junior oilers 14/15 june

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    Junior oilers 14/15 June

    Oil and gas prices rose fell this week after several weeks of steady rises. Closing prices with previous week¡¯s price in brackets were as follows. Nymex crude $30.65 ($31.28), Dated Brent $27.26 ($28.36) and Nymex Henry Hub natural gas fell to $5.68 ($6.51).

    In its most recent meeting OPEC pledged to keep output at current levels but will review the situation again at an extraordinary meeting scheduled for July. Iraq is yet to begin pumping pre war quantities of oil (2.7 mmbls per day). Oil could stay strong until that happens.

    Re gas, despite what would appear on the surface to be a significant retrace in the Henry Hub spot price this week, gas prices in the United States are strong for this time of the year and seem likely to remain so. Alan Greenspan speaking before the House of Representatives Energy and Commerce Committee of Congress said this week:

    "Today's tight natural gas markets have been a long time in coming, and futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon,

    Prices were rising as the United States faced a shortage of domestic natural gas and a lack of infrastructure -- liquefied natural gas (LNG) terminals --to allow the country to import more,

    Demand for the gas, especially as a clean-burning source of electric power, was on the rise.

    "In recent months, in response to very tight supplies, prices of natural gas have increased sharply,"

    Of the 44 oil and gas stocks on my expanded watch list 20 rose this week, compared to 14 gains the week before. Twelve stocks fell compared to 16 losers a week ago and 12 stayed the same. The bias has moved back towards the positive after a couple of insipid weeks. Even volumes seemed to be improving .

    I don¡¯t think we will really be able to say the junior oilers have turned the corner until there is some institutional interest in all the mid cap juniors including TAP, NVS, ROC, AWE and ARQ. For the time being OSH, AYO, PSA and HDR all dominate the midcaps in terms of volume, price volatility and bulletin board interest although Friday saw some volume buying of TAP and NVS. That interest has to be deeper more wide spread if we are to talk about a sector revival but there is reason to hope that that might not be too far away.

    Unfortunately the junior juniors, or penny dreadfuls, are pretty much out of favour reflecting two things, the tax loss selling season and a lack of drilling activity. That said there has been a bit of interest in CUE, Nwe, DLS and CVN suggesting some punters think there are some bargains out there in the remainders barrel.

    AWE

    Among the gainers this week were AWE up 4 cents despite a major holder Premier Oil selling its interest in AWE to a range of mainly institutional investors. Premier oil recently bought Fusions interest in Chinguetti and Banda and is looking for a more active oil investment. AWE got its BassGas and CliffHead interests from Premier a couple of year ago.

    The fact that institutions were able to place 52 million shares without depressing the share price speaks volumes for the fundamentals of AWE. In fact the stock¡¯s gains for the week came after the Tuesday placement when almost 1.5 million shares changed hands on Friday. The fact that AWE joins the S&P 200 list from 1 July has also not hurt the stock. AWE looks primed to strengthen from here as we head into the second half of the year when AWE's quite interesting drilling program resumes.

    PSA

    It was another good week for Petsec Energy, up 6 cents from 59 cents to 65 cents. That makes it two weeks in a row that the price has risen some 10%. Greenspans prediction of continuing higher natural gas prices in the United States may have contributed to the rise because there was no news from the company itself.

    Petsec is due to begin its 2003 exploration program with two wells on the West Cameron East prospects in July so the renewed interest in the stock may also be in anticipation of the soon to start drilling.

    Petsec is now testing highs last seen in early May and seems to have the momentum this time to break through resistance at this level. According to Jim, buying this week came from SSB, Camerons and Baillieu with selling from Westpac. That suggests to me that short term holders are selling to those seeking a medium to long term position.

    I know one shouldn¡¯t put too much store on market depth as it can change really quickly but at the end of the week only two junior oilers had more bids than offers, they were Petsec 41 bids against 21 offers and Oil Search 251 bids against 157 offers. With the price of both stocks up for the week these bid/offer ratios suggest continuing strength for PSA and OSH this coming week.

    AYO

    Amity Oil ended slightly higher for the week but off its intra week high of $1.10. AYO closed Friday at $1.05. During the week Amity announced a farm in to its five Iskenderun licenses including 3596 which hosts the Yesiltepe 1 well. Drilling is expected to recommence there before the end of June.

    Omax Resources is the farminee taking a 10% interest in the license by paying 20% of the Yesiltepe well costs and 20% of all past costs. Given the parlous state of the farm in market generally you would have to think this is a pretty good deal for Amity.

    Amity also announced the sale of its drilling rig to interest associated with Amity (Turkey) and that too is probably not a bad decision. As Yogi has commented on these boards it is best for the explorers to stick to what they know best ie. identifying targets, and leave the drilling headaches to the contractors.

    But these decisions didn¡¯t seem to impress the market and nor did the decision this week by one of AYO¡¯s directors to sell a quarter of his shares and options. AYO was looking a little weaker by Friday. At the close there were 50 bids chasing 96 offers.

    DLS

    Among the smaller stocks, Drillsearch got a bit of a boost this week from Woodside¡¯s announcement of a deal that will see the development of WPL¡¯s Blacktip discovery in its offshore Bonaparte lease. The Blacktip field is only 10 kms from the boundary of DLS¡¯s Bonaparte leases where the compay has firmed up the 710 bcf Marina prospect.

    DLS has disappointed its patient shareholders over the past year or so but perhaps things are about to take a turn for the better. It is too speculative for me and I am not impressed by DLS management¡¯s handling of its Canadian interests or it recent capital raising. But I know acturtle follows the stock and may have some more positive things to say about it.

    BUY/FAR

    These are both stocks I hold and both were up this week. BUY is to drill Leafcutter with HDR in the onshore Perth Basin in July and FAR appears to be benefiting from WPL¡¯s drilling of Nicol some 5 kms from its Sage discovery.

    BUY is overdue to release announcements about the drilling of Leafcutter which is already delayed two months and the drilling of its Thomby Creek development well. Any positive news from the company on both these fronts could begin a bit of a run on the stock. There were indications this week that interest was already building

    FAR also announced recently that contrary to earlier indications it would not be liable for any extra costs associated with the delay in the release of the rig from Banjo as a result of bad weather.

    So FAR¡¯s $1.9 million in cash in hand at the end of the March quarter will go to its ongoing exploration and production program. The former includes the Terry Ewing #2 development well in Louisiana which was due to spud in June.

    FAR finished the week at 2.9 cents up from 2.6 cents and I am hoping the worst is over for this well managed little oiler.

    CVN

    Carnarvon has almost completed the move of its office to Melbourne and announced this week the imminent award of exploration licenses L44/43 in Thailand. It also announced a review of developments at the Wichian Buri oil field which has been such a disappointment for the company and shareholders.

    The oil is there and the review confirms that as much as 22 million barrels recoverable is available but the joint venture just can¡¯t seem to get it out of the ground in quantities that would excite the market. But maybe CVN can still make a go of the field and that is certainly the company¡¯s intention. It has also applied for a new production license which will extend the size of the producing field.

    This is one for the brave and patient and by the look of it this week there are some hardy souls prepared to get back into this one. It is off its year low of 2.9 cents and closed the week at 3.5 cents up 0.1 of a cent for the week but 0.6 of a cent for the past fortnight. Higher oil prices will have helped offset ongoing poor production levels.

    The drilling program originally proposed for the second half of the year appears to be on hold but if the company can get this program back on track and funded without recourse to the market CVN could be well on the way to a longer term recovery. Too early for me though. Need to see how it traveled financially during the June quarter.

    AMU, NVS and OSH

    All three stocks are worth a closer look. AMU ¡®s drilling activity in the United States continues to leave the market unimpressed and I don¡¯t know why. NVS and OSH have both been strong this past week or so with good price rises. Will try to look more closely at these stocks for next week now that I am back in freezing Canberra from the sunny and warm Surfer¡¯s Paradise.

    HDR

    The news of an attempted coup in Mauritania last weekend pushed Hardman Resources down to 50 cents at one point, a fall of 8 cents from the previous week¡¯s close. By the end of the week HDR was back at 54 cents. News that the coup attempt had failed was a positive but the very fact of the coup was a sobering reminder to investors of the political instability that challenges Mauritania.

    The joint venture partners didn¡¯t comment on the attempted coup but can¡¯t have been impressed. The events in Mauritania probably mean that HDR will not experience the same enthusiastic support it did last year in the run up to the commencement of the year¡¯s drilling.

    But there is still time yet for HDR to bounce onwards and upwards and a few positive media announcements could do wonders for the market¡¯s confidence in its West African discoveries, including confirmation of the starting date for the 2003 drilling program.

    As usual do your own research , it pays. Investing in the junior oilers can be profitable and fun but it is risky if you don¡¯t know what you are doing. It is risky enough if you think you do know what you are doing! Foregoing is essentially written to stimulate an exchange of ideas and provoke discussion better to inform us all.

    Disclosure: I hold BUY, BUY0, FAR, FAROA, and PSA. I sold HDR during the week.


 
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