On an individual basis there is not too much news coming out of the oil patch or even the commodity space lately, but there has been plenty of industry specific news. Many investors and readers will find two stories we came across quite interesting. The first is on the head of the Environmental Protection Agency, EPA, stepping down which leaves open a position for the president to fill. As the article (you can read it here) points out, the next EPA chief will have to figure out how to proceed with fracking and this my friends will be of utmost importance not just to the areas of interest to the oil companies, but to the entire country as that has been a major driver of growth nationwide.
We also had Chevron's (CVX) Chief Executive Officer discussing the state of mind for many countries we normally do not hear about. The article (located here) is a good read to get some background on the company and their projects as well as to understand just how much capital is required to develop these assets and supporting infrastructure to power this world. When you start adding it all up, you begin to wonder not why energy prices are so high, but rather why they are so low! Well part of the answer to that question is due to the capital expenditures and planning done by companies such as Chevron. Global warming takes a back seat to economic development, that is something almost everyone understands except the Greens, but based off of articles such as these that we read we feel that this will be a theme developing in the coming years (green vs economically feasible projects/power).
Oil & Natural Gas
The situation at SandRidge (SD) is beginning to get ridiculous which makes us relieved we were encouraging selling at the highs. There are now allegations swirling from TPG-Axom regarding Tom Ward, the CEO, and family trusts which benefit his kids having front run the company's buying in the Mississippian Lime and actually sold to the company what they purchased only a few months before. Yes it was previously disclosed, but from our recollection the time frame was not and that is indeed important as it changes the entire context. Make no mistake, TPG-Axom is here to stay and shall continue to whip the board into shape assuming they are unable to replace any members. Oversight is a good thing, no complaints here. In today's trading watch for a bounce now that this news has had a chance to circulate and be distributed throughout the media channels - we received our notification of all this a bit late yesterday (possibly due to the holiday season and content providers' schedules).
As we watch the storm over at SandRidge, we are left to wonder if right now is the quiet before the storm at Chesapeake Energy (CHK) which has their own issues regarding their CEO, Aubrey McClendon. We love Aubrey's showmanship, as there are very few individuals who possess the vision and ability to put together a portfolio of assets like he has. We do realize however that at some point someone has to step up to the plate in order to actually develop the assets and put a stop to the exploration property acquisition. We have witnessed it numerous times at many of the junior resource stocks we have followed over the years and that feeling of the need for a builder to come in is starting to creep up. Aubrey was an amazing architect, but it seems that 2013 will be the year where we get an idea of whether he will be the man to move the company to a stable producer. If Ward falls at SandRidge, the next domino might very well be Aubrey at Chesapeake as foes will be emboldened. This will be something to watch moving forward which could provide 10-20% upside.
We have received a few inquiries of some stocks on our watch lists, specifically Halcon Resources (HK) and Magnum Hunter Resources (MHR), and to this we must simply state that they remain on those lists. Our Utica exposure is heavy in the oil and sweet spot area around Gulfport's drilling but regarding Halcon we have no knowledge really of that area of the play. It is a bit further north than any of our holdings or those held by others we talk to so we want to take a wait and see approach. Based off of the map we would expect lower IP rates than those which have been reported to the southwest and even the south of Halcon's property but the really interesting data will be the breakdown between dry gas and liquids/oil production.
In regards to Magnum Hunter, we are trying to keep away from taking on too much risk in the commodities and retirements portfolios so that is why we have not added the stock as of yet. Should a position get closed which would require us to add more risk this would be on the short list as a trade at a minimum. The sale of the Eagle Ford assets could really surprise some as that is one of the most sought after shale plays out there and thus there is always a high level of interest.