Catalysts are a little like earthquakes: They shake things up. These announcements of drill results, production starts and resource estimates can influence stock prices, sometimes for the better, sometimes for the worse. In this interview with The Energy Report, Jocelyn August, senior analyst and product manager for Sagient Research's CatalystTracker, explains which catalysts have the biggest effect on small- and large-cap companies and identifies upcoming events that could move the needle in the oil and gas and uranium spaces.
The Energy Report: Compared to oil and gas, do you think uranium is the best place to be among the small-cap energy commodities?
Jocelyn August: Not necessarily. Oil and gas is also an interesting space, particularly the small caps. Just in the last six months, there have been a lot of catalysts in that area. The large institutional investors are investing a lot in oil and gas and not in uranium.
TER: What are the most important catalysts for larger companies?
JA: Generally, earnings announcements, drill results, production decisions and go/no-go decisions. Anadarko Petroleum Corp. (NYSE:APC) and the Tweneboa-Enyenra-Ntomme (TEN) cluster is a good example. A production decision there will help it a lot. Another good example is Noble Energy, Inc. (NYSE:NBL) and its Leviathan project in Israel. Announcements about that are big movers simply because of the project's size.
TER: What are some patterns among large, private institutions investing in energy equities?
JA: During H1/13, private institutions invested in oil and gas and in alternative energy. There's not much investment in the uranium space.
TER: What are the top catalysts for small-cap energy equities?
JA: Drill results, with about a 9.6% average stock movement, are number one. The second is the announcement of further drilling on a currently producing site; those announcements move companies about 8.8% on average. For smaller companies, the announcement that drilling is beginning brings 8% on average. Production starts are number four. They're 7.5% for the small companies, but they generally don't move the stock much for the larger energy stocks because they're already baked into the stock price. Third, we notice that large movements occur around announcements of investments by a strategic partner or investment bank. That creates an average stock price change of about 8.5%. The last one is an earnings announcement, which moves prices almost 6% on average.
TER: Is the percentage of movement similar for small- and large-cap energy equities?
JA: Generally, the larger a company is, the less it will move. Percentagewise, stock prices move a lot more for those under $500 million than for those over $500 million. And the ones over $5 billion won't move very much.
TER: It will cost almost $60 billion to clean up the site of the Fukushima Daiichi nuclear disaster. Do you think news of that will push uranium equities prices even lower?
JA: Japan's election of a new prime minister, who is a known proponent of nuclear energy and has plans to accelerate the startup of currently offline nuclear reactors, is positive news for the uranium industry. The amount of money it will take to clean up the Fukushima site is a negative, but we've had a shortage in the uranium supply, and there's a rising demand for it. Weighing those factors, I think uranium is poised for an upswing. But companies that can keep their costs lower will be able to operate in all types of market environments.
TER: Do you see any catalysts in the uranium space beyond the election of the Japanese prime minister?
JA: In terms of specific companies, Uranium Energy Corp. (NYSEMKT:UEC) has the Goliad project in Texas, which it expects to bring online soon, probably in August.
TER: That will add roughly 30,000 pounds to its annual production?
JA: Yes, and its cash costs are estimated to be at $18/pound, which is good. Lost Creek in Wyoming, which is UR-Energy Inc.'s (NYSEMKT:URG) project, is expected to come online soon and to add 1 million pounds per year at its peak. The operation underwent its pre-operation inspection in June as required by the Nuclear Regulatory Commission.
TER: Would the approval of the Keystone XL pipeline be a big catalyst for Canadian energy plays?
JA: Obviously, you need some way to distribute the oil. Having more distribution options and another way to get the oil from Canada to the United States will help companies lower their costs.
TER: What companies in the energy space with either near- or medium-term catalysts would you like to share with us?
JA: We have a couple of catalysts for projects in the North Sea. We have one for Endeavour International Corp. (NYSE:END) for the West Rochelle project. Its partners are Nexen, Inc. and Premier Oil Plc. It had some problems with the Rochelle project; a big storm in February did some major damage to the first well, which was the East Rochelle well. Now, it's working on West Rochelle. We expect a production-start catalyst this quarter for West Rochelle.
TER: What other tips regarding catalysts for energy companies do you have for investors?
JA: You should continue to watch uranium and keep an eye on what's going on with it in Japan and the United States. Keep an eye on the reactors in Japan and the projects coming online in the United States.
TER: Leave us with one great piece of insight into this space.
JA: If you're interested in long-term investment opportunities and long-term growth, look at some of the larger-cap companies because their share prices aren't as volatile. But if you want to make more money in the short term or pursue short-term opportunities, some of the smaller-cap companies are doing good things and have upcoming opportunities for making money on short-term catalysts.
This interview was conducted by Brian Sylvester of The Energy Report.
Jocelyn August is currently the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the "Catalyst Impact Study: Natural Resources Sector." Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a master of business administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a bachelor of arts degree in sociology.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
1) Brian Sylvester conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
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3) Jocelyn August: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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