We could see commodities pick up some interest and bids this morning if the rumors are to be believed and the politicians in Washington are at the bargaining table and structuring a potential deal. We are not one to get our hopes up as much could go wrong, but this morning it appears that we could have a day to trade or take profits in some trading positions if the opportunity presents itself. We would be careful with some of the Canadian oil names at this point though as we could see some analysts come out and reevaluate their price assumptions based on the news yesterday.
Oil & Natural Gas
Nexen (NXY) received approval from the Harper administration in Canada to move forward with its sale to China's CNOOC. Shares rose by $3.23 (13.82%) to close at $26.77/share on heavy volume of 77.2 million shares. It was stated that this will probably be one of the last (Petronas' purchase of another Canadian company was also approved yesterday) transactions like this and moving forward foreigners will probably be forced to stick with minority stakes. It honestly makes one reevaluate the valuation of their Canadian oil stocks with that revelation, but this might be a situation where it gets more difficult to do deals rather than where access is simply cut-off. It is not clear sailing yet as the majority of the company's assets are located outside of Canada and the transaction will still require the blessing of other countries, including the United States.
Yesterday saw Rosetta Resources (ROSE) release their capital budget for 2013 along with production guidance based upon that budget. The company announced that they plan to spend $700 million in order to complete the wells they currently have drilled and resting and to drill more wells with the focus being on the Gates Ranch area of the Eagle Ford Shale for the most part. The company will use its own internally generated cash to venture outside of this area, which could provide considerable upside for shareholders if they are able to duplicate their success within the play. Shares at these levels are a buy in our opinion and we did recently purchase shares not too much higher than where the shares closed yesterday.
Kodiak Oil & Gas (KOG) continued its march higher, taking out the shorts who had accumulated positions on the way down. It was not a big move yesterday, as shares rose $0.13 (1.48%), but it was significant in that the company finished at the highs for the day and is approaching the $9/share level. That price will provide some resistance, but if shares can breech that level then we could see another pop higher. Remember, the company did release some nice production numbers and exploration results so this move is justified and not merely traders pushing it up and down for the heck of it. As we said yesterday, if you think that the fiscal cliff gets solved then this is where you want to be (and with today's news it might be a good trade for those already in it with a core position and a trading position).
We have been reading a lot of investor presentations over the past few months and with the latest quarter we have noticed an uptick in companies stating that they are interested in finding new plays to invest capital. The game seems to be winding down in the US for new shale plays and everyone is positioning to get their last big acreage positions to settle down into the developmental stage. That is where SandRidge Energy (SD) is right now, except they are ahead of the curve and have all of the acreage they want and/or need but are looking for a partner to joint venture some of their Mississippi Lime play in Kansas and/or selling off their Permian assets.
We believe there is a market out there for these assets, but that the company is focusing on a big name for the joint venture acreage to guarantee the financing portion of the deal and will probably wait until after Chesapeake (CHK) inks their deal in the play. Regarding the Permian assets, there is but one portion of the oil sector that those assets can gravitate towards and that is the slow growth side of the business. Look for either the big oil companies to purchase that asset or an MLP, but either way it is our opinion that the company gets their cash to continue developing the huge property portfolio in Oklahoma and Kansas.
The big talk yesterday was that the rare earths came back to life with Molycorp (MCP) leading the way higher as shares rose $1.76 (19.69%) to close at $10.70/share as volume spiked to 22.4 million shares. The shares caught fire as it was announced that insiders continue to purchase shares, which the market is taking as a positive. Yes, it is nice to have a management team with skin in the game, but a lot of insiders were selling at prices many times higher than the current quote so their buying capacity has been increased due to those transactions over the last year plus and before.
We previously made the bearish call to ride this lower which was right, then went bullish at the correct time and at that time said that this would be a bullish trade until at least after their December 6th conference. With the insiders continuing their purchasing it is probably best not to revert towards the short side at this time but rather keep that firepower dry.