Commodities Today: Oil Is The Focus After IPO, Utica Rising

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 |  Includes: AR, GPOR, MHRCQ, PDCE, REXX
by: Matthew Smith

Yesterday was a pretty exciting day for readers who had exposure to the Utica, a shale play in Ohio, which is heavy on the liquids. Debuting on the NYSE was Antero Resources (NYSE:AR), a name which we alerted readers to when they released some monster well numbers further south than anyone had anticipated having good numbers. It backed up our theory that the market was not fairly valuing some of the Utica names with large land holdings in the southern portion of the play and we added the company to our watch list.

Chart of the Day:

Now that there appears to be some progress being made in Washington we think that the U.S. Dollar Index should begin to strength marginally. We would think a move above 81 and possibly 81.5 would be possible in the next week or so assuming no blow ups in negotiations over the weekend.

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Source: BigCharts

Commodity prices this morning are as follows:

  • Gold: $1266.10/ounce, down by $30.80/ounce
  • Silver: $21.215/ounce, down by $0.681/ounce
  • Oil: $101.81/barrel, down by $1.20/barrel
  • RBOB Gas: $2.6787/gallon, down by $0.0194/gallon
  • Natural Gas: $3.776/MMbtu, up by $0.053/MMbtu
  • Copper: $3.2535/pound, up by $0.005/pound
  • Platinum: $1368.10/ounce, down by $27.90/ounce

The IPO…

It was the second largest IPO of the year at $1.57 billion and Antero Resources was in high demand because of their finances and great assets. Initially the company was slated to sell 30 million shares in an expected range of $38-42/share, but they upped the shares offered to 35.7 million shares and were able to price them at $44/share. Beating on both numbers is difficult to do, and indicates a strong investor appetite in the deal. Shares then traded as high as $55.02/share during the session with 29.2 million shares trading hands. Many within the industry, including ourselves, have been looking to this IPO in order to get a proxy on what the market thought the value of the southern Utica was, and based off of yesterday's events it seems that the value is high.

The Big Winners…

The two biggest winners from this IPO, outside of Antero Resources of course, are Gulfport Energy (NASDAQ:GPOR) and PDC Energy (NASDAQ:PDCE) in our view. We do own shares in both companies as we believe that Gulfport has the best acreage (up for debate now with Antero's recent results) and PDC shares would be revalued once the southern portion of the Utica play was proven to be productive acreage. What many investors failed to realize during all of the upgrades for many of the players holding acreage in the southern Utica, and especially in PDC's case, is that many analysts were assigning a $0/acre valuation to the large holdings held in the area. The bull cases were compelling in the analyst reports with the acreage valued at absolutely nothing and price targets increasing, but factor in that acreage being mediocre and shares were, in our opinion, grossly undervalued.

PDC has been a consistent winner over the past year, however we think that greater gains lie ahead as the company clears up the midstream issues in its two biggest plays and begins to ramp up production.

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Source: Yahoo Finance

Gulfport has had the most success in benefiting from its exposure to the Utica because of the big IP numbers it has been able to post, and as such it has been getting added to various indexes over the past year or two. After the bell last night it was announced that the company would be moving from the S&P SmallCap 600, where it is the biggest company by market capitalization, to the S&P MidCap 400 (see press release here).

Other Winners We See…

Readers should also be well acquainted with Rex Resources (NASDAQ:REXX) and their prospects in the Utica as we have covered them for over a year. The results thus far from their two projects in the play have been extremely bullish in our opinion, especially because they are posting such strong numbers while using shorter laterals than the big boys which is something that we have not heard a lot of analysts point out. They also surprised U.S. with the production mix from their wells which came out far more 'liquidy' than we had anticipated, which may have been the first hint that the Utica would be more prolific than many had initially thought. This stock has been on a huge run lately and from a valuation standpoint provides less upside than PDC and Gulfport, but it does have considerable exposure to the Utica and should continue to provide solid gains.

Speaking of huge runs lately, just in the past month or two we have seen shares of Magnum Hunter Resources (MHR) move strongly to the upside as they have cleaned up their accounting issues and appear to have moved forward. Magnum Hunter has exposure to the Utica as well with their acreage split among two 'cores' if you will. The first is the traditional Utica and the second is part of their Appalachia holdings which encompasses the southern Utica. This is part of the reason why the stock responded so strongly, both in percentage increase in share price and volume increase, to Antero's IPO yesterday. We would place Magnum Hunter higher in the rankings of potential winners, but we think that it has had a huge run recently and will underperform compared to these other names in the near term, at which time we would turn bullish and add it to the top-tier list.

We like Magnum Hunter, but we would like it a lot better at $5.50/share to be sure. This will be a name to watch as the southern Utica is better defined and results come in over the next quarter.

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Source: Yahoo Finance

Disclosure: I am long GPOR, PDCE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.