We are waiting to deploy money at this time as we wait for a 1-5% pullback in the oil and natural gas sector. We think investors will be disappointed by the outcome of whatever the lawmakers in Washington do, so keeping cash handy and being ready to buy on dips is our game plan at this moment. Readers know where we are interested in being buyers but for those who do not we want to buy companies with exposure to NGLs and oil production and a profile of growth in production. That is the only way to play the industry right now and to not partake in the trade in that manner is simply nonsensical.
Oil & Natural Gas
We saw Magnum Hunter Resources (MHR) release news after we had submitted Friday's article where they had two very successful wells in the Eagle Ford. So successful in fact that the company stated that they may no longer be interested in divesting the Eagle Ford assets as was previously the plan. This could be a bargaining ploy or it could be genuine, but the one thing that is apparent is that the company had some very impressive results which at the end of the day create value for the company (whether that is via higher prices through a sale or through continued exploration). With the addition of these two wells the company stated that their current production in the Eagle Ford is 4,100 boe/d right now.
Strange things happen at the end of the year, and this year it seems that Royale (ROYL) had to deal with the issue as their shares fell sharply in Friday's trading. Shares closed at $2.45/share after falling by $0.53 (17.79%) with some big blocks trading mid-day with no news that we saw. At this point it is simply speculation, but it could have been a fund exiting a position, a group of large shareholders moving out or possibly even the company raising some money. We have no idea at this point, but it should be interesting to see what this was in the next few days - especially if the weakness continues.
Chenierre Energy (LNG) continues to hit new highs and actually defy the general market trend and the commodity market trend which should be bullish. Readers will remember that we have been looking to this stock to give us a heads up as to risk on and risk off trading sequences in the market. We had figured that the link had broken down over the past few weeks, but it is quite possible that this indicator is still correct but the rest of the oil and natural gas sector has been unfairly hurt. Long-term we would agree with that, but short-term we think the market shall pull back another 1-5% on the fiscal cliff news alone.
Shares in Thompson Creek (TC) rose on Friday and were highlighted by Barron's (see link here). We do have a problem with this being called a rare earth stock and in fact believe that the designation is inaccurate and misleading. We understand that there is a difference between rare earth elements and metals, but this should be viewed as a molybdenum, gold and copper play and not lumped with the far more exotic plays like Molycorp, Avalon or Quest. If we get the bounce in commodities in 2013 that we have predicted, this is a great play. Continue to watch this one for entry points on pullbacks.
There are very few energy plays we despise, but if you want to really get us worked up solar is surely a good way to do it. We will admit that the technology is getting better, but this stuff is not necessarily more environmentally friendly than other sources of power, especially if we break it down to a per megawatt hour measurement. It is hard to believe how much capital is wasted on this due to government mandated production rules as well as special tax breaks given by numerous governments around the world. As we have said before, anytime you see a rally in the solar stocks, it is a good time to sell. With the recent rally in the entire sector, including Suntech Power (STP), we think the strength is to be sold into, rather than purchased. It is a trade that has worked for years and as we were taught it is best to continue to do that which has worked and less of that which has not.