We cannot help but be encouraged by Japan's rally over the last few days following the election of a PM who is seeking to turn the country back into a growth engine over the next few years. This has caused the yen to fall relative the dollar and has created a spike in equity prices on the Nikkei (a really good article located here for those who are interested). The country is also rumored to be refocusing on nuclear power and it is our opinion that all of this news is extremely bullish for our commodity stocks. We just have to hope that the country's love of their new government can last longer than is historically the case, and those now in the majority are able to get some work accomplished before this tide does turn.
Due to the holiday schedule, we are bringing you a summarized format today and will return to our normal format tomorrow.
Oil & Natural Gas
One story which we will be watching closely is EV Energy Partners, LP (EVEP) and their continued negotiation over their Utica assets. The deal is not going to be done (see the latest press release here) this year as previously announced, which seems to agree with some of our earlier thinking, so this puts us back where we started with a deal likely in 2013. With the new timeline, it is our guess that the company closes a sale of all of their land by the end of 2013 (that would be both transactions, and our best guess is that it is closed before the 3rd quarter). Using Gulfport's (GPOR) transactions, it appears that $10,000/acre is a good base price to go off of, and the management of EVEP has indicated that they believed $15,000 was a good base price. With the price of oil and the way the Utica has played out, we would peg the per acre price closer to Gulfport's than EV Energy's at this time, especially based on the partnership's failure to put together a deal by the time they thought possible (especially as they continued to insist it was possible when they had ample opportunity to adjust their timeline).
It just seems that deals in the Utica are hard to come by, especially when one considers all of the companies which have had difficulties in closing JVs and selling acreage. One of our favorite plays in the area, PDC Energy (PDCE) also had difficulty finding a JV partner and decided to forgo the whole thing and instead focus on developing their acreage themselves. Long term, we think it is a good move, but certainly not what the market expected.
As bad as the news seems to be on uranium companies and their prospects, it is important to remember that these left leaning governments coming into power are realizing that if they do not keep or follow through with their long-term plans for nuclear power, then they are going to have problems keeping the lights on. The latest to come to this realization may be Lithuania (see story here) and with Japan coming back around to the pro-nuclear lobby, we could see this bullish story get even more so over the next few months. As we have previously stated, names to watch in the space are Cameco (CCJ) and Uranium Energy Corporation (UEC) - two relatively conservative plays for investors as they have production in countries deemed to be 'safe' areas of operation (mostly Canada and the US - with UEC having only U.S.-based production).