Today we will get the latest oil inventory numbers and will have to remain on the outlook for more results from the Utica. We had one of our companies report yesterday their first well which was rested for only 60 days and we thought the news was very good (more on that later in the article). We have decided that our buying program to add companies to the portfolio is over and that we shall instead add to these current positions on pullbacks to get to our designated investment level we set for ourselves prior to initiating a position. If a situation were to present itself where the value was just too good to pass up we would of course be buyers and alert readers, but right now we feel that the prudent move is to add exposure to the current stable of horses we already possess.
Oil & Natural Gas
Shares in PDC Energy (PDCE) fell yesterday $1.33 (3.83%) to close at $33.38/share on volume of 1.9 million after the company released its capital expenditures plan for 2013. The plan calls for the company to spend $324 million on drilling and midstream across their plays. Also in the company's release were the initial results from the Utica which we viewed as being strong, but investors probably misinterpreted. It is important to remember that the company's first well has a shorter lateral and fewer frac stages than Gulfport's wells thus far so an apples-to-apples comparison is not fair. Based on the shorter lateral and fewer frac stages we think that this was a very encouraging result, and it was one of the best wells ever drilled by the company. Also yesterday, coverage was initiated by Howard Weil with a market perform rating.
If investors are not going to be impressed with the results from these wells with shorter laterals and fewer frac stages, then one needs to be wary of Rex Energy (REXX) which will also have well results to report soon from wells where they had to utilize the shorter laterals due to acreage constraints. We are bullish of Rex, but recognize that sometimes it takes the market longer than one would think to recognize exactly what good is. Depending on what happens with PDC Energy over the next few trading sessions, it might be best to wait until after the results to buy into Rex. No point in repeating history and buying ahead of good results, like we did with PDC Energy, only to have shares retreat when the results are not on par with Gulfport's numbers. Even with shares now at $12/share, we are cautious moving forward based off of yesterday's reaction.
We have been watching the trading at Kodiak Oil & Gas (KOG) closely and yesterday the shares did in fact break above the $9/share level by rising $0.22 (2.46%) and closing at $9.15/share. We try to call them like we see them, and now after the recent run we think that upside is minimal as we see the momentum weakening and unable to carry the stock much higher from these levels. The stock has gotten ahead of its peer group with the recent run-up and based on valuation we could very well see a rotation out unless oil prices begin to move higher or a deal is reached on the fiscal cliff issue. We still like the stock long-term, but short-term traders and those who like to have a core position with a trading position on the side might be interested in booking some profits.
Molycorp (MCP) had an interesting day yesterday as shares closed at $11.33/share after having risen $0.63 (5.89%) on volume of 25.1 million shares. After hours was another story for the stock as it was revealed that the company's CEO Mark Smith had left and that the company would replace him on an interim basis with Constantine Karayannopoulos, who is the former CEO of Neo Materials, a company that Molycorp recently purchased. The company is actively looking for a replacement and hopes to make a hire in the near future, we will be very interested to see who they hire for their open post and would have to say that the man who has been given the title on an interim basis has to be under consideration.
We wanted to give readers an update on Uranium Energy Corporation (UEC) which released results and showed that they sold 50,000 lbs of U3O8 this past quarter which had a cost per pound of $26 (not including royalties). The company also accelerated construction at the Goliad ISR project now that they have the required approval and permits and that should greatly increase the company's production and could make them large enough to grab the attention of some of Canada's or Australia's producers who are looking to broaden their production bases. We really like the uranium story heading into 2013 and fully expect this to be one of the vehicles in which we invest to play what we think will be a strong trend upwards in the underlying price of 'the other yellow metal' as we like to call it.
Disclosure: I am long PDCE.