Commodities Today: Oil Equities To Head Higher On Deals

by: Matthew Smith

Today is the first day we are seeing some follow through with the E&P names. Oil and natural gas prices have been trending steadily higher and yet the equities have been laggards. We have had a couple of head fakes thus far, but with some of the news coming out this week (and today) it appears that we might see some names gather momentum heading into the close of the year.

The U.S. dollar is showing weakness right now and the Euro is actually continuing to show strength, which makes one wonder if the market is trying to force the ECB to flex more of its muscle and create an even easier monetary environment, something the Europeans are never keen on doing due to their deep rooted fears of inflation. Gold is performing quite well today and the SPDR Gold Shares (NYSEARCA:GLD) should follow.

Chart of the Day:

Gold is showing some strength recently but we are not ready to turn bullish on the commodity. It appears to U.S. to be short covering with the fast money simply rotating out.

(Click to enlarge)

Source: CNBC

Commodity prices today are as follows:

  • Gold: $1,255.90/ounce, up by $21.70/ounce
  • Silver: $20.215/ounce, up by $0.514/ounce
  • Oil: $98.58/barrel, up by $1.24/barrel
  • RBOB Gas: $2.6879/gallon, up by $0.013/gallon
  • Natural Gas: $4.275/MMbtu, up by $0.043/MMbtu
  • Copper: $3.3135/pound, up by $0.018/pound
  • Platinum: $1,394.00/ounce, up by $25.50/ounce

Oil & Natural Gas

In a deal we had anticipated, but figured would be between EnerVest and another partner, EnerVest will be selling 26,519 net acres in the Permian Basin to QEP Resources (NYSE:QEP) for $950 million. QEP Resources has been targeted by Jana Partners and this deal should go a long ways in calming the activist investor as the assets currently produce 6,700 boe/d, with 68% of that production constituting oil production. Readers should keep in mind that the company already agreed to split up some of its assets to avoid a fight with Jana, so this is the company now adding exposure to the E&P portion of the business.

In the news today is PDC Energy (NASDAQ:PDCE) which received an upgrade from Stifel Nicolaus. Stifel upgraded PDC Energy to a "Buy" from a "Hold" and also placed a price target of $75 for the company's shares. The brokerage sees upside in the future development of PDC's assets as they move towards more productive targets in the Wattenberg now that they drilled their acreage to HBP status. Also, Stifel said that we should see more activity in the southern Utica acreage the company holds.

The past month has been pretty rough to be a shareholder in PDC Energy, which we are, but this downturn has allowed many analysts to turn bullish on the stock and issue price targets above the company's recent highs.

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Source: Yahoo Finance

In what should be good news to many investors in the E&P space it appears that BHP Billiton (NYSE:BHP) is dedicated to its shale property portfolio. We have seen a number of companies exit the business in whole or in part recently, with Shell (NYSE:RDS.A) (NYSE:RDS.B) being one such name, but in a presentation BHP indicated that they would breakeven in 2016 and begin to generate cash from the business going forward. Their projections call for $3 billion to be generated per year by 2020, which BHP believes justifies their continued investment in the business. With BHP sticking to their guns and developing their properties it keeps another portfolio from flooding the market and depressing prices, something that has become a concern as of late as private equity investors sell out and activist investors push companies to sell properties to pay down debt.

Disclosure: I am long 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.