. The last time the rig count fell by 98 was in January, 2009 – the two declines are tied for the biggest drops since 1987.

I added Madalena Energy to the speculative portfolio last week. I am going to go ahead and add Petroamerica (PTA.V) to the speculative portfolio this week. I have owned Petroamerica in the past, and this recent big drop has re attracted me to the name. Petroamerica operates in Columbia.

Tommy Humphrey's has a good update on the company over at CEO.CA.
The company has approx US $60 million in cash and CAD $35 million (approx $28 million US) in debt due in April. The company had previously announced it looks to refinance the facility.
The company is guiding 5400 barrels per day production for the first half of 2015 and is deferring its growth plans until oil prices recover.

#PTA is substantially carried for two high impact wells in the Llanos Basin that Parex will drill in the first half of the year. Both are 50% working interest to PTA.

Year end reserves and end of year financials will be released by mid April.

It’s all about cost saving measures now, Ralph says. The G&A has been reduced by a third already and they intend to decrease it further. They are working to renegotiate service contracts. 

Transportation and diesel costs are coming down.

The company’s Llanos Basin production should have sufficient margin down to the mid $30’s, with Putomayo production likely costing $40-$45 per barrel (my estimates). This is inclusive of royalties.

If oil goes back up to $85-100 this stock will easily be a multi bagger. The question is how long do oil prices stay down.This is another high risk high possible return situation which looks like it has suffered capitulation as a large holder of stock dumped their shares.

Saturday, February 7, 2015

Uranium making recent 52 week highs and the uranium stocks are making lows

This is simply a divergence that cannot and will not last. The spot price of uranium is up 30% yet the stocks are making lows. This is an excellent opportunity to buy while prices remain cheap. Raymond James seems to think so also:


TER: In the Raymond James uranium industry analysis issued in October, it was observed that "equities and fundamentals have diverged." What opportunities are in this for investors? 

DS: We were describing the different paths in the space. The spot price was rising and supply/demand fundamentals were improving, whereas equities got pummeled after highs touched earlier in the year. This is still the case. Spot is 30% above its bottom, and yet indicator stocks like Cameco recently reset 52-week lows, and the share price of the UPC fund (Uranium Participation) is implying a discount to its NAV. 

The downdraft in oil prices has also had a dampening effect on uranium stocks, widening the divergence, despite the fact there's no relationship and very little global competition between the two commodities. Nuclear, after all, is a stable generator of emissions-free baseload power, the plants can operate reliably and inexpensively for more than 60 years, and investment decisions on new reactors are made on these criteria. 

We expect this year to benefit uranium equities, as a series of developments should support a positive story for prices in the medium term, derisking a trajectory toward the $70/lb equilibrium price level, which is the level where enough development is incentivized on new mine supply to meet long-term demand. These 2015 developments include the long-awaited restarts of Japanese reactors, a surge of new grid connections in Asia, further rationalization on the supply side and, most critically, a wave of nuclear utility buying after a long hiatus. 

Accordingly, we are quite confident in a reversal in the divergent trend. The stocks are washed out and have a limited downside risk, but the upside potential, with several tailwinds brewing on the macroeconomic level, appears very compelling. We think investors should be buying these stocks right now. 

I know I sound like a broken record on uranium but the bottom appears to be in and the price of uranium can move higher quickly. This is an excellent time to take an initial position or add to existing positions. I think the rally in uranium stocks that will take place over the next several years, if played correctly, will have the potential to add a zero or two to the back end of your net worth.

Friday, February 6, 2015

US rig count down 87


The US drilling rig count plunged 87 units, a decline that was again spurred mostly by oil rigs, to settle at 1,456 rigs working during the week ended Feb. 6, Baker Hughes Inc. reported.

That total is the lowest since Mar. 26, 2010, and 315 units fewer compared with this week a year ago. The count has now fallen 10 consecutive weeks, losing 464 units during that time, of which 435 were targeting oil.

The average US rig count for January was 1,683, down 199 from December 2014 and 86 from January 2014.

As I have already written in previous articles I have been moving into select oil companies that should prosper when the tide turns and prices move higher as they must when drilling slows like it has recently.

I'm getting back into Madalena Ventures

This is the Canadian junior oil and gas exploration and production company that has a very large land package in Argentina's Vaca Muerta shale play. I owned it a while back but got stopped out when oil collapsed. However, I think we are near the bottom for oil prices. it will probably take a while for oil prices to recover but they will recover. The rig count in the US continues to fall and that will lead to lower oil production. That will bring supply and demand back into balance. One thing Madalena has going for it is that Argentina has a regulated price on oil produced so they are getting around $75 per barrel. The company has stopped all activity in Canada and is focusing totally on Argentina. What I really like is that their property is surrounded by super majors who continue to drill and raise, by proxy, the value of Madalena's land package. This is definitely speculative but if the oil price recovers over the the next 12-18 months this stock will be a beneficiary. It definitely has blue sky potential as the Argentina shale play is proved up over time.

link to most recent corporate presentation

Sunday, February 1, 2015

Adding Miller Energy Series C and D Perferred to the specualtive portfolio

Miller Energy is a small oil and gas exploration and production company that has its operations in Alaska. Like many oil and gas producers it has been a victim of the recent collapse in oil prices. It has also been the victim of recent some poor management. It is my view that oil prices will be heading higher later this year as the low oil price exacts its pound of flesh out of the US shale oil producers. The rig count continues to collapse and producers continue to report reductions in capital budgets for new drilling.I will be selectively adding positions in select oil producers to take advantage of this potential increase in oil prices. The market will start pricing in a higher oil price well before everyone realizes what is happening.

I think Miller is in a unique situation and it is severely miss priced at these levels. The company has new management that is focusing more on natural gas production from known reserves (natural gas fetches $6.00 plus per mcf in Alaska) rather than oil reserve growth. The company has some other traits that make the preferred dividend look safer than I think the market originally perceived. That is why the stock is moving higher recently. There is a great article at Seeking Alpha that does an in depth analysis of the Miller preferred. I agree with the thesis and will be buying tomorrow morning. The article is available here.

 Why is this important you ask? Well natural gas prices in Alaska, where all of their production is concentrated, are running at between $6 and $7 Mcf vs $3 to $4 Mcf elsewhere. Most of their production for the current year is hedged at around $6.75 for gas and between $93.97 and $98.71 per barrel for oil. Moreover, the State of Alaska finances 35% to 65% of well costs with tax credits. This will help them as they ramp up production from their proven fields as well as new properties they recently purchased from Savant Alaska, LLC including 25 miles of pipeline to add to their current 75 miles and a new production facility built by BP 20 years ago for $300 million.

Again this is a risky stock and is not suitable for those seeking stability. However it does have over 100% possible upside if things work out. Please do your own due diligence.

Saturday, January 31, 2015

Biggest drop in oil rig count since 1987


Petroleum producers took 94 oil-drilling rigs off the market in the United States this week as sub-$50 oil continued to wreak havoc on the oil industry, Baker Hughes reported Friday.

It was the biggest one-week decline for oil rigs since 1987, the earliest year of Baker Hughes data available. That year, the oil industry had faced another oil bust that left hundreds of rigs idle or repossessed by banks, which sold them for scrap.

This week’s drop left 1,223 oil units up, the lowest number in three years.

Yes markets work. Keep your powder dry as this will eventually lead to the mother of all buying opportunities in oil stocks.

Sunday, January 25, 2015

Oil prices going to $200 barrel?


The head of Italian energy company Eni Spa urged OPEC on Wednesday to act to restore stability in oil prices, which he warned could overshoot to $200 per barrel several years down the road because of low investment now.

Claudio Descalzi told Reuters Television he expected prices to stay low for 12-18 months but then start a gradual recovery as U.S. shale oil production began falling.


 "A lot of our projects are long term to have production in five or six years. And that is a problem. If you are cutting capex (capital expenditure) drastically now - we can have a lack of production in four or five years creating a new increased oil price at $200 maybe," Descalzi said.

I do not know if oil prices will go to $200 per barrel but I do know that all the recent production from US shale will dry up in 12-18 months and prices will head higher. The whole "shale revolution" was nothing but a red queens race where more and more wells had to be drilled just to maintain production not to mention grow production. I do know that with low prices there will develop a big dip in spending on development drilling and replacement of reserves. Once the shale players are driven out of business there goes the marginal supply and oil prices will increase. This will be a great opportunity for speculators like myself.

Saturday, January 24, 2015

Rig count continues to crash


The number of oil and gas rigs in use in the US fell by 43 last week to 1,633, according to data from Baker Hughes.

This is the lowest level since the week of August 6, 2010. 

The drop in rig count last week was comprised of 49 oil rigs falling out of use and 6 natural gas rigs coming on-line. The number of oil and gas rigs in use is now down by 144 from a year ago. Oil rigs in use are down 99 from last year to 1,317 and are down 209 from their peak of 1,609 hit in October. 
This week's drop in rig use saw the biggest decline from the Williston shale basin after the Permian and Eagle Ford basins had paced losses over the last few weeks.

The associated chart in the article of rig count looks like a rock falling to the ground.

2015 uranium forecast

Events are coming together for the long anticipated revival of the uranium market. Lower uranium mine production, more reactors coming online equals a higher uranium price. I have been adding to my Uranium Participation Corp. shares at these low prices.