In late February there were a dozen small cap, and large cap, energy stocks that posted very large gains in a matter of days. The gains were caused by an increase in the price of crude and optimism surrounding natural gas. Yet of all the energy stocks that posted gains, Royale Energy's (ROYL) gains were among the largest, as it increased by nearly 400% in just ten trading days. The stock has since regressed and is now trading at $3.29, after a 12.67% gain on Tuesday, yet I believe it's now perfectly positioned to repeat history and post large gains once again.
Royale Energy, Inc. is an independent oil and natural gas producer. Yet most of the company's recent developments have surrounded its natural gas production and its Goddard wells. On Tuesday, news was released that the company had made two additional natural gas discoveries in its core areas. The deepest zone has been completed with a stabilized production rate of three million cubic ft. of natural gas per day. The Goddard wells have produced a total of 2 billion cubic ft. of natural gas which is high production and shows progress for the company.
This news reminded me very much of February when the Goddard began drilling and the news that another well would begin drilling in the near future. From the minute the company announced that the Goddard wells were drilling there was an immediate reaction of optimism among investors, and I believe most would agree the progress of the wells have been a pleasant surprise. The company's gains in February were a result of several factors including: drilling progress, stabilized natural gas prices, and large gains in crude oil.
The reason that I believe Royale Energy could very well be looking at similar gains over the next few weeks is because the events that took place in February are similar today. And although there are many differences, I believe the conditions for Royale to post gains are similar enough to result in some level of gains. Most of the optimism surrounding this company is driven by its natural gas, yet natural gas has steadily declined since July of 2008.
However, in February the commodity stabilized and over the last five trading days the commodity has shown some stabilization, which comes at a good time considering ROYL plans to begin selling its gas in the next two weeks. This development was made public with the announcement of the new found discovery of natural gas, which led to a 12.67% gain on Tuesday.
I believe there were three catalysts that caused the stock to triple in February: stabilizing natural gas prices, encouraging news on its wells, and rising crude price. I have already discussed the recent encouraging news regarding new found natural gas and the stabilization of nat gas over the last five trading days. Therefore, it only leaves rising crude, and if you've watched the market since October 1, you would know that crude has been consistently rising. But what's even more interesting is the price of crude when ROYL began rising in February, which was $97.44, near its current price. Back in February crude had been on an uptrend from $78.73, which took place over a period of several months. And then, once crude reached $98 and nat gas stabilized several small, medium, and large energy companies began to rise by large margins.
In February, when ROYL increased by more than 300%, the NASDAQ had lost 85 points during the same period. I believe that investors were looking for a place to make money as the markets were falling and found large gains in energy stocks. During that time everything fell into place and caused small-cap stocks to rise. There was pessimism in the market, rising oil prices, stabilized nat gas prices, and as a company ROYL had announced encouraging news which caused its stock to increase more than most.
The same events are playing out in today's market, and although the gains may not be as large, I still believe gains could be significant. Royale is a company with investor confidence and is trading with a market cap of only $35.41 million with $10.76 million shares, therefore, the stock can be easily manipulated. And since volume has already begun to increase, more than double on Tuesday, I believe it's very possible that these gains could come sooner rather than later.
In February, there were several energy stocks that posted large gains. I believe that ROYL is the fundamentally strongest of the small-cap stocks and has a high level of optimism surrounding its future and presents a likely chance to post gains over the next few weeks. However, if February were to repeat itself, there will be other stocks to rise. Therefore, I have included a few additional stocks, both small and large, and the dates and gains that each stock posted during that time.
I will finish by saying there were hundreds of little factors that played into the energy sector's reaction in February, I have only listed a few large factors. And anyone who follows the market for a long period of time knows that the market is ever changing and results are never the same, however, history does repeat itself on occasions. And while I doubt the gains will be as large, because of the high negativity surrounding the market, I do believe that some gains are likely and that energy stocks, such as ROYL and the ones listed below, may return some gains to investors that are desperately seeking a profit in this market with factors that are nearly identical to February.
|Samson Oil & Gas||(SSN)||02/17||$2.73||03/07||$4.53|
|Blue Dolphin Energy||(BDCO)||02/17||$2.49||03/04||$8.42|
Additional disclosure: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy but rather informational purposes only. All information regarding past trends of commodity prices were obtained from CNBC along with stock trends and reactions to commodity prices.